##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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FORM 10-K

|                                               |  |                                                                                                 
|---------------------------------------------- |  | ------------------------------------------------------------------------------------------------
|þ                                              |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                              
|For the fiscal year ended October 2,
    2004 
|                                              
|OR                                            
|                                              
|o                                              |  | 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



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Jacuzzi Brands, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 22-3568449                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. employer
    identification number)

|                                                                                                              |  |                
|------------------------------------------------------------------------------------------------------------- |  | ---------------
|777 S. Flagler Drive;
    Suite 1100 West
    West Palm Beach, FL(Address of principal executive
    offices) |  | 33401(Zip code)

(561) 514-3838

(Registrants telephone number, including
area code)


Securities registered pursuant to
Section 12(b) of the Act:

|                                       |  |                                          
|-------------------------------------- |  | -----------------------------------------
|Title of Each Class                    |  | Name of each exchange on which registered
|                                       |  |                                          
|Common Stock, par value $.01 per share |  | New York Stock Exchange                  

Securities registered pursuant to
Section 12(g) of the Act: None



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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 þ        No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).    Yes þ        No o

The aggregate market value of the voting and
non-voting common equity held by non-affiliates of the
registrant as of April 3, 2004 (based on the last reported
sale price of such stock on the New York Stock Exchange on such
date) was approximately $673,869,299.

As of November 30, 2004, the registrant had
76,103,459 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrants
definitive proxy statement pursuant to Regulation 14A of
the Securities Exchange Act of 1934 in connection with the
annual meeting of stockholders of the registrant to be held on
February 10, 2005 are incorporated by reference into
Part III of this Report.



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TABLE OF CONTENTS

|                                       |  |                                                                                                                      |    |            |    |  |    | 
|-------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---------- | -- |  | -- | 
|Item                                   |  |                                                                                                                      |    | Page      
|                                       |  |                                                                                                                      |    |           
|PART I                                
|1.                                     |  | Business                                                                                                             |    |            | 1  | 
|2.                                     |  | Properties                                                                                                           |    |            | 15 | 
|3.                                     |  | Legal Proceedings                                                                                                    |    |            | 16 | 
|4.                                     |  | Submission of Matters to a
    Vote of Security Holders                                                              |    |            | 18 | 
|                                      
|PART II                               
|5.                                     |  | Market for Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Securities |    |            | 18 | 
|6.                                     |  | Selected Financial Data                                                                                              |    |            | 19 | 
|7.                                     |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                            |    |            | 21 | 
|7A.                                    |  | Qualitative and Quantitative
    Disclosures About Market Risk                                                       |    |            | 37 | 
|8.                                     |  | Financial Statements and
    Supplementary Data                                                                      |    |            | 38 | 
|9.                                     |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                             |    |            | 85 | 
|9A.                                    |  | Controls and Procedures                                                                                              |    |            | 85 | 
|9B.                                    |  | Other Information                                                                                                    |    |            | 85 | 
|                                      
|PART III                              
|10.                                    |  | Directors and Executive
    Officers of the Registrant                                                               |    |            | 85 | 
|11.                                    |  | Executive Compensation                                                                                               |    |            | 85 | 
|12.                                    |  | Security Ownership of
    Certain Beneficial Owners and Management                                                   |    |            | 85 | 
|13.                                    |  | Certain Relationships and
    Related Transactions                                                                   |    |            | 86 | 
|14.                                    |  | Principal Accounting Fees
    and Services                                                                           |    |            | 86 | 
|                                      
|PART IV                               
|15.                                    |  | Exhibits and Financial
    Statement Schedules                                                                       |    |            | 86 | 
|                                       |  |                                                                                                                      |    | SIGNATURES |    |  | 91 | 
|                                      
|FINANCIAL STATEMENT SCHEDULES         
|Valuation and Qualifying
    Accounts  |  |                                                                                                                      | 92 |           
|Susidiaries                           
|Consent of Ernst & Young LLP          
|Seperate Company Financial Statements 
|Section 302 Certification of CEO      
|Section 302 Certification of CFO      
|Section 906 Certification of CEO & CFO







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##### Table of Contents






PART I






|        |         
|------- | --------
|Item 1. | Business

We, through our operating subsidiaries, are a
leading global producer of branded bath and plumbing products
for the residential, commercial and institutional markets. Our
Bath Products segment manufactures whirlpool baths, spas,
showers, sanitary ware, including sinks and toilets, and
bathtubs for the construction and remodeling markets. Our
Plumbing Products segment manufactures professional grade
drainage, water control, commercial brass and PEX piping
products for the commercial and institutional construction,
renovation and facilities maintenance markets. Our Rexair
segment manufactures premium vacuum cleaner systems that are
sold in the direct sales retail channel.

Our products are marketed through their widely
recognized brand names, including JACUZZI®, SUNDANCE®,
ELJER®, ZURN®, WILKINSTM a Zurn company
(WILKINSTM) and RAINBOW®. Through
the strength of these brands and the ability to leverage them
effectively across multiple retail and wholesale distribution
channels, we have built and maintained leadership positions
within most of the markets we serve. The JACUZZI® and
SUNDANCE® branded products hold leading positions in the
whirlpool bath and spa markets in the U.S. and Europe, and the
ZURN® branded products hold leading market positions in
most of the domestic commercial and institutional markets they
serve. Additionally, the RAINBOW® branded products hold a
substantial market position in the premium direct sales vacuum
cleaner market.

We were originally incorporated in 1995 when we
were spun-off from Hanson plc (Hanson). At that
time, we had holdings in 34 diverse businesses, including
Jacuzzi and Rexair. We subsequently merged with Zurn in 1998. In
October 2003, we completed the asset disposal programs that
transformed us from a diversified industrial conglomerate into a
focused operating company primarily serving the home and
building products markets. These dispositions included the
disposals of our ladder business, our infant and children
footwear business, our fire protection businesses, our European
HVAC business and several other businesses in fiscal 2000. The
disposal programs also included the disposals of Ames True
Temper, Lighting Corporation of America, Selkirk and
Spear & Jackson in fiscal 2002; SiTeco, our swimming
pool and equipment and hearth businesses in fiscal 2003; and our
water systems business in fiscal 2004. In fiscal 2003, we
renewed our focus on operations by reorganizing our management
structure to include a Chief Operating Officer.

With the completion of our asset disposal
programs and the reorganization of our management structure, we
have largely completed our transformation into a focused
operating company primarily serving the bath and plumbing
products markets. During fiscal 2004, we initiated several plans
to improve the operations of our Bath Products segment. These
initiatives included plans to close or downsize inefficient
facilities, outsourcing of products through lower cost
suppliers, the rationalization of unprofitable product lines,
and the further consolidation of functions into our shared
services center in Dallas, TX. We continue to explore strategic
alternatives to improve our operating efficiencies as we
position ourselves to grow net sales and free cash flow at our
core businesses.

We operate on a 52- or 53-week fiscal year ending
on the last Saturday closest to September 30. Our public
filings may be obtained through the Securities and Exchange
Commission at its website at www.sec.gov, free of charge. Our
Internet address is www.jacuzzibrands.com. We also make our
Annual Report on Form 10-K, our quarterly reports on
Form 10-Q, our current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, available on our website, free of charge, as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange
Commission.

Financial information for the segments discussed
below, including financial information by geographic areas, can
be found in Note 11to our Consolidated Financial
Statements.

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Bath Products Segment

Our Bath Products segment manufactures and
distributes whirlpool baths, spas, showers, sanitary ware,
including sinks and toilets, and bathtubs for the domestic and
international construction and remodeling markets.

U.S. Bath
Products.We distribute bath products
throughout the U.S. primarily under the flagship
JACUZZI® brand name and spas under the flagship
SUNDANCE® brand name. We also offer a complete line of
china bath products, whirlpool baths and sinks under the
ELJER® brand name, and we sell less expensive bath products
under the BATHCRAFT® and REDMONT® brand names.

We distribute these products through multiple
distribution channels. These channels include wholesalers such
as Ferguson, Hughes and Hajoca; home centers such as The Home
Depot, Lowes and Menards; and specialty kitchen, bath and
spa retailers. Wholesalers distribute our bath products to
homebuilders and building and plumbing contractors.

The home center channel is an important channel
for our domestic distribution of bath products. Our largest
customer, The Home Depot, carries an extensive line of
ELJER® branded sanitary ware products. Last year, we
entered into a multi-year agreement to be the primary supplier
of whirlpool baths to all of the more than 1,000 stores in the
Lowes chain after a competitive product line review. Our
product categories at Lowes also include JACUZZI®
branded sanitary ware. We believe the strong brand power of the
JACUZZI® name, our commitment to strong customer support
programs and our broad product range were instrumental in our
success in this review. This agreement had allowed us to expand
our market share in the U.S. in the whirlpool bath category.

Our spa products, SUNDANCE® and JACUZZI
PREMIUM®, are primarily sold through our network of over
1,000 independent specialty retailers. We act as the exclusive
supplier to a majority of these retailers, and we support them
with extensive product training, comprehensive point-of-purchase
marketing materials, advertising and a national warranty service
support program. We have approximately 800 service centers,
which perform service on our products and provide parts
replacements. We serve mass merchant retailers primarily through
private label offerings which provide them with brand
exclusivity.

The majority of the bath products we distribute
in the U.S. are manufactured domestically. Our whirlpool
baths and showers are principally manufactured in a facility in
Chino, CA which replaced six older, decentralized California
facilities in fiscal 2003. We also have a modern spa
manufacturing facility in Chino, which began operating in 2001.
These new facilities have enabled us to more effectively manage
quality control and product improvement as well as cost
reduction. We closed our spa manufacturing facility in Plant
City, FL in November 2003, and the Chino facility began
manufacturing these spas, without any interruption to our
customers, in the first quarter of fiscal 2004. In addition, we
closed our Salem, OH facility in fiscal 2004, which was over
90 years old and extremely costly to operate, and began
outsourcing our enameled cast iron fixtures from an overseas
supplier. In addition, we initiated plans to downsize our Ford
City, PA sanitary ware plant in fiscal 2004, which is expected
to be substantially completed by December 2004. Finally, in
fiscal 2004, we announced plans that we expect to close our
Tupelo, MS sanitary ware plant by June 2005. Despite our
commitment to this market segment, we determined that it would
be more cost effective to outsource these products through lower
cost suppliers. We will continue to evaluate ways to further
reduce costs at all of our manufacturing facilities and enhance
the quality of our products.

International Bath
Products.We manufacture and
distribute bath products in the same product categories in the
European and other international construction and remodeling
markets. For fiscal 2004, approximately 44% of our Bath Products
segment net sales were derived from sales of bath products
outside the U.S., most of which were in Europe. We offer our
branded bath products in Europe under the following brand names:
JACUZZI® and B.C. SANITAN® which serve premium
retailers; FORDHAM® which serves the construction and
builder markets; and NIAGARA® which serves wholesale
distributors. We also market a full line of composite and
stainless steel kitchen sinks under the ASTRACAST® brand
name.

Our bath products are distributed in Europe
through home centers including B&Q, Homebase and Focus;
wholesalers including the Wolseley Group, St. Gobain,
Mark II and Travis Perkins Group; and specialty

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kitchen and bath retailers. We serve the home
centers primarily through private label offerings which provide
them with brand exclusivity. In the U.K. and other parts of
Europe, JACUZZI® products are marketed through a large
network of specialty bath and kitchen boutiques. We primarily
manufacture these bath products in Italy, the U. K., France and
Malta.


We also sell our whirlpool bath, shower and spa
products in South America and Asia under the JACUZZI® brand
name. In South America, we distribute these locally manufactured
products primarily through home centers, wholesalers and
specialty kitchen and bath retailers. In Asia, we distribute
these products primarily through specialty retailers and
manufacture them mainly in the U.S. and Italy.

Plumbing Products Segment

Our Plumbing Products segment manufactures and
distributes professional grade drainage, water control,
commercial brass and PEX piping products for the commercial and
institutional construction, renovation and facilities
maintenance markets. Demand for these products is influenced by
regulatory, building and plumbing code requirements. Many of
these products must meet detailed specifications set forth by
plumbing engineers, architects and other building designers for
commercial and institutional application.

Our specification drainage and brass tubular
products are sold under the ZURN® brand name. Our water
control products, including the WILKINSTM backflow
preventer, are sold under the WILKINSTM brand name.
We market our sensor-operated flush valves and faucets and
manual flush valves under the ZURN AQUAFLUSH® brand name
and our heavy-duty commercial faucets under the ZURN
AQUASPECS® brand name. Our PEX piping products are marketed
as ZURN PEX® piping products.

Product innovation is crucial in the commercial
and institutional plumbing products markets since new products
must continually be developed to meet specifications and
regulatory demands. Our plumbing products are known in the
industry for such innovation. For example, in 2004 we introduced
the next generation automatic grease interceptor. This GRA
Grease Recovery Appliance virtually eliminates all
odors from the trap and makes grease disposal user friendly
through the use of a quick-disconnect disposable grease
collection container. Additionally, our new Electronic Solenoid
Timer (EST), when utilized with our backflow preventer, provides
an automatic shut off of the water supply during a reduced
pressure backflow condition. Zurn One Systems, our latest
innovation, provides a prepackaged set of bathroom fixtures and
fittings needed for a complete installation.

We distribute our branded products through
independent sales representatives; wholesalers such as Ferguson,
Hughes, and Hajoca; home centers such as The Home Depot and
Lowes; and industry-specific distributors in the food
service, industrial, janitorial and sanitation industries.
Independent sales representatives work with wholesalers to
assess and meet the needs of building contractors. They also
combine knowledge of our products, installation and delivery
with knowledge of the local markets to provide contractors with
value added service. We use several hundred independent sales
representatives nationwide, along with a network of
approximately 80 warehouses, to provide our customers with
24-hour service and quick response times.

In addition to our domestic manufacturing
facilities, we have maintained a global network of independent
sources that manufacture high quality, lower cost component
parts for our commercial and institutional products. These
sources fabricate parts to our specifications using our
proprietary designs and enable us to focus on product
engineering, assembly, testing and quality control. By closely
monitoring these sources and through extensive product testing,
we are able to maintain product quality and be a low-cost
producer of commercial and institutional products.

Rexair Segment

Our Rexair segment manufactures premium vacuum
cleaner systems for the global direct sales market. The RAINBOW
e2 SERIESTM is a
full-service cleaning system that collects dirt particles by
combining a distinctive water-based separator system
with High Efficiency Particulate Air Filtration, or HEPA filter.
This combination provides a technologically-superior alternative
to traditional vacuum cleaners. The full system has optional
accessories including the POWER NOZZLE®, a motorized power
nozzle; the

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RAINBOWMATE®, a motorized, hand-held
attachment for cleaning upholstery, stairs and other
hard-to-reach areas; and the AQUAMATE® carpet shampooing
attachment. For the year ended October 2, 2004, sales in
the U.S. and Canada accounted for slightly less than half of
Rexairs sales. A significant portion of Rexairs
international sales are in Portugal, Germany, Saudi Arabia,
Turkey and Puerto Rico.


We market our premium RAINBOW® vacuum
cleaner system through an extensive network of independent
distributors. Our products are sold to consumers through in-home
demonstrations throughout the U.S. and in more than 70 other
countries. We retain our distributor network by manufacturing
high quality products, offering opportunity for advancement,
recognizing superior performance through contests and our
internal distributor magazine, and offering distributors
business assistance and education. New distributors are added to
our existing distribution network primarily by offering
incentives to existing distributors to promote their
sub-distributors or to find new distributors who will develop
markets that are underutilized.

We manufacture and assemble our products in
Cadillac, MI. Our manufacturing staff frequently review our
processes to improve manufacturing efficiencies. To contain
costs, we purchase certain components from domestic and
international sources.

Discontinued Operations

In February 2003, our Board of Directors adopted
a formal disposal plan to dispose of our swimming pool and
equipment, hearth and water systems businesses. We completed the
disposals of the swimming pool and equipment and hearth
businesses in fiscal 2003, and completed the disposal of the
water systems business in fiscal 2004. All of these businesses
were previously included in our Bath Products segment.

In December 2001, our Board of Directors approved
a formal disposal plan in connection with our obligation to pay
debt amortization as set forth in our then outstanding debt
facilities. The disposal plan called for the sale of five
businesses  Ames True Temper, Lighting Corporation of
America, Selkirk, Spear & Jackson and SiTeco. We
completed the disposals of all of the businesses in fiscal 2002
with the exception of SiTeco, which was completed in fiscal
2003. These businesses were previously included in our
Lawn & Garden and Lighting segments.

A discussion of these disposals can be found in
Note 3to our Consolidated Financial Statements.

Seasonality

Demand for our products is primarily driven by
new home starts, remodeling and construction activity.
Accordingly, many external factors affect our business including
weather and the impact of the broader economy on our end
markets. Weather is an important variable for us as it
significantly impacts construction. Spring and summer months in
the U.S. and Europe represent the main construction season for
new housing starts and remodeling, as well as increased
construction in the commercial and institutional markets. As a
result, sales in our Bath Products and Plumbing Products
segments increase significantly in our third and fourth fiscal
quarters as compared to the first two quarters of our fiscal
year. The autumn and winter months generally impede construction
and installation activity.

Housing starts, consumer spending and remodeling
expenditures have a major impact on our consumer-focused bath
and spa business, which is served by our Bath Products segment.
Our Plumbing Products business is dependent upon commercial and
institutional construction activity and is therefore affected by
macroeconomic factors such as the unemployment rate and the
availability of financing. Despite the cyclical nature of the
U.S. commercial and institutional construction market,
which experienced declines in revenue potential of approximately
14% in fiscal 2002, approximately 6% in fiscal 2003 and a slight
rebound in fiscal 2004, sales of our commercial and
institutional products have continued to grow at a rate that
exceeds that of the industry. We have achieved this growth
through favorable pricing, product innovation and targeted
marketing programs.

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Reliance on a Single Customer

A single customer of the Bath Products segment,
The Home Depot, accounted for 6%, 8% and 10% of consolidated net
sales in fiscal 2004, 2003 and 2002, respectively. If we were to
lose their business, it could have an adverse affect on our
operating results.

Raw Materials, Energy and Suppliers

We purchase a broad range of materials and
components throughout the world in connection with our
manufacturing activities in all of our segments. Major raw
materials and components include acrylic, natural gas, stainless
steel, brass, plastic molded parts, lumber and spa siding,
electronics and pumps. Our policy is to maintain alternate
sources of supply for our important materials and components
wherever possible. We have been able to successfully apply this
policy, and consequently we are not dependent on a single source
for any raw material or component. The materials and components
required for our manufacturing operations have been readily
available, and we do not foresee any significant shortages.

Patents, Trademarks and Licenses

We have in excess of 900 U.S. and foreign
patents, patent applications and registered trademarks that
relate to the products we manufacture and sell. We believe that
certain trademarks including JACUZZI®, SUNDANCE®, BLUE
RIDGETM, ELJER® and ASTRACAST® in our Bath
Products segment; ZURN® and WILKINSTM in our
Plumbing Products segment and RAINBOW® in our Rexair
segment are of material importance to our product lines. None of
the material trademarks are of limited duration, and we believe
our intellectual property is adequately protected in customary
fashion under applicable law. Although protection of our patents
and related technologies is an important component of our
business strategy, none of the individual patents is material to
our company as a whole.

Competition

We sell all of our products in highly competitive
markets. We compete in each of our markets based on product
design, quality of products and services, product performance,
distribution and price. Some of our competitors have greater
financial, marketing, manufacturing and distribution resources
than we do. Our principal competitors in the Bath Products
segment are Kohler, American Standard, Crane, Roca, Teuce
Sanitec, and Masco. Though the plumbing market is relatively
fragmented, one competitor, Watts, competes with us across
several lines. Sloan is a competitor in flush valves while
Wirsbo is a competitor in PEX piping. Geberit is a competitor in
commercial faucets. Competition for the Rexair segment is based
primarily on the quality and features of the product and on
sales technique and personnel, as well as marketing and
distribution approaches. Rexair also experiences competition in
recruiting its distributors, and distributors experience
competition in recruiting and retaining sales representatives.
Rexairs most significant competitors are the Kirby
division of Scott-Fetzer (a subsidiary of Berkshire Hathaway,
Inc.) and Electrolux, Inc. (U.S.A.).

Backlog

Our backlog orders believed to be firm were
$64.1 million and $59.5 million as of the end of
fiscal 2004 and fiscal 2003, respectively. The backlog orders
are all in the Bath Products and Plumbing Products segments.
Backlog is comprised of all open customer orders not yet shipped
as of a particular date. For numerous reasons, including the
timing of shipments, the product mix of, or adjustments to,
customer orders and the mix of futures and at-once orders, our
backlog as of any date may not be a reliable measure of sales or
net income for future periods. We expect all of our backlog
orders to be filled within one year.

Export and International Operations

Certain of our domestic businesses generate
revenue from export sales and/or revenue from operations
conducted outside the U.S. Export sales amounted to 9%, 8%
and 7% of consolidated net sales in fiscal 2004, 2003 and 2002,
respectively, principally reflecting sales by Rexair to foreign
distributors of RAINBOW®

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products in numerous countries. Revenue from
international operations amounted to 28%, 26% and 25% of
consolidated net sales in fiscal 2004, 2003 and 2002,
respectively. Identifiable assets of international operations
represented approximately 22%, 20% and 16% of total identifiable
assets (excluding assets held for sale) at the end of fiscal
years 2004, 2003 and 2002, respectively. These revenues and
identifiable assets arise principally from international
operations within our Bath Products segment.


Our export sales and international manufacturing
and sourcing are subject to certain risks including currency
fluctuation, transportation delays, political and economic
instability, restrictions on the transfer of funds, the
imposition of duties, tariffs and import and export controls and
changes in governmental policies. We have numerous sourcing
relationships with companies in Asia.

Employee Relations

We employed approximately 5,929 persons at
October 2, 2004, of whom approximately 1,622 were salaried
employees. Unions represented approximately 17% of our
employees. We currently have collective bargaining agreements
with five union locals in North America, including one covering
employees at our Tupelo plant, which is scheduled to close by
June 2005. None of the collective bargaining contracts covering
other North American locations are due to expire during fiscal
2005. We also have agreements covering employees at facilities
in Brazil, Italy, Malta and the U.K. The agreements in Brazil
and the U.K. are annual agreements. They cover approximately 127
and 48 employees, respectively. The agreement in Brazil expired
October 31, 2004 and will be redefined during the
negotiations with the Union which commenced in November 2004.
The agreement in Italy, covering approximately 280 employees (65
of whom are members of a union), was renegotiated in May 2003.
The first part of the contract, relating to norms and
regulations, is valid until December 2006, and the second part
of the contract, relating to compensation, is valid until
December 2004. The agreement in Malta covers approximately 139
employees and expires in December 2004. We have not experienced
any significant work stoppages in the last seven years with our
ongoing businesses. We believe that our relations with our
employees and unions are satisfactory.

Environmental Regulation

We are subject to numerous foreign, federal,
state and local laws and regulations concerning such matters as
zoning, health and safety and protection of the environment.
Laws and regulations protecting the environment may in certain
circumstances impose strict liability, rendering a
person liable for environmental damage without regard to
negligence or fault on the part of such person. In addition,
from time to time, we may receive notices of violation or may be
denied applications for environmental licenses or permits
because the practices of the operating unit are not consistent
with regulations or ordinances.

Our subsidiaries have made capital and
maintenance expenditures over time to comply with these laws and
regulations. While the amount of expenditures in future years
will depend on legal and technological developments which cannot
be predicted at this time, these expenditures may progressively
increase if regulations become more stringent. In addition,
while future costs for compliance cannot be predicted with
precision, no information currently available reasonably
suggests that these expenditures will have a material adverse
effect on our financial condition, results of operations or cash
flows.

We are investigating and remediating
contamination at a number of present and former operating sites
under the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA or
Superfund), the Federal Resource Conservation and
Recovery Act (RCRA) or comparable state statutes or
agreements with third parties. These proceedings are in various
stages ranging from initial investigations to active settlement
negotiations to the cleanup of sites. We have been named as a
potentially responsible party at a number of Superfund sites
under CERCLA or comparable state statutes. Under these statutes,
responsibility for the entire cost of cleanup of a contaminated
site can be imposed upon any current or former site owner or
operator, or upon any party who sent waste to the site,
regardless of the lawfulness of the original activities that led
to the contamination. No information currently available
reasonably suggests that projected expenditures associated with
any of these proceedings or any remediation

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of these sites will have a material adverse
effect on our financial condition, results of operations or cash
flows.


As of October 2, 2004, we had accrued
approximately $4.2 million ($0.4 million accrued as
current liabilities and $3.8 million as non-current
liabilities), including $0.8 million for discontinued
operations, for environmental liabilities. These amounts have
not been discounted. We accrue an amount for each case when the
likelihood of an unfavorable outcome is probable and the amount
of loss associated with such unfavorable outcome is reasonably
estimable. We believe that the range of liability for these
matters could reach $16.7 million if it included cases
where the likelihood of an unfavorable outcome is only
reasonably possible. We cannot predict whether future
developments in laws and regulations concerning environmental
protection or unanticipated enforcement actions will require
material capital expenditures or otherwise affect our financial
condition, results of operations or cash flows in a materially
adverse manner, or whether our businesses will be successful in
meeting future demands of regulatory agencies in a manner which
will not have a material adverse effect on our financial
condition, results of operations or cash flows.

Corporate Governance

In accordance with the corporate governance rules
of the New York Stock Exchange, we have adopted Corporate
Governance Guidelines relating to certain key areas such as
director qualifications and responsibilities, responsibilities
of key board committees and director compensation. We have also
adopted a Code of Business Conduct and Ethics for directors,
officers and employees. Our Corporate Governance Guidelines, our
Code of Business Conduct and Ethics and the charters of our
Audit Committee, Compensation Committee and
Nominating & Corporate Governance Committee are
published on our website. We will disclose any amendments to our
Code of Business Conduct and Ethics or waivers of any provision
thereof on our website within four business days following the
date of the amendment or waiver, and that information will
remain available for at least a twelve-month period. We will
provide any shareholder with printed versions of any of the
foregoing guidelines, code or committee charters upon request.

Executive Officers

Set forth below are the names, positions and
ages, as of October 2, 2004, of our executive officers:

|                    |  |     |    |          |  |                                                                 
|------------------- |  | --- | -- | -------- |  | ----------------------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|David H. Clarke     |  |     | 63 |          |  | Chairman of the Board and Chief Executive Officer               
|Donald C. Devine    |  |     | 45 |          |  | President and Chief Operating Officer                           
|Steven C. Barre     |  |     | 45 |          |  | Senior Vice President, General Counsel and
    Secretary        
|Jeffrey B. Park     |  |     | 52 |          |  | Senior Vice President, Chief Financial Officer
    and Treasurer
|Diana E. Burton     |  |     | 59 |          |  | Vice President  Investor Relations                             
|Francisco V. Puñal  |  |     | 46 |          |  | Vice President and Corporate Controller                         
|Robert G. Hennemuth |  |     | 49 |          |  | Vice President  Human Resources                                

David H. Clarkehas
served as our Chairman and Chief Executive Officer since our
spin-off from Hanson in 1995. Mr. Clarke was Vice Chairman
of Hanson from 1993 until the spin-off, Deputy Chairman and
Chief Executive Officer of Hanson Industries from 1992 until the
spin-off and a director of Hanson from 1989 until May 1996.
Mr. Clarke is a director of Fiduciary Trust International,
a company engaged in investment management and administration of
assets for individuals, which is a subsidiary of Franklin
Templeton Investments. Mr. Clarke is also a director of
DOBI Medical International, Inc., which is developing an optical
imaging system for cancer diagnosis, and United Pacific
Industries Limited, which manufactures electronics and battery
products in China.

Donald C. Devinewas
named a director of our company in May 2004. Mr. Devine has
served as our President and Chief Operating Officer since April
2003. Mr. Devine previously served in the capacity of

7



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##### Table of Contents



President and Chief Executive Officer of our
subsidiary, Jacuzzi Inc. from June 2002 to April 2003. He was
President and Chief Executive Officer of Kimble Glass Inc.,
the U.S. subsidiary of Germanys Gerresheimer Group,
from 1998 to 2001. Prior to his tenure at Kimble Glass,
Mr. Devine was a senior executive at Ivex Packaging
Corporation, Gaylord Container Corporation, the James River
Corporation and Packaging Corporation of America.


Steven C. Barrehas
served as our Senior Vice President, General Counsel and
Secretary since September 2001. From April 2000 to September
2001, Mr. Barre served as our Vice President, General
Counsel and Secretary. Prior to that date, Mr. Barre served
as our Associate General Counsel beginning with our spin-off
from Hanson in 1995.

Jeffrey B. Parkhas
served as our Senior Vice President and Chief Financial Officer
since April 2003 and Treasurer since February 2004.
Mr. Park had served as Vice President and Chief Financial
Officer of Jacuzzi, Inc., one of our wholly-owned subsidiaries,
from August 2002 to April 2003. Prior to that, Mr. Park
served as Vice President, Finance from April 2000 to August 2002
and Vice President, Corporate Controller from November 1986 to
April 2000 of Gaylord Container Corporation.

Diana E. Burtonhas
served as our Vice President  Investor Relations
since our spin-off from Hanson in 1995. Ms. Burton served
as a consultant to Hanson Industries from January 1995 through
February 1995, when she became an employee of a Hanson
subsidiary. Ms. Burton was Vice President and Corporate
Secretary of Marine Harvest, a publicly held aquaculture
company, with principal responsibility for administration and
investor relations, from September 1991 until its acquisition in
November 1994.

Francisco V. Puñaljoined our company as Vice President
of Finance in January 2001, and was promoted to Vice President
and Corporate Controller in 2002. Mr. Puñal was
previously associated with Vitas Healthcare Corporation, a
privately held healthcare provider, where he was Vice President
and Controller from 1997 to 2000. Prior to that,
Mr. Puñal served as Director of Finance of Vitas
Healthcare Corporation.

Robert G. Hennemuthwas named Vice President 
Human Resources in July 2003. Mr. Hennemuth joined our
Company from Honeywell International, formerly known as
AlliedSignal Inc., where he served as Vice President of Human
Resources & Communications for various businesses from
December 1996 to June 2003, including Honeywell Consumer
Products Group. Previously, Mr. Hennemuth was a corporate
director of human resources at Raytheon Company from January
1988 to December 1996. While in that position,
Mr. Hennemuth was responsible for labor strategies,
management development, training, diversity and staffing.

8



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##### Table of Contents



RISK FACTORS

The following risk factors and other information
included in this Annual Report on Form 10-K should be
carefully considered. The risks and uncertainties described
below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we presently
deem less significant may also impair our business operations.
If any of the following risks actually occur, our business,
operating results, cash flows and financial condition could be
materially adversely affected.

Risks Related to Our Indebtedness

Refer to Liquidity and Capital Resourcesin Item 7of this Annual Report on
Form 10-K for more information and definitions related to
our indebtedness.



| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | We have substantial indebtedness and
    servicing our indebtedness could reduce funds available to
    operate our business.

We are highly leveraged. We and our subsidiaries
may be able to incur substantial additional indebtedness in the
future. Our substantial indebtedness could interfere with our
ability to operate our business. For example, it could:



| |   |                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increase our vulnerability to general adverse
    economic and industry conditions;                                                                                                                                                                                                                                                       
|
| |  | limit our ability to obtain additional financing;                                                                                                                                                                                                                                                                                         
|
| |  | require us to dedicate a substantial portion of
    our cash flow from operations to the payment of principal and
    interest on our indebtedness, reducing the amount of our cash
    flow available for other general corporate purposes, including
    capital expenditures, research and development efforts and
    working capital;
|
| |  | require us to sell other securities or to sell
    some of our core assets, possibly on unfavorable terms, to meet
    payment obligations;                                                                                                                                                                                               
|
| |  | restrict us from making strategic acquisitions,
    investing in new products or capital assets or taking advantage
    of business opportunities;                                                                                                                                                                                        
|
| |  | limit our flexibility in planning for, or
    reacting to, changes in our business and the industry in which
    we operate; and                                                                                                                                                                                                          
|
| |  | place us at a possible competitive disadvantage
    compared to less leveraged competitors.                                                                                                                                                                                                                                               



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Our debt instruments contain covenants
    which will limit our ability to operate our
    business.

Our financing arrangements, including our bank
facilities and the indenture governing the senior notes, contain
various provisions that limit managements discretion by
restricting our ability to, among other things:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | incur additional debt or enter into
    sale-and-lease-back transactions;               
|
| |  | pay dividends or distributions on our capital
    stock or repurchase our capital stock;
|
| |  | issue preferred stock of subsidiaries;                                                  
|
| |  | make certain investments;                                                               
|
| |  | create liens to secure debt;                                                            
|
| |  | enter into transactions with affiliates;                                                
|
| |  | merge or consolidate with another
    company; and                                      
|
| |  | transfer and sell assets.                                                               

9



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In addition, our bank facilities require that we
meet specified financial ratios and tests. These restrictions
could limit our ability to plan for or react to market
conditions or meet extraordinary capital needs or could
otherwise restrict corporate activities.

Upon our failure to comply with any of the
covenants in our financing arrangements, the lenders under those
agreements might be able (even without declaring a default) to
cause us to use all of our available cash and free cash flow to
service their indebtedness or otherwise prevent us from making
payments of principal or interest on the senior notes. In
addition, if following a default any of our lenders declares an
event of default or accelerates our indebtedness, other
creditors with cross default provisions in their debt
instruments may be able to declare a default and accelerate
their indebtedness. If any of our indebtedness is accelerated,
we may not have sufficient funds available to make the required
payments under our indebtedness.



| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | To service our indebtedness, we will
    require a significant amount of cash. Our ability to generate
    cash depends on many factors beyond our control.

Our ability to make payments on and to refinance
our indebtedness, including the senior notes, and to fund
operations will depend on our ability to generate cash in the
future. Our ability to generate cash is subject to general
economic, financial, competitive, business and other factors
that are beyond our control.

Our historical financial results have been, and
we anticipate that our future financial results will be, subject
to fluctuations. We cannot assure you that our business will
generate sufficient cash flows from operations, that currently
anticipated cost savings and operating improvements will be
realized on schedule or that future borrowings will be available
to us under our credit facilities or otherwise in amounts
sufficient to enable us to pay our indebtedness, including the
senior notes, or to fund our other liquidity needs. If we are
unable to meet our debt obligations or fund our other liquidity
needs, we may need to restructure or refinance all or a portion
of our indebtedness, on or before maturity. We cannot assure you
that we will be able to restructure or refinance any of our
indebtedness on satisfactory terms, if at all, which could cause
us to default on our obligations and impair our liquidity. Our
ability to restructure or refinance our debt will depend on the
condition of the capital markets and our financial condition at
such time. Any refinancing of our debt could be at higher
interest rates and may require us to comply with more
restrictive covenants, which could further restrict our business
operations.

Risks Related to Our Business



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | The seasonality of our sales and economic
    events may adversely affect our financial results and our
    ability to service our debt.

Our businesses experience seasonal business
swings.We experience downturns in the
autumn and winter months of the northern hemisphere, which
encompasses the vast majority of our markets. This seasonality
requires us to manage our cash flows over the course of the
year. If our sales were to fall substantially below what we
would normally expect during certain periods, our annual
financial results would be adversely impacted and our ability to
service our debt may also be adversely affected.



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Weather could adversely affect the demand
    for our products and decrease our net sales.

Demand for our products is primarily driven by
new home starts, remodeling and construction activity. Weather
is an important variable affecting our financial performance as
it significantly impacts construction activity. Spring and
summer months in the U.S. and Europe represent the main
construction season for new housing starts and remodeling, as
well as increased construction in the commercial and
institutional markets. However, adverse weather conditions, such
as prolonged periods of cold or rain, blizzards, hurricanes and
other severe weather patterns, could delay or halt construction
and remodeling activity. For example, an unusually severe winter
can lead to reduced construction activity and magnify the
seasonal decline in our net sales and earnings during the winter
months. In addition, a prolonged winter season can delay
construction and remodeling plans and hamper the seasonal
increase in our net sales and earnings during the spring months.

10



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| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Demand for building and home improvement
    products may depend on availability of financing.

Many customers who purchase building and home
improvement products and our other products depend on financing
either by independent consumer finance companies or, to a lesser
extent, by independent distributors in order to make purchases.
Fluctuations in the prevailing interest rates could affect the
availability and cost of financing to our customers. The lack of
availability of consumer credit could lead to a reduction in
demand for our products and have a material adverse effect on
our business, financial condition, cash flows and results of
operations.



| |                                                                       
| | ----------------------------------------------------------------------
| | We may be adversely affected by downturns
    in the markets we serve.

Demand in the building and home improvement
product industries is influenced by new construction activity
and the level of repair and remodeling activity. The level of
new construction and repair and remodeling activity is affected
by a number of factors beyond our control, including the overall
strength of the U.S. economy (including confidence in the
U.S. economy by our customers), the strength of the
residential and commercial real estate markets, institutional
building activity, the age of existing housing stock,
unemployment rates and interest rates. Any declines in new
housing or commercial construction starts or demand for
replacement building and home improvement products may adversely
impact us, and there can be no assurance that any such adverse
effects would not be material and would not continue for an
indeterminate period of time. Further, while we attempt to
minimize our exposure to economic or market fluctuations by
serving a balanced mix of end markets and geographic regions, we
cannot assure you that a significant or sustained downturn in a
specific end market or geographic region would not have a
material adverse effect on us.



| |                                                                      
| | ---------------------------------------------------------------------
| | The markets in which we sell our products
    are highly competitive.

We compete against both large international and
national rivals, as well as many regional competitors. Some of
our competitors have greater financial, marketing and
distribution resources than we do. Significant competition in
any given market can result in substantial pressure on our
pricing and profit margins, thereby adversely affecting our
financial results. As a result of pricing pressures, we may in
the future experience reductions in profit margins. We cannot
assure you that we will be able to maintain or increase the
current market share of our products successfully in the future.



| |                                                                              
| | -----------------------------------------------------------------------------
| | The loss of any significant customer could
    adversely affect our business.

We have certain customers, such as The Home
Depot, Lowes and Ferguson that are very important to our
business and the successful implementation of our business
strategy. Our competitors may adopt more aggressive sales
policies and devote greater resources to the development,
promotion and sale of their products than we do, which could
result in a loss of customers. The loss of one or more of our
major customers or deterioration in our relationship with any of
them could have a material adverse effect on our business,
results of operations and financial condition.



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | An increase in the price of raw materials,
    components, finished goods and other commodities could adversely
    affect our operations.

We purchase most of the raw materials for our
products on the open market, and rely on third parties for the
sourcing of certain finished goods. Accordingly, our cost of
products may be affected by changes in the market price of raw
materials or sourced components or finished goods. In addition,
our operating costs for our Bath Products and Plumbing Products
segments are also significantly affected by the cost of natural
gas used for fuel and the cost of electricity. Natural gas and
electricity prices have historically been volatile, particularly
in California where we have a significant manufacturing
presence. We do not generally engage in commodity hedging
transactions for raw materials. Significant increases in the
prices of raw materials, sourced components or finished goods or
other commodities could require us to increase the prices of our
products, which may reduce consumer demand for our products or
make us more susceptible to competition.

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Furthermore, in the event we are unable to pass
along increases in our operating costs to our customers, our
margins and profitability may be adversely affected.




| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | We are exposed to political, economic and
    other risks that arise from operating a multinational
    business.

We have significant operations outside the
U.S. We currently have operations in Europe, Asia, Canada
and South America, with approximately 22% of our assets
(excluding assets held for sale) located outside the
U.S. as of the end of fiscal 2004. Further, certain of our
businesses obtain raw materials and finished goods from foreign
suppliers. Accordingly, our business is subject to the
political, economic and other risks that are inherent in
operating in numerous countries. These risks include:



| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the difficulty of enforcing agreements and
    collecting receivables through foreign legal systems;                                            
|
| |  | trade protection measures and import or export
    licensing requirements;                                                                      
|
| |  | tax rates in certain foreign countries that
    exceed those in the U.S. and the imposition of withholding
    requirements on foreign earnings;
|
| |  | the imposition of tariffs, exchange controls or
    other restrictions;                                                                         
|
| |  | difficulty in staffing and managing widespread
    operations and the application of foreign labor regulations;                                 
|
| |  | required compliance with a variety of foreign
    laws and regulations; and                                                                     
|
| |  | changes in general economic and political
    conditions in countries where we operate, particularly in
    emerging markets.                   

Our business success depends in part on our
ability to anticipate and effectively manage these and other
risks. We cannot assure you that these and other factors will
not have a material adverse effect on our international
operations or on our business as a whole.



| |                                                                      
| | ---------------------------------------------------------------------
| | We are subject to currency exchange rate
    and other related risks.

We conduct operations in and generate sales from
many areas of the world involving transactions denominated in a
variety of currencies. We are subject to currency exchange rate
risk to the extent that our costs are denominated in currencies
other than those in which we earn revenues. In addition, since
our financial statements are denominated in U.S. dollars,
changes in currency exchange rates between the U.S. dollar
and other currencies have had, and will continue to have, an
impact on our earnings. We cannot assure you that currency
exchange rate fluctuations will not adversely affect our results
of operations and financial condition.

We also face risks arising from the imposition of
exchange controls and currency devaluations. Exchange controls
may limit our ability to convert foreign currencies into
U.S. dollars or to remit dividends and other payments by
our foreign subsidiaries or businesses located in or conducted
within a country imposing controls. Currency devaluations result
in a diminished value of funds denominated in the currency of
the country instituting the devaluation. Actions of this nature,
if they occur or continue for significant periods of time, could
have an adverse effect on our results of operations and
financial condition in any given period.



| |                                                                               
| | ------------------------------------------------------------------------------
| | We are subject to numerous asbestos claims
    that could adversely affect us.

Zurn Industries, Inc. (Zurn) operates
as one of our wholly-owned subsidiaries. Zurn, along with many
other unrelated companies, is a co-defendant in numerous
asbestos related lawsuits pending in the
U.S. Plaintiffs claims primarily allege personal
injuries allegedly caused by exposure to asbestos used primarily
in industrial boilers formerly manufactured by a segment of Zurn
that has been accounted for as a discontinued operation. Zurn
did not manufacture asbestos or asbestos components. Instead,
Zurn purchased it from suppliers.

12



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Federal legislation has been proposed that would
remove asbestos claims from the current tort system and place
them in a trust fund system. This trust would be funded by the
insurers and defendant companies. There can be no assurance as
to when or if this or any other legislation will be passed and
become law or what, if any, the financial impact it could have
on Zurn.

Since Zurn received its first asbestos claim in
the 1980s, Zurn has paid or dismissed or agreed to settle or
dismiss approximately 100,600 asbestos claims including
dismissals or agreements to dismiss of approximately 10,600 of
such claims through the end of fiscal 2004 compared to 84,000
and 6,400 claims, respectively, through the end of fiscal 2003.

Zurn engaged an independent economic consulting
firm to assist in the estimation of Zurns potential
asbestos liability. At October 2, 2004, that firm estimated
that Zurns potential liability for asbestos claims pending
against it and for claims estimated to be filed through 2014 is
approximately $171 million, of which Zurn expects to pay
approximately $127.6 million through 2014 on such claims
with the balance of the estimated liability being paid in
subsequent years. This asbestos liability estimate was based on
the current and anticipated number of future asbestos claims,
the timing and amounts of asbestos payments, the status of
ongoing litigation and the potential impact of defense
strategies and settlement initiatives. However, there are
inherent uncertainties involved in estimating the number of
future asbestos claims, future settlement costs, and the
effectiveness of Zurns defense strategies and settlement
initiatives. In addition, Zurns current estimate could be
adversely affected due to changes in law and other factors
beyond its control. Further, while Zurns current asbestos
liability is based on an estimate of claims through 2014, such
liability may continue beyond 2014, and such liability could be
substantial.

Zurn estimates that its available insurance to
cover its potential asbestos liability as of October 2,
2004 is approximately $302.1 million. Zurn believes, based
on its experience in defending and dismissing such claims and
the coverage available, that it has sufficient insurance to
cover the pending and reasonably estimable future claims. This
conclusion was reached after considering Zurns experience
in asbestos litigation, the insurance payments made to date by
Zurns insurance carriers, existing insurance policies, the
industry ratings of the insurers and the advice of insurance
coverage counsel with respect to applicable insurance coverage
law relating to the terms and conditions of those policies. As
of October 2, 2004, Zurn recorded a receivable from its
insurance carriers of $171 million, which corresponds to
the amount of Zurns potential asbestos liability that is
covered by available insurance and is probable of recovery.

However, there is no assurance that this amount
of insurance will ultimately be available or that Zurns
asbestos liabilities will not ultimately exceed the amount of
coverage. Factors that could cause a decrease in the amount of
available coverage include changes in law governing the
policies, potential disputes with the carriers on the scope of
coverage, and insolvencies of one or more of Zurns
carriers.



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | We are subject to environmental regulation
    and incur costs relating to environmental matters.

Our past and present business operations and our
past and present ownership and operation of real property are
subject to extensive and changing federal, state, local and
foreign environmental laws and regulations pertaining to the
discharge of materials into the environment, the generation,
storage, use, transportation, handling and disposal of wastes
(including solid and hazardous wastes) and the exposure to
hazardous substances. If our operating units fail to completely
comply with these laws and regulations, we could be fined or
otherwise sanctioned or we could incur liability for cleanup
costs or other damages. Changes in environmental regulations or
their interpretation, or other unanticipated events may also
give rise to increased expenditures or liabilities.

We are investigating and remediating
contamination at a number of present and former operating sites
and we have been named as a potentially responsible party at a
number of Superfund sites pursuant to CERCLA, RCRA or comparable
state statutes. Our actual costs to clean up these sites may
exceed our current estimates due to factors beyond our control,
such as the discovery of presently unknown environmental
conditions, changes in environmental laws and regulations and
the insolvency of other responsible parties at the sites at
which we are involved.

13



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| |                                                                    
| | -------------------------------------------------------------------
| | We may not be able to protect our
    intellectual property rights.

We believe that a number of our U.S. and foreign
patents, patent applications and registered trademarks are
important to our success, potential growth and competitive
position. Our actions to establish and protect our trademarks
and other proprietary rights, however, may not prevent imitation
of our products by others or prevent others from claiming
violations of their trademarks and proprietary rights by us. Any
infringement or related claims, even if not meritorious, may be
costly and time consuming to defend, may distract management
from our business and may result in the loss of significant
financial and managerial resources.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Our failure to attract and retain qualified
    resources could have an adverse effect on us.

Our success depends in part on our ability to
attract, hire, train and retain qualified managerial, marketing
and sales resources, including, in the case of our Rexair
segment, our independent distributors. The market for these
resources is competitive. We may be unsuccessful in attracting
and retaining the resources we require to generate sales and to
expand our operations successfully, and, in such event, our
business could be materially and adversely affected. In
particular, in our Rexair segment, we have historically relied
on a select group of independent distributors to generate a
significant portion of our sales. A loss of one or more of these
distributors could have a material adverse effect on our
operating results for the Rexair segment. Our success also
depends to a significant extent on the continued service of our
senior management team. The loss of any member of our senior
management team could impair our ability to execute our business
plan and could therefore have an adverse effect on our business,
results of operations and financial condition.



| |                                                             
| | ------------------------------------------------------------
| | Work stoppages and other labor problems
    could affect us.

As of October 2, 2004, approximately 17% of
our employees in the U.S. and abroad were represented by labor
unions. While we believe our relations with our employees are
satisfactory, a lengthy work stoppage at any of our facilities
could have a material adverse effect on us. The collective
bargaining agreements with five local unions in North America
(covering 751 employees) are due for renegotiation in fiscal
2006 and 2010. Four foreign agreements will expire through the
end of calendar year 2005. Two agreements expire in December
2004 (covering approximately 204 employees), one agreement
expires in May 2005 (covering approximately 48 employees)
and another agreement will expire in October 2005 (covering
approximately 127 employees). Negotiations for the extension of
these agreements may result in modifications to the terms of
these agreements, and these modifications could cause us to
incur increased costs relating to our labor force.

14



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|        |           
|------- | ----------
|Item 2. | Properties

We lease approximately 13,783 square feet of
office space for our headquarters in West Palm Beach, Florida.
The principal properties of each of our operating companies as
of October 2, 2004, and the location, primary use,
approximate square footage and ownership status, are set forth
below:

|                         |  |                                         |  |                |         |              |  |  |        | 
|------------------------ |  | --------------------------------------- |  | -------------- | ------- | ------------ |  |  | ------ | 
|                         |  |                                         |  | Approximate    |         |             
|Location                 |  | Use                                     |  | Square Footage |         | Owned/Leased
|                         |  |                                         |  |                |         |             
|Bath Products:           |  |                                         |  |                |         |              |  |  |        | 
|Europe/ Asia             |  |                                         |  |                |         |              |  |  |        | 
|Valvasone, Italy         |  | Manufacturing/ Warehouse                |  |                | 251,472 |              |  |  | Owned  | 
|Newcastle, England       |  | Manufacturing                           |  |                | 99,429  |              |  |  | Owned  | 
|Bradford, England        |  | Manufacturing/ Office Warehouse         |  |                | 528,256 |              |  |  | Owned  | 
|Birdstal, England        |  | Manufacturing/ Showroom                 |  |                | 136,375 |              |  |  | Owned  | 
|Hilton, England          |  | Warehouse                               |  |                | 125,000 |              |  |  | Leased | 
|Paris, France            |  | Warehouse                               |  |                | 79,653  |              |  |  | Leased | 
|Cedex, France            |  | Manufacturing                           |  |                | 10,764  |              |  |  | Owned  | 
|Marsa, Malta             |  | Manufacturing                           |  |                | 57,834  |              |  |  | Leased | 
|South America            |  |                                         |  |                |         |              |  |  |        | 
|San Paulo, Brazil        |  | Manufacturing/ Office                   |  |                | 760,009 |              |  |  | Owned  | 
|Santiago, Chile          |  | Manufacturing/ Office/ Showroom         |  |                | 52,480  |              |  |  | Owned  | 
|United States            |  |                                         |  |                |         |              |  |  |        | 
|Chino, California        |  | Spa Manufacturing/ Warehouse            |  |                | 440,000 |              |  |  | Leased | 
|Chino, California        |  | Whirlpool Bath Manufacturing/ Warehouse |  |                | 306,700 |              |  |  | Leased | 
|Carrollton, Texas        |  | Manufacturing/ Warehousing/ Testing     |  |                | 11,440  |              |  |  | Leased | 
|Walnut Creek, California |  | Office                                  |  |                | 15,842  |              |  |  | Leased | 
|Plant City, Florida      |  | Office                                  |  |                | 1,000   |              |  |  | Leased | 
|Valdosta, Georgia        |  | Manufacturing/ Office                   |  |                | 363,876 |              |  |  | Leased | 
|Statesville, Georgia     |  | Warehouse                               |  |                | 12,000  |              |  |  | Leased | 
|Tupelo, Mississippi      |  | Manufacturing                           |  |                | 439,000 |              |  |  | Leased | 
|Salem, Ohio              |  | Warehouse                               |  |                | 479,644 |              |  |  | Owned  | 
|Ford City, Pennsylvania  |  | Manufacturing/ Warehouse                |  |                | 732,246 |              |  |  | Owned  | 
|Kittanning, Pennsylvania |  | Warehouse                               |  |                | 28,825  |              |  |  | Leased | 
|Schenley, Pennsylvania   |  | Warehouse/ Distribution                 |  |                | 155,742 |              |  |  | Owned  | 
|Addison, Texas           |  | Office                                  |  |                | 110,649 |              |  |  | Leased | 
|Plumbing Products:       |  |                                         |  |                |         |              |  |  |        | 
|Canada                   |  |                                         |  |                |         |              |  |  |        | 
|Mississauga, Ontario     |  | Manufacturing/ Warehouse                |  |                | 27,878  |              |  |  | Leased | 
|United States            |  |                                         |  |                |         |              |  |  |        | 
|Gardena, California      |  | Office/ Warehouse/ Distribution         |  |                | 73,987  |              |  |  | Owned  | 
|Paso Robles, California  |  | Manufacturing/ Office                   |  |                | 158,000 |              |  |  | Owned  | 
|Norcross, Georgia        |  | Warehouse/ Office                       |  |                | 57,600  |              |  |  | Leased | 
|Elkhart, Indiana         |  | Manufacturing/ Distribution             |  |                | 110,000 |              |  |  | Owned  | 
|Hayward, California      |  | Warehouse/ Office                       |  |                | 23,640  |              |  |  | Leased | 
|Sacramento, California   |  | Warehouse                               |  |                | 8,100   |              |  |  | Leased | 
|Falconer, New York       |  | Manufacturing/ Warehouse/ Distribution  |  |                | 150,000 |              |  |  | Leased | 

15



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##### Table of Contents



|                        |  |                                    |  |                |         |              |  |  |        | 
|----------------------- |  | ---------------------------------- |  | -------------- | ------- | ------------ |  |  | ------ | 
|                        |  |                                    |  | Approximate    |         |             
|Location                |  | Use                                |  | Square Footage |         | Owned/Leased
|                        |  |                                    |  |                |         |             
|Sanford, North Carolina |  | Assembly/ Office                   |  |                | 78,000  |              |  |  | Owned  | 
|Northwood, Ohio         |  | Warehouse                          |  |                | 17,920  |              |  |  | Leased | 
|Ben Salem, Pennsylvania |  | Warehouse/ Office                  |  |                | 40,000  |              |  |  | Leased | 
|Erie, Pennsylvania      |  | Manufacturing/ Office/Distribution |  |                | 310,562 |              |  |  | Leased | 
|Commerce, Texas         |  | Manufacturing/ Distribution        |  |                | 175,000 |              |  |  | Owned  | 
|Dallas, Texas           |  | Warehouse/ Office                  |  |                | 33,000  |              |  |  | Leased | 
|Rexair:                 |  |                                    |  |                |         |              |  |  |        | 
|Troy, Michigan          |  | Office                             |  |                | 22,696  |              |  |  | Leased | 
|Cadillac, Michigan      |  | Manufacturing                      |  |                | 370,000 |              |  |  | Owned  | 

In addition, we lease sales office space in Idaho
Falls, Idaho; Addison, Illinois; Singapore; Nice, France; Lohne,
Germany; Rome, Italy; Barcelona, Spain; Kuala Lumpur, Malaysia;
Taipei, R.O.C.; Dubai, UAE and Bensheim, Germany. We also own
several properties being held for sale in: Plant City, Florida;
Waynesboro, Georgia; Thomasville, North Carolina; Milford,
Virginia; and Itu, Brazil.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We and our subsidiaries are parties to legal
proceedings that we believe to be either ordinary, routine
litigation incidental to the business of present and former
operations or immaterial to our financial condition, results of
operations or cash flows.

Certain of our subsidiaries are defendants or
plaintiffs in lawsuits that have arisen in the normal course of
business. While certain of these matters involve substantial
amounts, it is managements opinion, based on the advice of
counsel, that the ultimate resolution of such litigation and
environmental matters will not have a material adverse effect on
our financial condition, results of operations or cash flows.

Litigation resulting from a dispute with the
former owners of the Sundance Spas business has resulted in a
judgment of approximately $5.1 million in our favor. The
gain of $3.9 million resulting from the judgment is not
included in the results of our operations in fiscal 2004 as it
is still subject to appeal.

In June 1998, we merged with Zurn, which now
operates as one of our wholly-owned subsidiaries. At the time of
our acquisition, Zurn had itself owned various subsidiaries.
Zurn, along with many other unrelated companies, is a
co-defendant in numerous asbestos related lawsuits pending in
the U.S. Plaintiffs claims primarily allege personal
injuries allegedly caused by exposure to asbestos used primarily
in industrial boilers formerly manufactured by a segment of Zurn
that has been accounted for as a discontinued operation. Zurn
did not manufacture asbestos or asbestos components. Instead,
Zurn purchased it from suppliers.

Federal legislation has been proposed that would
remove asbestos claims from the current tort system and place
them in a trust fund system. This trust would be funded by the
insurers and defendant companies. There can be no assurance as
to when or if this or any other legislation will be passed and
become law or what, if any, the financial impact it could have
on Zurn.

New claims filed against Zurn in fiscal 2004 were
lower year-over-year. During fiscal 2004, approximately 25,000
new asbestos claims were filed against Zurn versus 32,400 in
fiscal 2003. As of October 2, 2004, the number of asbestos
claims pending against Zurn was approximately 75,500 compared to
59,000 as of September 27, 2003. The increase in pending
claims is a result of new claims exceeding the number of claims
newly resolved during the period. The claims are handled
pursuant to a defense strategy funded by Zurns insurers.
The pending claims against Zurn as of October 2, 2004 were
included in approximately 5,872 lawsuits, in which Zurn and an
average of 85 other companies are named as defendants, and which
cumulatively allege damages of approximately $10.3 billion
against all defendants. Defense costs currently do not erode the
coverage amounts in the insurance policies, although a few
policies that will be accessed in the future may count defense
costs toward aggregate limits.

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During fiscal 2004 and as of the end of such
period, approximately 26,000 claims were paid and/or pending
payment and approximately 4,900 claims were dismissed and/or
pending dismissal. During fiscal 2003 and as of the end of such
period, approximately 45,000 claims were paid and/or pending
payment and approximately 3,000 claims were dismissed and/or
pending dismissal. Since Zurn received its first asbestos claim
in the 1980s, Zurn has paid or dismissed or agreed to settle or
dismiss approximately 100,600 asbestos claims including
dismissals or agreements to dismiss of approximately 10,600 of
such claims through the end of fiscal 2004 compared to 84,000
and 6,400 claims, respectively, through the end of fiscal 2003.

Zurn engaged an independent economic consulting
firm with substantial experience in asbestos liability
valuations to assist in the estimation of Zurns potential
asbestos liability. At October 2, 2004, that firm estimated
that Zurns potential liability for asbestos claims pending
against it and for claims estimated to be filed through 2014 is
approximately $171 million. That firm estimated Zurn will
pay approximately $127.6 million through 2014 on such
claims, with the balance of the estimated liability being paid
in subsequent years. As discussed below in more detail, Zurn
expects all such payments to be paid by its carriers. The
estimated liability of $171 million is comprised of
approximately (i) $12 million in claims that had been
settled but unpaid as of the end of fiscal 2004;
(ii) $26 million in proposed settlements of certain
pending and future claims; and (iii) $133 million for
other pending and future claims. At September 27, 2003, it
was estimated that Zurns potential liability for asbestos
claims pending against it and for claims estimated to be filed
through 2013 was approximately $160 million.

These asbestos liability estimates were based on
the current and anticipated number of future asbestos claims,
the timing and amounts of asbestos payments, the status of
ongoing litigation and the potential impact of defense
strategies and settlement initiatives. However, there are
inherent uncertainties involved in estimating the number of
future asbestos claims, future settlement costs, and the
effectiveness of Zurns defense strategies and settlement
initiatives. In addition, Zurns current estimate could be
adversely affected due to changes in law and other factors
beyond its control. As a result, Zurns actual liability
could exceed Zurns estimate described herein.

Zurns current estimate of its asbestos
liability of $171 million for claims filed through 2014
assumes that (i) its continuous vigorous defense strategy
will remain effective; (ii) new asbestos claims filed
annually against it will decline modestly through 2014;
(iii) the values by disease will remain consistent with
past experience; and (iv) its insurers will continue to pay
defense costs without eroding the coverage amounts of its
insurance policies. While Zurn believes there is evidence, in
recent claims settlements, for such an impact of a successful
defense strategy, if the defense strategy ultimately is not
successful to the extent assumed by Zurn, the severity and
frequency of asbestos claims could increase substantially above
Zurns estimates. Further, while Zurns current
asbestos liability is based on an estimate of claims through
2014, such liability may continue beyond 2014, and such
liability could be substantial.

Zurn estimates that its available insurance to
cover its potential asbestos liability as of October 2,
2004 is approximately $302.1 million. Zurn estimated that
its available insurance to cover its potential asbestos
liability as of September 27, 2003 was approximately
$314.0 million. The decrease in the amount of available
insurance reflects the payments made during fiscal 2004 offset
by a credit in the third quarter of fiscal 2004 of approximately
$1.5 million from the carriers relating to claims processed
in prior periods. Zurn believes, based on its experience in
defending and dismissing such claims and the coverage available,
that it has sufficient insurance to cover the pending and
reasonably estimable future claims. This conclusion was reached
after considering Zurns experience in asbestos litigation,
the insurance payments made to date by Zurns insurance
carriers, existing insurance policies, the industry ratings of
the insurers and the advice of insurance coverage counsel with
respect to applicable insurance coverage law relating to the
terms and conditions of those policies. As of October 2,
2004 and September 27, 2003, Zurn recorded a receivable
from its insurance carriers of $171 million and
$160 million, respectively, which corresponds to the amount
of Zurns potential asbestos liability that is covered by
available insurance and is probable of recovery.

However, there is no assurance that
$302.1 million of insurance coverage will ultimately be
available or that Zurns asbestos liabilities will not
ultimately exceed this amount. Factors that could cause a
decrease in

17



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##### Table of Contents



the amount of available coverage include changes
in law governing the policies, potential disputes with the
carriers on the scope of coverage, and insolvencies of one or
more of Zurns carriers.


Principally as a result of the past insolvency of
certain of Zurns insurance carriers, coverage analysis
reveals that certain gaps exist in Zurns insurance
coverage, but only if and after Zurn uses approximately
$230.1 million of its remaining approximate
$302.1 million of insurance coverage. As noted above, the
estimate of Zurns potential liability for asbestos claims
pending against it and for claims estimated to be filed through
2014 is $171 million with the expected amount to be paid
through 2014 being $127.6 million. In order to use
approximately $277.1 million of the $302.1 million of
its insurance coverage from solvent carriers, Zurn estimates
that it would need to satisfy approximately $14 million of
asbestos claims, with additional gaps of $80 million
layered within the final $25 million of the
$302.1 million of coverage. We will pursue, if necessary,
any available recoveries on our approximately $148 million
of coverage with insolvent carriers, which includes
approximately $83 million of coverage attributable to the
gaps discussed above. These estimates are subject to the factors
noted above.

After review of the foregoing with Zurn and its
consultants, we believe that the resolution of Zurns
pending and reasonably estimable asbestos claims will not have a
material adverse effect on Zurns financial condition,
results of operations or cash flows.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

We did not submit any matter to a vote of
security holders during the last quarter of fiscal 2004.




PART II






|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

(a) Market Information.

Our common stock is traded on the NYSE under the
symbol JJZ. The following table sets forth, for the fiscal
periods indicated, the high and low closing sales price per
share of common stock as reported by the NYSE.

|               |  |             |      |             |  |      |      |     |  |   |      |  |  |   |      | 
|-------------- |  | ----------- | ---- | ----------- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|               |  |             |      |            
|               |  | Fiscal 2004 |      | Fiscal 2003
|               |  |             |      |            
|               |  | High        |      | Low         |  | High |      | Low
|               |  |             |      |             |  |      |      |    
|First Quarter  |  | $           | 7.50 |             |  | $    | 6.00 |     |  | $ | 3.06 |  |  | $ | 1.50 | 
|Second Quarter |  | $           | 9.51 |             |  | $    | 7.72 |     |  | $ | 4.15 |  |  | $ | 2.52 | 
|Third Quarter  |  | $           | 9.93 |             |  | $    | 7.40 |     |  | $ | 5.73 |  |  | $ | 3.82 | 
|Fourth Quarter |  | $           | 9.61 |             |  | $    | 7.50 |     |  | $ | 6.50 |  |  | $ | 4.56 | 

(b) Holders.

As of November 30, 2004, there were
approximately 18,009 record holders of our common stock.

(c) Dividends.

We have not paid cash dividends in the past three
fiscal years. Our bank facilities include a restriction on the
payment of dividends (See Liquidity and Capital Resourcesin Item 7of this Annual Report on
Form 10-K).

(d) Securities authorized for issuance under
equity compensation plans.

18



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##### Table of Contents



The following table sets forth information, as of
the end of fiscal year 2004, with respect to our compensation
plans under which shares of our common stock is or was
authorized for issuance and is outstanding:

|                           |                                  |                      |  |                   |           |                         |   |      |      |  |  |           |           | 
|-------------------------- | -------------------------------- | -------------------- |  | ----------------- | --------- | ----------------------- | - | ---- | ---- |  |  | --------- | --------- | 
|                           |                                  | Column (a)           |  | Column (b)        |           | Column (c)             
|                           |                                  |                      |  |                   |           |                        
|                           |                                  | Number of Securities |  | Weighted-Average  |           |                        
|                           |                                  | to be Issued Upon    |  | Exercise Price of |           | Number of Securities   
|                           |                                  | Exercise of          |  | Outstanding       |           | Remaining Available for
|                           |                                  | Outstanding          |  | Options,          |           | Future Issuance Under  
|                           |                                  | Options,             |  | Warrants and      |           | Equity Compensation    
|Plan Category              |                                  | Warrants and Rights  |  | Rights            |           | Plans(1)               
|                           |                                  |                      |  |                   |           |                        
|Equity compensation plans: |                                  |                      |  |                   |           |                         |   |      |      |  |  |          
|                           | Approved by security holders     |                      |  | 2,640,559         |           |                         | $ | 6.35 |      |  |  | 4,264,270 |          
|                           | Not approved by security holders |                      |  |                  |           |                         |   |     |      |  |  |          |          
|                           |                                  |                      |  |                   |           |                         |   |      |      |  |  |          
|                           |                                  | Total                |  |                   | 2,640,559 |                         |   | $    | 6.35 |  |  |           | 4,264,270 | 
|                           |                                  |                      |  |                   |           |                         |   |      |      |  |  |          



---



|    |                                              
|--- | ---------------------------------------------
|(1) | Excluding securities reflected in Column (a).






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Our business has undergone significant changes
during the last five years. Accordingly, results from any one
period may not be comparable to results from any other year. The
following matters affect the comparability of the selected
financial data included in the table that follows.

Operating income in fiscal 2004 includes
impairment, restructuring, and other charges of
$22.3 million related to plant closure and downsizing
initiatives as well as the continued consolidation of
administrative functions into our shared services center.

Net sales in fiscal 2003 include
$8.6 million from the sale of a license for certain
patented technology. Operating income in fiscal 2003 includes
impairment, restructuring and other charges of
$19.9 million. Income from continuing operations in fiscal
2003 includes pre-tax charges of $21.5 million associated
with the extension and eventual refinancing of our debt in July
2003. Income from continuing operations also includes a tax
benefit of $13.6 million recorded as a result of an IRS
audit settlement.

Operating income in fiscal 2002 includes
impairment, restructuring and other charges of
$7.2 million. Income from continuing operations in fiscal
2002 includes $9.2 million of pre-tax charges related to
financing initiatives. Also, we recorded a tax benefit of
$29.6 million in fiscal 2002 largely attributable to the
utilization of loss carry backs.

Operating loss in fiscal 2001 includes
impairment, restructuring and other charges of
$100.2 million. Loss from continuing operations in fiscal
2001 includes pre-tax charges of $45.1 million related to
the impairment of note securities, $23.6 million associated
with the restructuring of our debt and $8.1 million for
professional fees associated with the previously planned
spin-off of a group of our businesses.

Financial data in fiscal 2000 includes Rexair and
several other businesses which were sold in March 2000. We
repurchased Rexair in August 2001. Operating income in fiscal
2000 includes impairment, restructuring and other charges of
$79.6 million. Income from continuing operations in fiscal
2000 includes a pre-tax gain of $39.3 million on the sale
of businesses. In addition, fiscal 2000 results include a
$20.0 million reversal of tax contingencies related to our
spin-off from Hanson.

Operating (loss) income for fiscal 2001 and 2000
includes goodwill amortization of $9.5 million and
$13.0 million, respectively. We stopped amortizing goodwill
after adoption of SFAS No. 142, Goodwill and other
Intangible Assets, on October 1, 2001.

In March 2001, the Board of Directors
indefinitely suspended the quarterly payment of cash dividends.
Furthermore, our bank facilities include a restriction on the
payment of dividends (See Liquidity and Capital Resourcesunder Item 7of this Annual Report on
Form 10-K).

19



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##### Table of Contents



The following table presents summary historical
consolidated financial data. The summary consolidated financial
data for the fiscal years 2004, 2003 and 2002 has been derived
from our audited consolidated financial statements included in
Item 8of this Annual Report on Form 10-K. You
should read the following summary consolidated financial data in
conjunction with Items 7and 8of this Annual
Report on Form 10-K.

|                                    |                                                            |                                            |   |               |       |               |   |               |       |               |   |         |      |  |   |         |       |   |   |         |      | 
|----------------------------------- | ---------------------------------------------------------- | ------------------------------------------ | - | ------------- | ----- | ------------- | - | ------------- | ----- | ------------- | - | ------- | ---- |  | - | ------- | ----- | - | - | ------- | ---- | 
|                                    |                                                            |                                           
|                                    |                                                            | For the Fiscal Years Ended                
|                                    |                                                            |                                           
|                                    |                                                            | October 2,                                 |   | September 27, |       | September 28, |   | September 29, |       | September 30,
|                                    |                                                            | 2004                                       |   | 2003          |       | 2002          |   | 2001          |       | 2000         
|                                    |                                                            |                                            |   |               |       |               |   |               |       |              
|                                    |                                                            |                                           
|                                    |                                                            | (in millions, except per share amounts)   
|Statements of Operations:           |                                                            |                                            |   |               |       |               |   |               |       |               |   |         |      |  |   |         |       |   |   |        
|                                    | Net sales                                                  |                                            | $ | 1,347.2       |       |               | $ | 1,192.6       |       |               | $ | 1,068.3 |      |  | $ | 1,007.2 |       |   | $ | 1,619.4 |     
|                                    | Operating income (loss)                                    |                                            |   | 96.5          |       |               |   | 81.2          |       |               |   | 94.4    |      |  |   | (29.6   | )     |   |   | 71.7    |     
|                                    | Income (loss) from continuing operations                   |                                            |   | 29.1          |       |               |   | 10.1          |       |               |   | 31.9    |      |  |   | (165.7  | )     |   |   | 32.0    |     
|                                    | (Loss) income from discontinued operations, net
    of tax |                                            |   | (0.6          | )     |               |   | (41.2         | )     |               |   | 9.0     |      |  |   | (340.8  | )     |   |   | 3.6     |     
|                                    | Cumulative effect of accounting change, net of tax         |                                            |   |              |       |               |   |              |       |               |   |        |      |  |   | (0.7    | )     |   |   |        |     
|                                    | Net income (loss)                                          |                                            |   | 28.5          |       |               |   | (31.1         | )     |               |   | 40.9    |      |  |   | (507.2  | )     |   |   | 35.6    |     
|                                    | Basic income (loss) per share:                             |                                            |   |               |       |               |   |               |       |               |   |         |      |  |   |         |       |   |   |         |     
|                                    |                                                            | Income (loss) from continuing operations   |   |               | 0.39  |               |   |               | 0.14  |               |   |         | 0.43 |  |   |         | (2.24 | ) |   |         | 0.40 | 
|                                    |                                                            | (Loss) income from discontinued operations |   |               | (0.01 | )             |   |               | (0.56 | )             |   |         | 0.12 |  |   |         | (4.60 | ) |   |         | 0.04 | 
|                                    |                                                            | Cumulative effect of accounting change     |   |               |      |               |   |               |      |               |   |         |     |  |   |         | (0.01 | ) |   |         |     | 
|                                    |                                                            | Net income (loss)                          |   |               | 0.38  |               |   |               | (0.42 | )             |   |         | 0.55 |  |   |         | (6.85 | ) |   |         | 0.44 | 
|                                    | Diluted income (loss) per share:                           |                                            |   |               |       |               |   |               |       |               |   |         |      |  |   |         |       |   |   |         |     
|                                    |                                                            | Income (loss) from continuing operations   |   |               | 0.38  |               |   |               | 0.14  |               |   |         | 0.43 |  |   |         | (2.24 | ) |   |         | 0.39 | 
|                                    |                                                            | (Loss) Income from discontinued operations |   |               | (0.01 | )             |   |               | (0.56 | )             |   |         | 0.12 |  |   |         | (4.60 | ) |   |         | 0.04 | 
|                                    |                                                            | Cumulative effect of accounting change     |   |               |      |               |   |               |      |               |   |         |     |  |   |         | (0.01 | ) |   |         |     | 
|                                    |                                                            | Net income (loss)                          |   |               | 0.37  |               |   |               | (0.42 | )             |   |         | 0.55 |  |   |         | (6.85 | ) |   |         | 0.43 | 
|                                    | Cash dividend declared per share                           |                                            |   |              |       |               |   |              |       |               |   |        |      |  |   | 0.05    |       |   |   | 0.20    |     
|Balance Sheet Data (at period end): |                                                            |                                            |   |               |       |               |   |               |       |               |   |         |      |  |   |         |       |   |   |        
|                                    | Cash and cash equivalents                                  |                                            | $ | 39.6          |       |               | $ | 31.2          |       |               | $ | 32.1    |      |  | $ | 65.2    |       |   | $ | 24.7    |     
|                                    | Working capital                                            |                                            |   | 238.9         |       |               |   | 189.5         |       |               |   | 292.0   |      |  |   | 449.0   |       |   |   | 541.5   |     
|                                    | Total assets                                               |                                            |   | 1,371.8       |       |               |   | 1,336.8       |       |               |   | 1,682.6 |      |  |   | 2,175.1 |       |   |   | 2,489.8 |     
|                                    | Total debt                                                 |                                            |   | 471.8         |       |               |   | 500.1         |       |               |   | 808.1   |      |  |   | 1,226.8 |       |   |   | 1,046.2 |     
|                                    | Stockholders equity                                       |                                            |   | 289.1         |       |               |   | 255.7         |       |               |   | 254.4   |      |  |   | 217.0   |       |   |   | 753.7   |     

20



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Overview

We are a leading global producer of branded bath
and plumbing products for the residential, commercial and
institutional markets. We currently operate as three business
segments, consisting of the Bath Products segment, the Plumbing
Products segment and the Rexair segment. Our Bath Products
segment manufactures whirlpool baths, spas, showers, sanitary
ware, including sinks and toilets, and bathtubs for the
construction and remodeling markets. Our Plumbing Products
segment manufactures professional grade drainage, water control,
commercial brass and PEX piping products for the commercial and
institutional construction, renovation and facilities
maintenance markets. Our Rexair segment manufactures premium
vacuum cleaner systems sold through independent distributors in
the direct sales retail channel.

Demand for our products is primarily driven by
new home starts, remodeling and commercial construction
activity. Accordingly, many external factors affect our business
including weather and the impact of the broader economy on our
end markets. Weather is an important variable for us as it
significantly impacts construction. Spring and summer months in
the U.S. and Europe represent the main construction season for
new housing starts and remodeling, as well as increased
construction in the commercial and institutional markets. As a
result, sales in our Bath Products and Plumbing Products
segments increase in our third and fourth fiscal quarters as
compared to the first two quarters of our fiscal year. The
autumn and winter months generally impede construction and
installation activity.

Housing starts, consumer spending and remodeling
expenditures have a major impact on our consumer-focused bath
and spa businesses, which are included in our Bath Products
segment. Our Plumbing Products business is dependent upon
commercial and institutional construction activity and is
therefore affected by macroeconomic factors such as the
unemployment rate and the availability of financing. Despite the
cyclical nature of the U.S. commercial and institutional
construction market, which experienced declines in revenue
potential of approximately 14% in fiscal 2002, approximately 6%
in fiscal 2003 and a slight rebound in fiscal 2004, sales of our
commercial and institutional products have continued to grow at
a rate that exceeds that of the industry. We have achieved this
growth through favorable pricing, product innovation and
targeted marketing programs.

During fiscal 2004, we initiated several plans to
improve the operations of our Bath Products segment. These
initiatives include the downsizing of our manufacturing plant in
Ford City, PA, which is expected to be substantially completed
by December 2004, plans to close our manufacturing plant in
Tupelo, MS by June 2005, the outsourcing of products through
lower cost suppliers, the rationalization of unprofitable
product lines, and the further consolidation of selling and
administrative functions into our shared services center in
Dallas, TX. In the first half of fiscal 2003, we combined six
separate operating facilities into one new facility in Chino,
CA. Additionally, we adopted a number of efficiency enhancing
manufacturing techniques, including lean manufacturing, which
have served to enhance our operations. We also closed our
manufacturing plants in Plant City, FL and Salem, OH. The Plant
City plant, which manufactured spas, was closed in November
2003. The Salem plant, which manufactured cast iron sanitary
ware ceased production in May 2004. These restructuring
initiatives are discussed in more detail in Note 4to our Consolidated Financial Statements.

We continue to evaluate strategies to improve the
operating results of our Bath Product segment. The
implementation of any additional performance improvement
strategies may result in our recording impairment, restructuring
and other charges in future periods.

Our Board of Directors approved a formal disposal
plan for the sale of five businesses in December 2001 (the
2001 Disposal Plan) and a formal disposal plan for
the sale of three businesses in February 2003 (the 2003
Disposal Plan). We have completed the sale of all
businesses under both disposal plans.

21



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##### Table of Contents



Each of these disposal plans qualified for
treatment as discontinued operations, and accordingly, are not
included in our discussion of Results of Operationsof
this Annual Report on Form 10-K. Summarized results of the
discontinued operations through the dates of sale are as follows:

|                        |  |                            |      |               |  |               |      |   |  |   |       | 
|----------------------- |  | -------------------------- | ---- | ------------- |  | ------------- | ---- | - |  | - | ----- | 
|                        |  |                           
|                        |  | For the Fiscal Years Ended
|                        |  |                           
|                        |  | October 2,                 |      | September 27, |  | September 28,
|                        |  | 2004                       |      | 2003          |  | 2002         
|                        |  |                            |      |               |  |              
|                        |  |                           
|                        |  | (in millions)             
|Net sales               |  | $                          | 2.1  |               |  | $             | 66.9 |   |  | $ | 807.3 | 
|Operating (loss) income |  |                            | (1.1 | )             |  |               | (0.7 | ) |  |   | 34.7  | 

The decrease in net sales and operating (loss)
income from fiscal 2002 to fiscal 2003 is primarily the result
of the lost contribution from the businesses sold in accordance
with the 2001 Disposal Plan. Prior to their disposal dates,
these businesses contributed $714.1 million of net sales
and $31.7 million of operating income in fiscal 2002, while
only contributing $7.7 million of net sales and an
operating loss of $0.4 million in fiscal 2003. Net sales
and operating (loss) income in fiscal 2003 also decreased from
the prior year, but to a lesser extent, because of the sale of
the businesses in the 2003 Disposal Plan. Prior to their
disposal dates, these businesses contributed $93.2 million
of net sales and $3.0 million of operating income in fiscal
2002, while only contributing $59.2 million of net sales
and an operating loss of $0.3 million in fiscal 2003. The
only business contributing to fiscal 2004 was the water systems
business, which was sold within the first month of the year.

Results of Operations

The following table presents our results of
operations by segment for the periods indicated. Certain amounts
reported for the prior periods have been reclassified to conform
to the current years presentation.

|                   |                   |                            |       |               |         |               |       |       |         |  |       |       |         | 
|------------------ | ----------------- | -------------------------- | ----- | ------------- | ------- | ------------- | ----- | ----- | ------- |  | ----- | ----- | ------- | 
|                   |                   |                           
|                   |                   | For the Fiscal Years Ended
|                   |                   |                           
|                   |                   | October 2,                 |       | September 27, |         | September 28,
|                   |                   | 2004                       |       | 2003          |         | 2002         
|                   |                   |                            |       |               |         |              
|                   |                   |                           
|                   |                   | (in millions)             
|Net Sales          |                   |                            |       |               |         |               |       |       |         |  |       |      
|                   | Bath Products     |                            | $     | 934.4         |         |               | $     | 813.9 |         |  | $     | 711.9 |        
|                   | Plumbing Products |                            |       | 308.0         |         |               |       | 276.6 |         |  |       | 257.8 |        
|                   | Rexair            |                            |       | 104.8         |         |               |       | 102.1 |         |  |       | 98.6  |        
|                   |                   |                            |       |               |         |               |       |       |         |  |       |      
|                   |                   | Total Net Sales            |       | $             | 1,347.2 |               |       | $     | 1,192.6 |  |       | $     | 1,068.3 | 
|                   |                   |                            |       |               |         |               |       |       |         |  |       |      
|Operating Income   |                   |                            |       |               |         |               |       |       |         |  |       |      
|                   | Bath Products     |                            | $     | 26.5          |         |               | $     | 7.4   |         |  | $     | 26.7  |        
|                   | Plumbing Products |                            |       | 60.7          |         |               |       | 62.1  |         |  |       | 51.3  |        
|                   | Rexair            |                            |       | 27.3          |         |               |       | 26.6  |         |  |       | 27.4  |        
|                   |                   |                            |       |               |         |               |       |       |         |  |       |      
|                   |                   |                            | 114.5 |               |         |               | 96.1  |       |         |  | 105.4 |      
|Corporate Expenses |                   |                            | (18.0 | )             |         |               | (14.9 | )     |         |  | (11.0 | )    
|                   |                   |                            |       |               |         |               |       |       |         |  |       |      
|                   |                   | Total Operating Income     |       | $             | 96.5    |               |       | $     | 81.2    |  |       | $     | 94.4    | 
|                   |                   |                            |       |               |         |               |       |       |         |  |       |      



| |                                        
| | ---------------------------------------
| | Fiscal 2004 Compared to Fiscal
    2003



| |        
| | -------
| | Overall

Overall, net sales increased 13.0% to
$1.35 billion in fiscal year 2004 as compared to fiscal
2003. The increase reflects strong sales in our Bath Products
and Plumbing Products segments. Fiscal 2003 results include
$8.6 million in sales recognized upon the granting of a
license for certain technology that had been the subject of
patent litigation. Operating income increased $15.3 million
or 18.8% in fiscal 2004 when compared to fiscal 2003 primarily
due to strong operating results in our Bath Products segment.
Included in

22



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##### Table of Contents



our fiscal 2004 results are $22.3 million of
restructuring charges, while fiscal 2003 results included
$19.9 million of restructuring charges, of which
$0.9 million was included in cost of products sold.




| |              
| | -------------
| | Bath Products

Net sales in our Bath Products segment increased
$120.5 million or 14.8% in fiscal 2004 as compared to
fiscal 2003. The increase was the primarily the result of
continued growth in the domestic spa and bath businesses, due to
an expanded specialty retailer base, as well as growth in the
European bath and sink businesses, which was primarily the
result of continued higher sales to the home center channel.
Fiscal 2004 sales also included a $38.3 million benefit
from favorable currency exchange rates mainly due to the firming
of the British pound and the euro against the U.S. dollar.
Sales growth in fiscal 2004 was partially offset by a decrease
in sales at Eljer, as a result of the rationalization of
unprofitable product lines.

Operating income of $26.5 million for fiscal
2004 increased $19.1 million or 258.1% compared to fiscal
2003, due primarily to strong sales and margin growth in the
domestic spa and whirlpool bath businesses. Gross margin
increased as a percentage of net sales mainly due to increased
volume over fixed overhead and improved manufacturing
efficiencies. These efficiencies were experienced segment-wide,
but especially in the new Chino, CA plant which became
operational in fiscal 2003. Strong earnings growth was
accomplished despite an increase in restructuring charges from
$14.6 million in fiscal 2003 to $22.9 million in
fiscal 2004, as discussed more fully in Note 4to
our Consolidated Financial Statements. Fiscal 2004 was also
impacted by a $1.0 million write off of accounts receivable
associated with the bankruptcy of a domestic distributor, a
$4.1 million increase in our bad debt reserves associated
with financial difficulties encountered by several Brazilian
bath product distributors and $1.0 million in severance
related to staffing reductions in Brazil. In fiscal 2003, we
also established a $2.5 million bad debt reserve against a
receivable from one of the same Brazilian distributors. We have
since taken over sales responsibility for the Brazilian home
center channel, and expect this action to result in improved
sales, margins and customer service for this segment as we are
now directly in control of sales into this channel. Operating
income in fiscal 2003 was negatively impacted by the
aforementioned restructuring charges as well as labor
inefficiencies and start up costs related to the move to a new
whirlpool bath manufacturing facility in Chino, CA, costs of
process improvements to enhance quality and future operating
efficiencies at the new Chino, CA plant, costs related to the
Lowes roll-out, increased marketing expenses and
escalating costs associated with our cast iron and sanitary ware
businesses. Favorable currency exchange rates improved earnings
in fiscal 2004 when compared to fiscal 2003 by $3.9 million.



| |                  
| | -----------------
| | Plumbing Products

Net sales in the Plumbing Products segment
increased $31.4 million or 11.4% in fiscal 2004 when
compared with fiscal 2003. Sales in fiscal 2004 increased as a
result of continued market penetration particularly in the PEX
and commercial Brass product lines. Sales in these product lines
were driven by superior sensor technology and the markets
continued conversion of copper pipe to PEX tubing in plumbing
applications. Fiscal 2003 sales included $8.6 million from
the sale of a license for technology that had been the subject
of patent litigation.

Operating income decreased $1.4 million or
2.3% in fiscal 2004 as compared to fiscal 2003. Excluding the
$8.6 million gain on the sale of the technology license in
fiscal 2003, operating income increased in fiscal 2004 as a
result of improved sales and favorable pricing, which helped to
offset higher scrap iron and steel costs. We implemented
initiatives targeting procurement and finished product pricing
to offset the increased raw material costs. We began realizing
the benefits of these procurement and pricing initiatives in the
latter half of fiscal 2004.



| |       
| | ------
| | Rexair

Net sales increased $2.7 million or 2.6% in
fiscal 2004 as compared with the previous fiscal year. The
increase was due to the higher price points of the new
e2 RAINBOWTM vacuum cleaner
system, which was launched earlier this year. The rollout of the
new e2 model was completed during the
second quarter of fiscal 2004.

23



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##### Table of Contents



Operating income in fiscal 2004 increased
$0.7 million or 2.6% when compared with fiscal 2003. Fiscal
2004 operating income was negatively impacted by
$1.4 million in costs associated with the aforementioned
launch of the new e2 model. The
year-over-year comparison was also impacted by an inventory
reduction program implemented in fiscal 2003 that negatively
impacted operating income by approximately $1.0 million
that year.



| |                   
| | ------------------
| | Corporate Expenses

Corporate expenses increased $3.1 million in
fiscal 2004 as compared to last year. The increase was
attributable to reductions in pension income due to a lower
discount rate, costs associated with Sarbanes-Oxley compliance,
an increase in consulting fees and an increase in personnel
costs reflecting our new operating company organization. Fiscal
2004 also includes charges and amortization totaling
$1.6 million associated with an employee stock option buy
back and exchange offer. Corporate expenses in fiscal 2003
include $5.3 million of restructuring charges associated
with the consolidation of our corporate offices, net of a
favorable adjustment reversing previously established reserves
for vacant leased space now occupied by the shared services
center in Dallas, TX. Fiscal 2004 also includes a reversal of
the restructuring reserve for unused leased space of
$0.6 million associated with space that will be used by the
customer service function that was relocated to the shared
services operations center.



| |                            
| | ---------------------------
| | Interest Income and Expense

The decrease in interest expense of
$10.1 million from fiscal 2003 to fiscal 2004 was due to
lower debt balances and lower interest rates realized as a
result of the July 2003 refinancing and the June 2004 bank
amendment. The increase in interest income in fiscal 2004 was
due to $2.5 million of interest received from the IRS
related to a prior year audit settlement.



| |                   
| | ------------------
| | Other Expense, Net

Other expense, net was $2.9 million in
fiscal 2004 compared to $26.5 million in fiscal 2003.
Included in other expense, net for both years are expenses
associated with retained liabilities of our ladder operations,
which was sold in October 1999. Fiscal 2004 also includes
foreign currency transaction losses and a loss for the decrease
in the value of the Polyaire call option (see Note 3 of our
Consolidated Financial Statements) offset by a gain of
$3.2 million resulting from the resolution of litigation
that was under appeal for several years. Fiscal 2003 includes
$19.2 million of charges associated with the refinancing of
our debt facilities in July 2003, a gain on the sale of real
estate of $3.4 million and $2.3 million of other
financing charges related to our debt facilities.



| |      
| | -----
| | Taxes

During the first quarter of fiscal 2004, we had
an initial meeting with the Internal Revenue Service
(IRS) to begin their audit for the fiscal years 1998
through 2002. The IRS is currently at the information gathering
stage of the audit process and has not communicated any areas of
concern or proposed adjustments. The IRS anticipates completing
their audit in June 2005. In addition, several states and
various other countries have examinations either in the planning
stages or currently underway and one of our subsidiaries is also
under audit by the IRS for 1997 and 1998, a period prior to our
acquisition of that subsidiary.

During fiscal 2003, the IRS completed its
examination of the federal income tax returns for fiscal 1995
through 1997. As a result of the audit settlement, a tax benefit
of $13.6 million was recorded in fiscal 2003.



| |                                        
| | ---------------------------------------
| | Fiscal 2003 Compared to Fiscal
    2002



| |        
| | -------
| | Overall

Overall, net sales increased $124.3 million
or 11.6% in fiscal year 2003 when compared to fiscal 2002. The
results reflect sales increases in each of our operating
segments, with the most significant increases achieved in our
Bath Products segment. Fiscal 2003 results include
$8.6 million in sales recognized upon the

24



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##### Table of Contents



granting of a license for certain technology that
had been the subject of patent litigation. Operating income
decreased $13.2 million or 14.0% in fiscal 2003 as compared
to fiscal 2002. Included in our fiscal 2003 results are
$19.9 million of impairment, restructuring and other
charges, of which $0.9 million is included in cost of
products sold, while our fiscal 2002 results include
restructuring and other charges of $7.2 million. For
detailed information on these charges see our discussion in
Note 4to our Consolidated Financial Statements. The
decrease in operating income, beyond the net impact of the
impairment, restructuring and other charges, is primarily due to
a decrease in operating results in our Bath Products segment as
more fully described below.




| |              
| | -------------
| | Bath Products

Net sales in our Bath Products segment increased
by $102.0 million or 14.3% in fiscal 2003 as compared with
fiscal 2002. Approximately $28.2 million of the increase or
27.6% was due to the firming of the British pound and the euro
against the U.S. dollar. The remaining increase was
primarily the result of increased sales of our bath products in
the U.K. and our spas in the U.S. in addition to the
introduction of our JACUZZI® whirlpool bath product lines
into the nearly 900 Lowes home centers in the
U.S. The increase in the sales for U.K. bath products was
primarily attributable to additional sales to Focus and
Homebase, two leading U.K. homecenter retailers. The increase in
sales of our domestic spas was the result of strong sales and
marketing efforts and an expanded specialty retail dealer base.

Operating income of $7.4 million for fiscal
2003 includes $14.6 million of restructuring and other
charges primarily related to the closure of two plants, while
operating income of $26.7 million for fiscal 2002 includes
$2.5 million of restructuring and other charges related to
the elimination of an executive layer of management. A separate
discussion of these charges can be found in Note 4to our Consolidated Financial Statements. Excluding these
charges, operating income decreased as favorable sales volume
was offset by labor inefficiencies and start up costs related to
the move to a new whirlpool bath manufacturing facility in
Chino, CA, costs of process improvements to enhance quality and
future operating efficiencies at the new Chino, CA plant, costs
related to the Lowes roll-out, higher insurance costs,
increased marketing expenses and escalating costs associated
with our cast iron and sanitary ware businesses. In addition, we
established a $2.5 million reserve against a receivable
from a Brazilian distributor in fiscal 2003 in accordance with
SFAS No. 114, Accounting by Creditors for
Impairment of a Loan  an Amendment of FASB Statements
No. 5 and 15,as amended. Favorable currency
exchange rates improved earnings by $5.0 million for fiscal
2003.



| |                  
| | -----------------
| | Plumbing Products

Net sales in the Plumbing Products segment
increased by $18.8 million or 7.3% for fiscal 2003 when
compared with fiscal 2002. Fiscal 2003 includes
$8.6 million from the sale of a license for technology that
had been the subject of patent litigation. Without these
revenues, sales still remained ahead of 2002 despite continued
softness in the U.S. commercial and institutional
construction markets, which declined by approximately 6% in
fiscal 2003. This was accomplished by enhancing product
offerings and implementing programs to increase market share.

Operating income increased from
$51.3 million in fiscal 2002 to $62.1 million in
fiscal 2003. Fiscal 2002 results include restructuring and other
charges of $1.3 million related to a management
restructuring and discontinued product lines (see Note 4to our Consolidated Financial Statements). The increase in
operating income, after giving effect for the restructuring and
other charges in fiscal 2002, is the result of higher sales and
the $8.6 million sale of the technology license. Without
the sale of the license, margins as a percentage of sales would
have decreased slightly primarily as a result of changes in the
product mix sold.



| |       
| | ------
| | Rexair

Net sales increased by $3.5 million or 3.5%
in fiscal 2003 as compared to fiscal 2002. The increase was the
result of higher volume and a price increase implemented at the
beginning of fiscal 2003.

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Operating income decreased from
$27.4 million in fiscal 2002 to $26.6 million in
fiscal 2003. Increased margins from the increase in sales were
offset by decreased overhead absorption of approximately
$1.0 million related to an inventory reduction program and
increased compensation costs in fiscal 2003 and a decrease in
estimated warranty reserves during 2002 that increased operating
income that year.



| |                   
| | ------------------
| | Corporate Expenses

Corporate expenses increased by $3.9 million
in fiscal 2003 as compared with fiscal 2002. The increase is
primarily attributable to net restructuring charges in fiscal
2003 of $5.3 million related to the consolidation of
corporate offices and a favorable adjustment to prior year
reserves related to a corporate lease obligation. Fiscal 2002
includes restructuring charges of $3.4 million related to
the same corporate lease obligation (see Note 4to
our Consolidated Financial Statements). We increased the reserve
in fiscal 2002 when it became apparent that we could not
sub-lease the empty space. A portion of the reserve was reversed
when we decided to utilize the space for the shared services
operations center. The remaining increase, after giving effect
to the net restructuring charges, is primarily due to a decrease
in pension income, reflecting a reduction in the discount rate
used in valuing the plans. Partially offsetting these increased
costs are decreases in compensation and other personnel related
expenses due to staffing reductions as well as decreases in
professional fees.



| |                            
| | ---------------------------
| | Interest Income and Expense

The decrease in interest expense of
$14.0 million from fiscal 2003 to fiscal 2002 was largely
due to lower debt balances resulting from asset disposals, the
proceeds of which were used for the repayment of debt.

The decrease in interest income in fiscal 2003
was primarily due to the January 2002 sale of
$156.9 million in aggregate principal amount of 12.5%
Strategic Notes.



| |                   
| | ------------------
| | Other Expense, Net

Other expense, net was $26.5 million in
fiscal 2003 compared to $15.5 million for fiscal 2002.
Fiscal 2003 includes $19.2 million of charges associated
with the refinancing of our debt facilities in July 2003,
$3.7 million in expenses associated with retained
liabilities of our ladder operations which were sold in October
1999 and $2.3 million of other financing charges related to
our debt facilities. Fiscal 2002 includes $9.2 million in
financing related charges and $5.2 million in expenses
associated with our ladder operations.



| |      
| | -----
| | Taxes

During fiscal 2003, the IRS completed its
examination of the federal income tax returns for fiscal 1995
through 1997. As a result of the audit settlement, a tax benefit
of $13.6 million was recorded in fiscal 2003. In fiscal
2002, we recorded a tax benefit of $29.6 million, which was
largely attributable to benefits realized as the result of
certain asset sales and changes in tax laws regarding the
utilization of loss carry backs.

We are able to carry back net operating losses in
fiscal 2002 for which we had previously established a valuation
allowance in fiscal 2001 as a result of a change in tax law
under the Job Creation and Workers Assistance Act of 2002.
In accordance with FASB Statement No. 109, Accounting
for Income Taxes, the release of a valuation allowance due
to a change in tax law is reflected through continuing
operations. We had established the valuation allowance in fiscal
2001 to reflect the uncertainty of the future realization of
losses recognized in connection with the 2001 Disposal Plan (see
Note 3to our Consolidated Financial Statements).

Liquidity and Capital Resources

Our primary sources of liquidity and capital
resources are cash and cash equivalents, cash provided from
operations and available borrowings. We expect to satisfy
operating needs including the cash requirements

26



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##### Table of Contents



related to our capital expenditures and
restructuring programs through operating cash flows and
borrowings under our existing bank facilities.


Net cash provided by operating activities of
continuing operations was $46.4 million for fiscal 2004,
compared to $79.9 million for fiscal 2003. The difference
between 2004 and 2003 was primarily because fiscal 2003 activity
included a $46.7 million receipt of income tax refunds, net
of tax payments, and $8.6 million resulting from a
technology sale, offset by payments of liabilities we had
previously accrued related to retained liabilities for
operations we had sold during that year. We typically use cash
in the first half of the fiscal year due to the seasonality of
most of our businesses. Weather can significantly impact
construction and installation, which ultimately impacts sales in
our Bath Products and Plumbing Products segments. Sales of
outdoor jetted spas and other products are also sensitive to
weather conditions and tend to decrease during the fall and
winter months (predominantly the first and second fiscal
quarters).

Inventories at fiscal year end 2004 increased by
$27.5 million, or 16.7%, over fiscal 2003. Inventory levels
have increased in all three of our business segments. The
increase in our Bath Products segment was due to sales growth in
fiscal 2004 and the transition to sourced inventory products as
a result of closing the Salem, OH plant and downsizing the Ford
City, PA facility. Inventory levels increased year-over-year in
our Plumbing Products segment primarily as a result of business
growth and an increase in materials cost. Inventory levels were
up in our Rexair segment as compared to fiscal 2003 due to the
higher costs of parts for the new e2
RAINBOWTM vacuum cleaner system. In addition, Rexair
inventory levels were lower at the end of fiscal 2003 in
anticipation of the launch of the new
e2 model.

Trade accounts receivable, net increased
$18.1 million in fiscal 2004 compared to the prior year.
The increase was mainly due to sales growth, as days of sales
outstanding remained relatively flat year-over-year.

During fiscal 2004, we paid approximately
$13.4 million related to our restructuring plans, and
expect to pay approximately $16.3 million in the next
12 months (see Note 4to our Consolidated
Financial Statements) including $6.6 million of charges to
be incurred during fiscal 2005. During fiscal 2003, we paid
approximately $5.3 million related to our restructuring
plans.

Net cash used by discontinued operations in
fiscal 2004 was $1.8 million as compared to net cash used
of $5.0 million in fiscal 2003. The net cash used in fiscal
2004 pertained to the operations of our water systems business,
which was sold in October 2003. In addition, the swimming pool
and equipment business was sold in May 2003, before its
cash-generating season.

Net cash used by investing activities of
$12.5 million in fiscal 2004 included $4.5 million
received from sold businesses of which approximately
$2.4 million related to the sale of our water systems
business in October 2003, and $2.1 million related to
payments received in connection with the sale of our swimming
pool and equipment business in May 2003. We also received
$2.4 million from collection of a portion of a note we held
from the owners of a power plant constructed by one of our
former subsidiaries, as well as $3.9 million from the sale
of excess real estate and fixed assets. These receipts were
offset by $23.3 million paid for capital expenditures. Net
cash provided by investing activities of $112.6 million for
fiscal 2003 consisted of net proceeds of $120.5 million
from the sale of SiTeco and our swimming pool and equipment
business and $11.1 million from the sale of excess real
estate, partially offset by $19.2 million of capital
expenditures.

We expect total capital expenditures for fiscal
2005 to be approximately $28.0 million for new business
requirements, system upgrades and implementations, initiatives
involving the consolidation of workflows and improvement of
manufacturing efficiencies and other capital requirements in the
ordinary course of business.

Net cash used in financing activities was
$30.9 million during fiscal 2004. We repaid
$30.3 million of our debt, including a $3.2 million
permanent reduction of our term loan. We also paid
$1.5 million of financing fees related to our bank
facilities and senior notes.

Net cash used in financing activities was
$197.9 million for fiscal 2003, which consists of net
repayments of long-term debt and notes payable of
$310.1 million, deposits of $66.5 million into
restricted cash collateral accounts, payments of debt issuance
and other financing costs of $45.6 million, offset by

27



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$224.3 million of withdrawals from the
restricted cash collateral accounts, the establishment and
depletion of which was prescribed by the terms of our then
outstanding bank facilities. The debt issuance and other
financing costs were comprised of bank amendment fees, legal and
professional fees, consent fees, debt issuance costs, financing
costs and bond redemption fees. These costs were associated with
the fiscal 2003 reorganization of our debt structure, including
the payoff and redemption of our then existing bank debt and
senior notes.


On July 15, 2003, we completed a
comprehensive re-financing of our corporate debt by closing on
the issuance of $380.0 million in aggregate principal
amount of 9.625% senior secured notes (the Senior
Notes), as well as a new five-year $200.0 million
asset-based revolving credit facility and a five-year
$65.0 million term loan (collectively the Bank
Facilities). The net proceeds from the Senior Notes
together with the initial borrowings under the Bank Facilities
were used to repay debt and redeem the senior notes that were
outstanding at that time.

On June 30, 2004, we amended our Bank
Facilities, and on July 2, 2004, we made a
$3.2 million payment to the bank permanently reducing our
term loan to $61.8 million. The amendment provides for:



| |   |                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a reduction in the interest rate of our term loan
    from Prime plus 5.0%, with a minimum rate of 9.25%, to LIBOR
    plus 5.0%, with no minimum rate;                                                                                                              
|
| |  | the elimination of annual prepayments on the term
    loan of $10.0 million, which were scheduled to begin in
    August 2005;                                                                                                                                       
|
| |  | the elimination of annual prepayments on the term
    loan equal to 25% of our annual consolidated excess cash flow,
    as determined by the original loan agreement;                                                                                               
|
| |  | the extension of the term loans maturity
    date by one year to July 15, 2009; and                                                                                                                                                                                 
|
| |  | the elimination of all debt covenants except the
    requirement to maintain a minimum consolidated fixed charge
    coverage ratio. This requirement is applicable only if our
    availability under the asset-based credit facility falls below
    $20.0 million.

This amendment was not considered a substantial
modification of our debt under the guidance provided in EITF
Issue No. 96-19, Debtors Accounting for a
Modification or Exchange of Debt Instruments.

The outstanding debt balances and the maximum
availability under these debt instruments at October 2,
2004 were as follows:

|                                |  |              |       |             |  |                          |       |  |  |  |                                      | 
|------------------------------- |  | ------------ | ----- | ----------- |  | ------------------------ | ----- |  |  |  | ------------------------------------ | 
|                                |  | Maximum      |       | Amount      |  |                         
|                                |  | Availability |       | Outstanding |  | Applicable Interest Rate
|                                |  |              |       |             |  |                         
|Senior Notes                    |  | $            | 380.0 |             |  | $                        | 380.0 |  |  |  | 9.625%                               | 
|Asset-based credit facility (1) |  |              | 145.7 |             |  |                          | 2.5   |  |  |  | 2.25% over LIBOR or 0.25% over Prime | 
|Term loan                       |  |              | 61.8  |             |  |                          | 61.8  |  |  |  | 5.0% over LIBOR                      | 
|US Brass note                   |  |              | 6.4   |             |  |                          | 6.4   |  |  |  | Interest imputed at 9.5%             | 
|                                |  |              |       |             |  |                          |       |  |  |  |                                      | 
|Total                           |  | $            | 593.9 |             |  | $                        | 450.7 |  |  |  |                                      | 
|                                |  |              |       |             |  |                          |       |  |  |  |                                      | 



---



|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | In addition, $42.1 million of the facility
    is utilized for letters of credit at the end of fiscal 2004.

The net cash proceeds from the Senior Notes were
approximately $367.4 million after transaction fees.
Transaction fees were capitalized and are being amortized over
the seven-year term of the Senior Notes. The Senior Notes, which
are due July 1, 2010 and require the payment of interest of
$18.3 million on January 1 and July 1 of each
year, were subject to registration with the Securities and
Exchange Commission pursuant to a registration rights agreement.
On February 17, 2004, we completed an offer to exchange
new, registered Senior Notes for the then outstanding
unregistered notes. The terms of the new, registered Senior
Notes are identical, in all material respects, to the terms of
the then outstanding unregistered notes, except that the new
Senior Notes have been registered under the Securities Act, and
the transfer restrictions and registration rights relating to
the unregistered notes do not apply to the registered Senior
Notes.

28



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##### Table of Contents



We are restricted in the redemption of the Senior
Notes per the terms of the agreement with the note holders (the
Agreement). Prior to July 1, 2006, we can
redeem up to 35% of the Senior Notes with the net cash proceeds
of an equity offering, as defined in the Agreement. On and after
July 1, 2007, we can redeem the Senior Notes subject to a
redemption premium of 104.8% for the first 12 months and
102.4% for the following 12 months. On and after
July 1, 2009, the Senior Notes can be redeemed at face
value.

The five-year asset-based revolving credit
facility matures on July 15, 2008. Under this facility, we
can borrow up to $200.0 million subject to a borrowing base
consisting of eligible accounts receivable and eligible
inventory, plus eligible trademarks. The initial amount of
eligible trademarks of $20.0 million is being amortized
monthly over the first two years of the facility as a reduction
of the borrowing base. The weighted average interest rate on
borrowings under the asset-based credit facility was 3.98% for
fiscal 2004. There are several fees associated with the
asset-based credit facility including an unused commitment fee
of 0.5%, a letter of credit fee equal to the applicable LIBOR
margin and a fronting fee of 0.125% on all outstanding letters
of credit.

The Bank Facilities contain a subjective
acceleration clause and a requirement to maintain a lockbox
associated with our asset-based facility. As required by EITF
Issue No. 95-22, Balance Sheet Classification of
Borrowings Outstanding under Revolving Credit Agreements that
Include both a Subjective Acceleration Clause and a Lockbox
Arrangement, the entire balance of the asset-based facility
is included in current maturities of long-term debt.

We incurred approximately $8.7 million in
transaction and professional fees associated with the completion
of the Bank Facilities deal in fiscal 2003. These costs were
capitalized, and a portion is being amortized over the five-year
term of the asset-based credit facility, and a portion is being
amortized over the six-year term of the term loan. The Bank
Facilities require us to maintain a minimum consolidated fixed
charge coverage ratio, which is only applicable if our
availability under the asset-based credit facility falls below
$20.0 million. We were not subject to this debt covenant at
October 2, 2004 because our availability exceeded the
required threshold. We expect to maintain availability in excess
of $20.0 million for the foreseeable future. Our Bank
Facilities also include a restriction on the payment of
dividends.

Certain of our existing and future domestic
restricted subsidiaries guarantee the Senior Notes, jointly and
severally, on a senior basis. The Senior Notes are secured by an
eligible first lien on domestic property, plant and equipment,
and a second lien on the assets that secure the Bank Facilities.
The asset-based credit facility is secured by a first lien on
accounts receivable, inventory, intangibles, the stock of our
domestic subsidiaries and 65% of the stock of our first-tier
foreign subsidiaries. In addition, the asset-based credit
facility has a second lien on the property, plant and equipment
securing the Senior Notes. The term loan is secured by the same
assets that secure the asset-based credit facility, but the term
loan will be paid on a last out basis following the
payment of the obligations under the asset-based credit facility.

The continued decrease in total debt combined
with increased earnings continues to move us closer towards our
goal of achieving investment grade ratios. The reduction in
leverage along with investment grade ratios will support the
objective of improved borrowing rates leading to lower interest
costs over time. On November 1, 2004, the interest rate on
our asset-based revolving credit facility was lowered from LIBOR
plus 2.25% to LIBOR plus 2.0% as a result of a decrease in our
leverage ratio.



| |            
| | -----------
| | Commitments

At October 2, 2004, we had approximately
$145.7 million available to be borrowed under the
asset-based facility, of which we had utilized approximately
$44.6 million (including $42.1 million of letters of
credit), leaving $101.1 million available for additional
borrowings. In addition, we have outstanding foreign commercial
letters of credit of $1.8 million, which do not affect
availability under the asset-based facility. We do not have any
other significant off-balance sheet obligations.

29



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##### Table of Contents



Below is a summary of our significant contractual
cash obligations as of October 2, 2004:

|                        |  |                        |       |          |  |           |       |           |  |            |       |  |  |   |       |  |  |   |       | 
|----------------------- |  | ---------------------- | ----- | -------- |  | --------- | ----- | --------- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                        |  |                        |       |         
|                        |  | Payments Due in Fiscal |       | Payments
|                        |  |                        |       | Due     
|                        |  | Total                  |       | 2005     |  | 2006-2007 |       | 2008-2009 |  | Thereafter
|                        |  |                        |       |          |  |           |       |           |  |           
|Long-term debt          |  | $                      | 450.7 |          |  | $         | 3.9   |           |  | $          | 3.2   |  |  | $ | 63.6  |  |  | $ | 380.0 | 
|Notes payable           |  |                        | 21.1  |          |  |           | 21.1  |           |  |            |      |  |  |   |      |  |  |   |      | 
|Lease obligations       |  |                        | 49.5  |          |  |           | 9.3   |           |  |            | 14.2  |  |  |   | 6.6   |  |  |   | 19.4  | 
|Purchase obligations(1) |  |                        | 111.4 |          |  |           | 111.4 |           |  |            |      |  |  |   |      |  |  |   |      | 
|Marketing commitment(2) |  |                        | 2.9   |          |  |           | 2.9   |           |  |            |      |  |  |   |      |  |  |   |      | 
|Interest payments(3)    |  |                        | 225.0 |          |  |           | 40.9  |           |  |            | 81.4  |  |  |   | 75.3  |  |  |   | 27.4  | 
|Pension contributions   |  |                        | 23.5  |          |  |           | 2.1   |           |  |            | 4.3   |  |  |   | 4.5   |  |  |   | 12.6  | 
|Other(4)                |  |                        | 47.8  |          |  |           | 21.9  |           |  |            | 13.4  |  |  |   | 4.5   |  |  |   | 8.0   | 
|                        |  |                        |       |          |  |           |       |           |  |            |       |  |  |   |       |  |  |   |       | 
|Total                   |  | $                      | 931.9 |          |  | $         | 213.5 |           |  | $          | 116.5 |  |  | $ | 154.5 |  |  | $ | 447.4 | 
|                        |  |                        |       |          |  |           |       |           |  |            |       |  |  |   |       |  |  |   |       | 



---



|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Purchase obligations are all open purchase orders
    at October 2, 2004. Of this amount, $8.3 million
    represents obligations that were relieved by October 6,
    2004.    
|   
|(2) | Marketing commitment represents a company-wide
    marketing campaign for the Bath Products segment. Of this
    amount, $0.6 million is legally binding at October 2,
    2004.
|   
|(3) | Interest payments represent interest on the
    Senior Notes, term loan and asset-based revolving credit
    facility.                                                          
|   
|(4) | Other includes obligations relating to
    restructuring initiatives and indemnifications for assets and
    previously sold businesses.                                        



| |                                    
| | -----------------------------------
| | Guarantees and
    Indemnifications

We continue to guarantee the lease payments of an
Ames True Temper master distribution center. The lease
obligation will expire in 2015. The scheduled lease payments
totaled $3.7 million for fiscal 2004, and increase by 2.25%
each year thereafter. In connection with the sale of Ames True
Temper in January 2002, we obtained a security interest and
indemnification from Ames True Temper on the lease that would
enable us to exercise remedies in the event of default.

We have an agreement with a third party financing
company that we will repurchase any new or salable spas returned
to us within twelve months of the original sale date. The costs
associated with this agreement have been minimal to date.

We have sold a number of assets and businesses
over the last several years and have, on occasion, provided
indemnifications for liabilities relating to product liability,
environmental, insurance and other claims. We have recorded
reserves totaling approximately $20.6 million as of
October 2, 2004 for asserted and potential unasserted
claims related to these liabilities. These amounts have not been
discounted.

New Accounting Pronouncement

In November 2004, FASB Statement No. 151,
Inventory Costs, an Amendment of ARB No. 43,
Chapter 4(SFAS No. 151), was
issued. The amendments made by SFAS No. 151 clarify
that abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials (spoilage) should be
recognized as current-period charges and require the allocation
of fixed production overheads to inventory based on the normal
capacity of the production facilities. SFAS No. 151
will become effective for us beginning in fiscal 2006. We are in
the process of assessing the impact SFAS No. 151 will
have on our financial position and results of operations.

30



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##### Table of Contents



Foreign Currency Matters

The functional currency of each of our foreign
operations is the local currency. Assets and liabilities of
foreign subsidiaries are translated at the exchange rates in
effect at the balance sheet dates, while net sales, expenses and
cash flows are translated at average exchange rates for the
period. Translation gains and losses are reported as a component
of stockholders equity.

Effects of Inflation

Because of the relatively low level of inflation
experienced in most of our principal markets, inflation did not
have a material impact on our results of operations during the
periods presented. Although higher than normal inflation in
fiscal 2004 resulted in increased scrap iron and steel costs
used in the production of certain of our products, we were able
to offset those increases with more favorable pricing of those
products.

Critical Accounting Policies and
Estimates

Managements discussion and analysis of its
financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
U.S. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, sales and expenses as well as
the disclosure of contingent assets and liabilities. We
regularly review our estimates and assumptions. These estimates
and assumptions, which are based upon historical experience and
on various other factors believed to be reasonable under the
circumstances, form the basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Reported amounts and disclosures
may have been different had management used different estimates
and assumptions or if different conditions had occurred in the
periods presented. Our accounting policies can be found in
Note 2to our Consolidated Financial Statements.
Below is a discussion of the policies that we believe may
involve a high degree of judgment and complexity.



| |                  
| | -----------------
| | Trade Receivables

We record an allowance for doubtful accounts,
reducing our receivables balance to an amount we estimate is
collectible from our customers. We use significant judgment in
estimating uncollectible amounts, considering numerous factors
such as current overall economic conditions, industry specific
economic conditions, historical and current customer performance
and customer relationships. Although we consider our allowances
for uncollectible accounts to be adequate and proper, changes in
economic conditions or customer circumstances could have a
material effect on the reserve balances required. Historically,
actual results have not deviated significantly from those
previously estimated by management.



| |            
| | -----------
| | Inventories

Our inventories are stated at the lower of cost
or market value. We review our inventory balances to determine
if inventories can be sold at amounts equal to or greater than
their recorded values. The review includes the identification of
slow-moving inventories, obsolete inventories and discontinued
products based on the historical performance of the inventories
and current operational plans for inventories, as well as
estimated future customer demand for the inventories.
Historically, actual results have not deviated significantly
from those previously estimated by management.



| |             
| | ------------
| | Income Taxes

Deferred tax assets and liabilities represent the
tax effects, based on current law, of any temporary differences
in the timing of when net sales and expenses are recognized for
tax purposes and when they are recognized for financial
statement purposes. Management reviews the deferred tax assets
periodically for recoverability, and valuation allowances are
provided as necessary. We consider expected future income and
gains from investments as well as tax planning strategies,
including the potential sale of certain assets, in

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##### Table of Contents



assessing the need for a valuation allowance
against our deferred tax assets. If future taxable income is
different than expected, we may need to change our valuation
allowance on our deferred tax assets.


Significant judgment is required in determining
our effective tax rate and in evaluation of our tax provisions.
Despite our belief that our tax return positions are fully
supportable, we estimate tax exposures and establish accruals
when in our judgment we believe that certain positions are
likely to be challenged and that we may not succeed. We adjust
these reserves in light of changing facts and circumstances,
such as the progress of a tax audit.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Assets Held for Sale and Liabilities
    Associated with Assets Held for Sale

We record reserves for the difference between the
carrying value and the net realizable value of our net assets
held for sale. These reserves require that management make
assumptions about estimated proceeds, based on the demand for
these assets and current market conditions, and about estimated
costs to sell, based on managements professional knowledge
and experience. We monitor these reserves on an on-going basis
and record adjustments to our estimates based on actual results
and managements updated knowledge. Assets held for sale
have been evaluated for impairment in accordance with
SFAS No. 144, Accounting for Impairment or Disposal
of Long-lived Assets(SFAS No. 144).



| |                                   
| | ----------------------------------
| | Goodwill and Other
    Intangibles

We have significant intangible assets related to
goodwill and other acquired intangibles. The determination of
related estimated useful lives and whether or not these assets
are impaired involves significant judgment. Changes in strategy,
reporting unit operating results and/or market conditions could
significantly impact our judgment and could require adjustments
to recorded asset balances. In accordance with
SFAS No. 142, Goodwill and Intangible Assets(SFAS No. 142), we test our goodwill
and intangible assets with indefinite lives for impairment at
the reporting unit level annually in the fourth quarter of each
fiscal year, or earlier in the year if indications of impairment
arise. We test our finite-lived intangible assets for impairment
when there are indicators of impairment as defined in
SFAS No. 142. The results of any of these tests could
require adjustments to recorded asset balances in future periods.



| |                                                      
| | -----------------------------------------------------
| | Costs Associated with Exit or Disposal
    Activities

In establishing accruals for restructuring costs
associated with exit or disposal activities, we measure our
liability at fair value in the period in which the liability is
incurred in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. In estimating the fair value of expected exit
and disposal costs, we make certain assumptions to determine the
remaining lease obligations, sublease income, severance costs,
relocation costs and other exit costs. While we feel our
assumptions are appropriate, there can be no assurance that
actual costs will not differ from estimates used to establish
the restructuring reserves. If actual results differ from our
estimates, we may need to adjust, upward or downward, our
restructuring reserves in the future. Additionally, long-lived
assets are evaluated for impairment in accordance with
SFAS No. 144, which involves the use of estimates to
calculate fair value, future cash flows and costs to sell. These
estimates may differ from actual amounts realized in future
periods.



| |                              
| | -----------------------------
| | Commitments and Contingencies

We are subject to proceedings, lawsuits and other
claims related to environmental, labor, product and other
matters. We are required to assess the likelihood of any adverse
judgments or outcomes to these matters as well as potential
ranges of probable losses. We determine the amount of reserves
needed, if any, for each individual issue based on our
professional knowledge and experience and discussions with legal
counsel. The required reserves may change in the future due to
new developments in each matter, the ultimate resolution of each
matter or changes in approach, such as a change in settlement
strategy, in dealing with these matters.

We have sold a number of assets and businesses
over the last several years and have, on occasion, provided
indemnification for liabilities relating to product liability,
environmental and other claims. We have recorded reserves for
claims related to these obligations when appropriate and, on
certain occasions, have

32



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##### Table of Contents



obtained the assistance of an independent actuary
in the determination of those reserves. If actual experience
deviates from our estimates, we may need to record adjustments
to these liabilities in future periods.


Our insurance programs for workers
compensation, general liability, vehicle liability and
employee-related health care benefits are effectively
self-insured. We record self-insurance accruals based on our
estimates of the fully developed cost of claims filed and claims
incurred but not reported. Estimates of claims development and
claims incurred but not reported are developed by us with the
help of an independent actuary. If actual experience of claims
development is significantly different than our estimates, an
adjustment to our self-insurance accruals may need to be
recorded in future periods.



| |                  
| | -----------------
| | Warranty Reserves

Reserves are recorded on our consolidated balance
sheets to reflect our contractual liabilities relating to
warranty commitments to our customers. We provide warranty
coverage of various lengths and terms to our customers depending
on standard offerings and negotiated contractual agreements. We
record an estimate for warranty expense at the time of sale
based on historical warranty return rates and repair costs.
Should future warranty experience differ materially from our
historical experience, we may be required to record additional
warranty reserves which could have a material adverse effect on
our results of operations in the period in which these
additional reserves are required.



| |                                               
| | ----------------------------------------------
| | Pension and Other Post-Employment
    Benefits

We have significant pension and post-retirement
benefit income and expense and assets/liabilities that are
developed from actuarial valuations. These valuations include
key assumptions regarding discount rates, expected return on
plan assets, mortality rates, merit and promotion increases and
the current health care cost trend rate. We consider current
market conditions in selecting these assumptions. Changes in the
related pension and post-retirement benefit income/costs or
assets/liabilities may occur in the future due to changes in the
assumptions and changes in asset values.

When valuing the pension plans at the end of
fiscal 2004, we reduced our discount rate by 25 basis
points for our domestic plan and increased the life expectancy
assumptions on our UK plan. Also influencing the expected
expense of approximately $3.2 million in fiscal 2005 in
comparison to the pension income of $3.2 million in fiscal
2004 are increases in the amortization of prior year losses.
Future changes in the assumptions underlying our pension
valuations, including those that arise as a result of continued
declines in equity markets and interest rates, could result in
further reductions in pension income, which could negatively
affect our consolidated results of operations in future periods.

We recognized $3.2 million,
$6.7 million and $11.8 million of pension income in
fiscal 2004, 2003 and 2002, respectively. These amounts
increased our operating income by an equal amount for each of
the respective periods. Pension income, excluding service costs,
related to our Master Plan is included as a reduction to
corporate expenses. Our Master Plan covers certain employees in
each of our three segments and our corporate office, as well as
certain employees in some of our legacy companies. The service
cost portion of pension income associated with our Master Plan
is allocated to the operating segments and corporate based on
employee data. Pension income or expense associated with our
other post-employment benefit plans are recorded on the books of
the business that employs the benefited employees and are not
shared between operating segments.



| |                          
| | -------------------------
| | Environmental Liabilities

We accrue an estimated liability for each
environmental matter when the likelihood of an unfavorable
outcome is probable and the amount of loss associated with such
unfavorable outcome is reasonably estimable. We presume that a
matter is probable of an unfavorable outcome if
(a) litigation has commenced or a claim has been asserted
or if commencement of litigation or assertion of a claim is
probable and (b) if we are somehow associated with the
site. In addition, if the reporting entity has been named as a
Potentially Responsible Party (PRP), an unfavorable
outcome is presumed.

33



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##### Table of Contents



Estimating environmental remediation liabilities
involves an array of issues at any point in time. In the early
stages of the process, cost estimates can be difficult to derive
because of uncertainties about a variety of factors. For this
reason, estimates developed in the early stages of remediation
can vary significantly; and, in many cases, early estimates
later require significant revision. The following are some of
the factors that are integral to developing cost estimates:



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | The extent and types of hazardous substances at a
    site;                                                     
|
| |  | The range of technologies that can be used for
    remediation;                                                 
|
| |  | Evolving standards of what constitutes acceptable
    remediation; and                                          
|
| |  | The number and financial condition of other PRPs
    and the extent of their responsibility for the remediation.

An estimate of the range of an environmental
remediation liability typically is derived by combining
estimates of various components of the liability, which
themselves are likely to be ranges. At the early stages of the
remediation process, particular components of the overall
liability may not be reasonably estimable. This fact does not
preclude our recognition of a liability. Rather, the components
of the liability that can be reasonably estimated are viewed as
a surrogate for the minimum in the range of our overall
liability. Estimated legal and consulting fees are included as a
component of our overall liability.

Certain environmental contamination treatment
costs are capitalized in accordance with EITF Issue
No. 90-8, Capitalization of Costs to Treat Environmental
Contamination, while most of them are charged to expense
when they are incurred. If the costs are recoverable, they are
capitalized only if one of following criteria is met:



| |   |                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The costs extend the life, increase the capacity
    or improve the safety or efficiency of property owned. The
    condition of that property after the costs are incurred must be
    improved as compared with the condition of that property when
    originally constructed or acquired.
|
| |  | The costs mitigate or prevent environmental
    contamination that has yet to occur and that otherwise may
    result from future operations or activities. In addition, the
    costs improve the property compared with its condition when
    constructed or acquired.                    
|
| |  | The costs are incurred in preparing for sale that
    property which is currently held for sale.                                                                                                                                                                                             



| |                                                      
| | -----------------------------------------------------
| | Asbestos Claims and Insurance for Asbestos
    Claims

As noted in Item 3 Legal Proceedingsof this Annual Report on Form 10-K, Zurn records a
liability for pending and potential future asbestos claims, as
well as a receivable for insurance coverage of such liability.
The valuation of Zurns potential asbestos liability, which
was performed this year by an independent economic consulting
firm with substantial experience in asbestos liability
valuations, was based on the number and severity of future
asbestos claims, future settlement costs, and the effectiveness
of Zurns defense strategies and settlement initiatives.

Zurns present estimate of its asbestos
liability assumes (i) its continuous vigorous defense
strategy will remain effective; (ii) new asbestos claims
filed annually against it will decline modestly through 2014;
(iii) the values by disease will remain consistent with
past experience and (iv) its insurers will continue to pay
defense costs without eroding the coverage amounts of its
insurance policies. Zurns potential asbestos liability
could be adversely affected by changes in law and other factors
beyond its control. Further, while Zurns current asbestos
liability is based on an estimate of claims through 2014, such
liability may continue beyond 2014, and such liability could be
substantial.

Zurn estimates that its available insurance to
cover its potential asbestos liability as of the end of fiscal
2004 is greater than its potential asbestos liability. This
conclusion was reached after considering Zurns experience
in asbestos litigation, the insurance payments made to date by
Zurns insurance carriers, existing insurance policies, the
industry ratings of the insurers and the advice of insurance
coverage counsel with respect to applicable insurance coverage
law relating to the terms and conditions of those policies. Zurn
used

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##### Table of Contents



these same considerations when evaluating the
recoverability of its receivable for insurance coverage of
potential asbestos claims.




| |                    
| | -------------------
| | Revenue Recognition

We recognize revenue when all of the following
criteria are met: persuasive evidence of the arrangement exists;
delivery has occurred and we have no remaining obligations;
prices are fixed or determinable; and collectibility is
probable. We make shipments to approved customers based on
orders placed. Prices are fixed when the customer places the
order. An approved customer is one that has been subjected to
our credit evaluation. We record revenue when title passes,
which is either at the time of shipment or upon delivery to the
customer. The passage of title is dependent on the arrangements
made with each customer. Provisions are made for sales returns
and allowances at the time of sale.

We use significant judgment in estimating sales
return costs, considering numerous factors such as current
overall and industry-specific economic conditions and historical
sales return rates. Although we consider our sales return
reserves to be adequate and proper, changes in historical
customer patterns could require adjustments to the reserves.
Historically, however, actual results have not deviated
significantly from those previously estimated by management. We
also record reductions to our revenues for customer and
distributor programs and incentive offerings including special
pricing agreements, promotions and other volume-based
incentives. We may take actions to increase customer incentive
offerings possibly resulting in an incremental reduction of
revenue at the time the incentive is offered.



| |                                            
| | -------------------------------------------
| | Accounting for Stock-Based
    Compensation

FASB Statement No. 123, Accounting for
Stock-Based Compensation
(SFAS No. 123),defines a fair
value method of accounting for issuance of stock options and
other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the
fair value of the award and is recognized over the service
period, which is usually the vesting period. Pursuant to
SFAS No. 123, we are not required to adopt the fair
value method of accounting for employee stock-based transactions
at this time. We are permitted to account for such transactions
under APB Opinion No. 25, Accounting for Stock Issued to
Employees,which defines an intrinsic value method of
accounting for the issuance of stock options and other equity
instruments, but are required to disclose in a note to our
consolidated financial statements pro forma net income and per
share amounts as if we had applied the methods prescribed by
SFAS No. 123. For purposes of the pro forma
disclosure, we calculate the fair value of our stock options
using the Black-Scholes option-pricing model. To use this model,
we must judgmentally determine the estimated life of the stock
option, the projected volatility of our company stock over the
estimated life of the stock option, the projected dividend yield
of our company stock over the estimated life of the stock option
and the risk-free interest rate. For further information
regarding our stock option plans, see Note 8to our
Consolidated Financial Statements.



| |                        
| | -----------------------
| | Discontinued Operations

Effective October 1, 2002, we adopted SFAS,
No. 144, which establishes a single accounting model for
the impairment or disposal of long-lived assets, including
discontinued operations. SFAS No. 144 supersedes
SFAS No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed
Of, and APB Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions(APB
No. 30). Our 2001 Disposal Plan was accounted for in
accordance with APB No. 30, while our 2003 Disposal Plan
was accounted for in accordance with SFAS No. 144.
Both of these accounting standards contain criteria that must be
met in order for businesses to be presented as discontinued
operations.

In connection with our accounting for each of
these Disposal Plans, we segregated the assets, liabilities and
operations of the discontinued businesses. The operations are
presented as discontinued operations in our consolidated
statements of operations. The assets and liabilities of these
businesses are included in assets held for sale and liabilities
associated with assets held for sale in the balance sheets. In
fiscal 2001, we accrued for

35



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estimated losses during the disposal phase for
businesses included in the 2001 Disposal Plan in accordance with
APB No. 30. These estimates were updated as circumstances
changed or as additional information became available such as
the actual terms of the sales transactions. Revenues and
expenses associated with businesses included in the 2003
Disposal Plan are included in discontinued operations when
earned or incurred, respectively in accordance with
SFAS No. 144.




| |                           
| | --------------------------
| | Variable Interest Entities

Any potential variable interest entity
(VIE) created after January 31, 2003 in which
we hold a variable interest must be assessed to determine
whether the VIE should be consolidated into our results based on
criteria established by FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51(FIN 46).
Managements judgment, and in many cases,
probability-weighted projected cash flows are used in
determining whether an entity is a variable interest entity and
whether we are the primary beneficiary. We have completed an
evaluation of our variable interests and believe that we do not
have any interests in any VIEs. However, even after exhaustive
efforts, we have been unable to obtain information from
Woodlands Ventures, LLC, a property developer from whom we
obtained a $9.3 million note receivable upon the sale of a
piece of property in October 2002, that would allow us to assess
whether the entity is a VIE. We will continue to make exhaustive
efforts to obtain the information necessary to complete our
evaluation.

Disclosure Concerning Forward-Looking
Statements and Factors That May Affect Future Results

In December 1995, the Private Securities
Litigation Reform Act of 1995 (the Act) was enacted
by the U.S. 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. We take advantage of the
safe harbor provisions of the Act.

Our Annual Report on Form 10-K and the
Letter of the Chairman and Chief Executive Officer included in
our Annual Report to Stockholders contains both historical
information and other information that may be used to infer
future performance. Examples of historical information include
our annual financial statements and the commentary on past
performance contained in the MD&A. While we have
specifically identified certain information as being
forward-looking in the context of its presentation, we caution
the reader that, with the exception of information that is
clearly historical, all the information contained in this Annual
Report on Form 10-K and the letter of the Chairman and
Chief Executive Officer included in the Report to Stockholders
should be considered to be forward-looking
statements as referred to in the Act. Without limitation,
when we use the words believe, estimate,
plan, expect, intend,
anticipate, continue,
project, probably, should,
and similar expressions, we intend to clearly express that the
information deals with possible future events and is
forward-looking in nature.

The following are some of the factors we believe
could cause our actual results to differ materially from
expected and historical results:



| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have substantial indebtedness and servicing
    our indebtedness could reduce funds available to operate our
    business.                              
|
| |  | Our debt instruments contain covenants which will
    limit our ability to operate our business.                                                           
|
| |  | To service our indebtedness, we will require a
    significant amount of cash. Our ability to generate cash depends
    on many factors beyond our control.
|
| |  | The seasonality of our sales and economic events
    may adversely affect our financial results and our ability to
    service our debt.                   
|
| |  | Weather could adversely affect the demand for our
    products and decrease our net sales.                                                                 
|
| |  | Demand for building and home improvement products
    may depend on availability of financing.                                                             

36



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##### Table of Contents





| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | We may be adversely affected by downturns in the
    markets we serve.                                                                    
|
| |  | The markets in which we sell our products are
    highly competitive.                                                                     
|
| |  | The loss of any significant customer could
    adversely affect our business.                                                             
|
| |  | An increase in the price of raw materials,
    components, finished goods and other commodities could adversely
    affect our operations.
|
| |  | We are exposed to political, economic and other
    risks that arise from operating a multinational business.                             
|
| |  | We are subject to currency exchange rate and
    other related risks.                                                                     
|
| |  | We are subject to numerous asbestos claims that
    could adversely affect us.                                                            
|
| |  | We are subject to environmental regulation and
    incur costs relating to environmental matters.                                         
|
| |  | We may not be able to protect our intellectual
    property rights.                                                                       
|
| |  | Our failure to attract and retain qualified
    resources could have an adverse effect on us.                                             
|
| |  | Work stoppages and other labor problems could
    affect us.                                                                              

Other factors besides those listed here could
also adversely affect results. For more information regarding
these forward-looking statements and factors that may affect
future results, refer to the Risk Factors section in
Item 1of this Annual Report on Form 10-K.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Qualitative and Quantitative Disclosures
    About Market Risk

In the normal course of doing business, we are
exposed to the risks associated with changes in interest rates
and currency exchange rates. To limit the risks from such
fluctuations, we may enter into various hedging transactions
that have been authorized pursuant to our policies, but we do
not engage in such transactions for trading purposes.

To manage exposure to interest rate movements, we
have used interest rate protection agreements. However, as of
October 2, 2004, we do not have any such agreements
outstanding. Based on our overall exposure to interest rate
changes, a hypothetical increase of 100 basis points across
all maturities of our floating rate debt obligations would
decrease our estimated pre-tax earnings in fiscal 2005 by
$0.7 million, compared to a $3.8 million decrease in
fiscal 2004 pre-tax earnings had LIBOR rates been 100 basis
points higher. Net payments under swap agreements amounted to
approximately $3.4 million for fiscal 2002. There were no
swap agreements outstanding during any portion of fiscal 2003 or
fiscal 2004. The fiscal 2002 swaps were of notional amounts and
maturities that related to specific portions of outstanding
debt, and accordingly, were accounted for as hedge transactions.

We are also exposed to foreign currency exchange
risk related to our international operations as well as our
U.S. businesses, which import or export goods. We have made
limited use of financial instruments to manage this risk and
have no such instruments outstanding as of September 2004.
Hypothetical unfavorable movements of 10% across each of the
foreign exchange rates from which we have exposure would have
decreased our estimated income from continuing operations by
approximately $3.9 million, before taxes, in fiscal 2004
and $3.6 million, before taxes, in fiscal 2003. This
calculation assumes that each exchange rate would change in the
same direction relative to the U.S. dollar. In addition to
the direct effects of changes in exchange rates, which are a
changed dollar value of the resulting sales, changes in exchange
rates also affect the volume of sales or the foreign currency
sales price as competitors products become more or less
attractive. Our sensitivity analysis of the effects of changes
in foreign currency exchange rates does not factor in a
potential change in sales levels or local currency prices. See
Note 2to our Consolidated Financial Statements for
additional information on our derivative and hedging activities.

37



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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Jacuzzi Brands, Inc.


We have audited the consolidated balance sheets
of Jacuzzi Brands, Inc. (the Company) as of
September 30, 2004 and 2003, and the related consolidated
statements of operations, cash flows, and changes in
stockholders equity for each of the three years in the
period ended September 30, 2004. Our audits also included
the financial statement schedule listed in the index at
Item 15(a). These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Jacuzzi Brands, Inc. at
September 30, 2004 and 2003, and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended September 30, 2004, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.



| |                             
| | ----------------------------
| | /s/ Ernst & Young LLP       
| | Certified Public Accountants

West Palm Beach, Florida

November 30, 2004


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JACUZZI BRANDS, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

(in millions, except per share
amounts)


|                                                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |       |      | 
|------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------- | ----- | ---- | ---- | ------- | ----- | ----- | - | ------- | ----- | ---- | 
|                                                                    |                                                                                                                          |                           
|                                                                    |                                                                                                                          | For the Fiscal Years Ended
|                                                                    |                                                                                                                          | September 30,             
|                                                                    |                                                                                                                          |                           
|                                                                    |                                                                                                                          | 2004                       |         | 2003  |      | 2002
|                                                                    |                                                                                                                          |                            |         |       |      |     
|Net sales                                                           |                                                                                                                          | $                          | 1,347.2 |       |      | $    | 1,192.6 |       |       | $ | 1,068.3 |      
|Operating costs and expenses:                                       |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|                                                                    | Cost of products sold                                                                                                    |                            |         | 934.3 |      |      |         | 834.4 |       |   |         | 731.9 |     
|                                                                    | Selling, general and administrative expenses                                                                             |                            |         | 294.1 |      |      |         | 258.0 |       |   |         | 234.8 |     
|                                                                    | Impairment, restructuring and other charges                                                                              |                            |         | 22.3  |      |      |         | 19.0  |       |   |         | 7.2   |     
|                                                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|                                                                    |                                                                                                                          | Operating income           |         |       | 96.5 |      |         |       | 81.2  |   |         |       | 94.4 | 
|Interest expense                                                    |                                                                                                                          |                            | (50.6   | )     |      |      | (60.7   | )     |       |   | (74.7   | )    
|Interest income                                                     |                                                                                                                          |                            | 4.7     |       |      |      | 2.1     |       |       |   | 4.6     |      
|Other expense, net                                                  |                                                                                                                          |                            | (2.9    | )     |      |      | (26.5   | )     |       |   | (15.5   | )    
|                                                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|Earnings (loss) before income taxes and
    discontinued operations |                                                                                                                          |                            | 47.7    |       |      |      | (3.9    | )     |       |   | 8.8     |      
|(Provision for) benefit from income taxes                           |                                                                                                                          |                            | (18.6   | )     |      |      | 14.0    |       |       |   | 23.1    |      
|                                                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|                                                                    | Earnings from continuing operations                                                                                      |                            |         | 29.1  |      |      |         | 10.1  |       |   |         | 31.9  |     
|Discontinued operations:                                            |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|                                                                    | (Loss) earnings from operations, net of tax
    benefit (provision) of $0.2 in 2004, $1.1 in 2003 and
    ($0.7) in 2002 |                            |         | (0.6  | )    |      |         | (1.3  | )     |   |         | 1.2   |     
|                                                                    | (Loss) gain on disposals, net of tax benefit of
    $6.5 in 2003                                                         |                            |         |      |      |      |         | (39.9 | )     |   |         | 7.8   |     
|                                                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|                                                                    | (Loss) earnings from discontinued operations                                                                             |                            |         | (0.6  | )    |      |         | (41.2 | )     |   |         | 9.0   |     
|                                                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|                                                                    |                                                                                                                          | Net earnings (loss)        |         | $     | 28.5 |      |         | $     | (31.1 | ) |         | $     | 40.9 | 
|                                                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|Basic earnings (loss) per share:                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|                                                                    | Continuing operations                                                                                                    |                            | $       | 0.39  |      |      | $       | 0.14  |       |   | $       | 0.43  |     
|                                                                    | Discontinued operations                                                                                                  |                            |         | (0.01 | )    |      |         | (0.56 | )     |   |         | 0.12  |     
|                                                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|                                                                    |                                                                                                                          | Net earnings (loss)        |         | $     | 0.38 |      |         | $     | (0.42 | ) |         | $     | 0.55 | 
|                                                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|Diluted earnings (loss) per share:                                  |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|                                                                    | Continuing operations                                                                                                    |                            | $       | 0.38  |      |      | $       | 0.14  |       |   | $       | 0.43  |     
|                                                                    | Discontinued operations                                                                                                  |                            |         | (0.01 | )    |      |         | (0.56 | )     |   |         | 0.12  |     
|                                                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      
|                                                                    |                                                                                                                          | Net earnings (loss)        |         | $     | 0.37 |      |         | $     | (0.42 | ) |         | $     | 0.55 | 
|                                                                    |                                                                                                                          |                            |         |       |      |      |         |       |       |   |         |      

See Notes to Consolidated Financial Statements.

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JACUZZI BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)


|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |        |         | 
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                               |                                                                                                                                                                                           |                           
|                                               |                                                                                                                                                                                           | At September 30,          
|                                               |                                                                                                                                                                                           |                           
|                                               |                                                                                                                                                                                           | 2004                       |         | 2003  
|                                               |                                                                                                                                                                                           |                            |         |       
|ASSETS                                        
|Current assets:                                |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               | Cash and cash equivalents                                                                                                                                                                 |                            | $       | 39.6   |         |   | $       | 31.2   |        
|                                               | Trade receivables, net of allowances of $9.0 in
    2004 and 2003                                                                                                                         |                            |         | 247.7  |         |   |         | 229.6  |        
|                                               | Inventories                                                                                                                                                                               |                            |         | 195.4  |         |   |         | 165.0  |        
|                                               | Deferred income taxes                                                                                                                                                                     |                            |         | 30.3   |         |   |         | 15.5   |        
|                                               | Assets held for sale                                                                                                                                                                      |                            |         | 3.6    |         |   |         | 16.8   |        
|                                               | Other current assets                                                                                                                                                                      |                            |         | 23.7   |         |   |         | 30.1   |        
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               |                                                                                                                                                                                           | Total current assets       |         |        | 540.3   |   |         |        | 488.2   | 
|Property, plant and equipment, net             |                                                                                                                                                                                           |                            | 124.9   |        |         |   | 129.7   |       
|Pension assets                                 |                                                                                                                                                                                           |                            | 150.3   |        |         |   | 148.3   |       
|Insurance for asbestos claims                  |                                                                                                                                                                                           |                            | 171.0   |        |         |   | 160.0   |       
|Goodwill                                       |                                                                                                                                                                                           |                            | 281.7   |        |         |   | 283.1   |       
|Other intangibles, net                         |                                                                                                                                                                                           |                            | 59.7    |        |         |   | 60.8    |       
|Other non-current assets                       |                                                                                                                                                                                           |                            | 43.9    |        |         |   | 66.7    |       
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|TOTAL ASSETS                                   |                                                                                                                                                                                           | $                          | 1,371.8 |        |         | $ | 1,336.8 |       
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                              
|LIABILITIES AND STOCKHOLDERS
    EQUITY      
|Current liabilities:                           |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               | Notes payable                                                                                                                                                                             |                            | $       | 21.1   |         |   | $       | 23.5   |        
|                                               | Current maturities of long-term debt                                                                                                                                                      |                            |         | 3.9    |         |   |         | 25.2   |        
|                                               | Trade accounts payable                                                                                                                                                                    |                            |         | 123.7  |         |   |         | 102.3  |        
|                                               | Income taxes payable                                                                                                                                                                      |                            |         | 18.3   |         |   |         | 10.8   |        
|                                               | Liabilities associated with assets held for sale                                                                                                                                          |                            |         |       |         |   |         | 8.7    |        
|                                               | Accrued expenses and other current liabilities                                                                                                                                            |                            |         | 134.4  |         |   |         | 128.2  |        
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               |                                                                                                                                                                                           | Total current liabilities  |         |        | 301.4   |   |         |        | 298.7   | 
|Long-term debt                                 |                                                                                                                                                                                           |                            | 446.8   |        |         |   | 451.4   |       
|Deferred income taxes                          |                                                                                                                                                                                           |                            | 25.1    |        |         |   | 26.2    |       
|Asbestos claims                                |                                                                                                                                                                                           |                            | 171.0   |        |         |   | 160.0   |       
|Other liabilities                              |                                                                                                                                                                                           |                            | 138.4   |        |         |   | 144.8   |       
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               |                                                                                                                                                                                           | Total liabilities          |         |        | 1,082.7 |   |         |        | 1,081.1 | 
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|Commitments and contingencies                  |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|Stockholders equity:                          |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               | Common stock (par value $.01 per share,
    authorized 300,000,000 shares; issued
    99,096,734 shares; outstanding 76,103,459 and
    74,986,982 shares in 2004 and 2003, respectively) |                            |         | 1.0    |         |   |         | 1.0    |        
|                                               | Paid-in capital                                                                                                                                                                           |                            |         | 639.7  |         |   |         | 650.1  |        
|                                               | Accumulated deficit                                                                                                                                                                       |                            |         | (5.2   | )       |   |         | (33.7  | )      
|                                               | Unearned restricted stock                                                                                                                                                                 |                            |         | (4.6   | )       |   |         | (0.8   | )      
|                                               | Accumulated other comprehensive loss                                                                                                                                                      |                            |         | (8.2   | )       |   |         | (8.7   | )      
|                                               | Treasury stock (22,993,275 and
    24,109,752 shares in 2004 and 2003,
    respectively), at cost                                                                                         |                            |         | (333.6 | )       |   |         | (352.2 | )      
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               |                                                                                                                                                                                           | Total stockholders equity |         |        | 289.1   |   |         |        | 255.7   | 
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|TOTAL LIABILITIES AND STOCKHOLDERS
    EQUITY |                                                                                                                                                                                           | $                          | 1,371.8 |        |         | $ | 1,336.8 |       
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       

See Notes to Consolidated Financial Statements.

40



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JACUZZI BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(in millions)


|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |        |       |      | 
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------------------------------- | ----- | ----- | ---- | ------ | ------ | ----- | ---- | ------ | ------ | ----- | ---- | 
|                                                                 |                                                                                                                                             |                                                                  
|                                                                 |                                                                                                                                             | For the Fiscal Years Ended                                       
|                                                                 |                                                                                                                                             | September 30,                                                    
|                                                                 |                                                                                                                                             |                                                                  
|                                                                 |                                                                                                                                             | 2004                                                              |                                                                        | 2003  |       | 2002
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |     
|OPERATING ACTIVITIES:                                            |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|                                                                 | Earnings from continuing operations                                                                                                         |                                                                   | $                                                                      | 29.1  |       |      | $      | 10.1   |       |      | $      | 31.9   |      
|                                                                 | Adjustments to reconcile earnings from continuing
    operations to net cash provided by operating activities of
    continuing operations: |                                                                   |                                                                        |       |       |      |        |        |       |      |        |        |      
|                                                                 |                                                                                                                                             | Depreciation and amortization                                     |                                                                        |       | 26.4  |      |        |        | 24.6  |      |        |        | 26.1  |     
|                                                                 |                                                                                                                                             | Amortization of debt issuance costs and other
    financing costs |                                                                        |       | 3.7   |      |        |        | 8.9   |      |        |        | 6.9   |     
|                                                                 |                                                                                                                                             | Charges for debt restructuring and refinancing
    costs          |                                                                        |       |      |      |        |        | 21.5  |      |        |        | 9.2   |     
|                                                                 |                                                                                                                                             | Provision for (benefit from) deferred income taxes                |                                                                        |       | 2.2   |      |        |        | (8.7  | )    |        |        | (34.8 | )   
|                                                                 |                                                                                                                                             | Provision for doubtful accounts                                   |                                                                        |       | 5.4   |      |        |        | 5.8   |      |        |        | 3.3   |     
|                                                                 |                                                                                                                                             | Gain on sale of real estate                                       |                                                                        |       | (0.8  | )    |        |        | (3.5  | )    |        |        | (0.8  | )   
|                                                                 |                                                                                                                                             | Stock-based compensation expense, net                             |                                                                        |       | 1.4   |      |        |        | 1.4   |      |        |        | 0.7   |     
|                                                                 |                                                                                                                                             | Loss on sale of property, plant and equipment                     |                                                                        |       | 0.7   |      |        |        | 0.2   |      |        |        | 1.7   |     
|                                                                 |                                                                                                                                             | Impairment, restructuring and other non-cash
    charges          |                                                                        |       | 8.0   |      |        |        | 12.5  |      |        |        | 0.8   |     
|                                                                 | Changes in operating assets and liabilities,
    excluding the effects of acquisition and dispositions:                                     |                                                                   |                                                                        |       |       |      |        |        |       |      |        |        |      
|                                                                 |                                                                                                                                             | Trade receivables                                                 |                                                                        |       | (18.2 | )    |        |        | (15.4 | )    |        |        | (15.1 | )   
|                                                                 |                                                                                                                                             | Inventories                                                       |                                                                        |       | (27.5 | )    |        |        | 0.6   |      |        |        | 1.7   |     
|                                                                 |                                                                                                                                             | Other current assets                                              |                                                                        |       | 0.8   |      |        |        | (2.4  | )    |        |        | 3.9   |     
|                                                                 |                                                                                                                                             | Other assets                                                      |                                                                        |       | (4.9  | )    |        |        | (4.3  | )    |        |        | (3.1  | )   
|                                                                 |                                                                                                                                             | Trade accounts payable                                            |                                                                        |       | 17.6  |      |        |        | 3.2   |      |        |        | 2.0   |     
|                                                                 |                                                                                                                                             | Income taxes payable                                              |                                                                        |       | 2.8   |      |        |        | 46.7  |      |        |        | (1.0  | )   
|                                                                 |                                                                                                                                             | Accrued expenses and other current liabilities                    |                                                                        |       | 7.2   |      |        |        | (12.1 | )    |        |        | (2.0  | )   
|                                                                 |                                                                                                                                             | Other liabilities                                                 |                                                                        |       | (7.5  | )    |        |        | (8.1  | )    |        |        | 8.7   |     
|                                                                 |                                                                                                                                             | Other, net                                                        |                                                                        |       |      |      |        |        | (1.1  | )    |        |        | (1.1  | )   
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|                                                                 |                                                                                                                                             |                                                                   | Net cash provided by operating activities of
    continuing operations |       |       | 46.4 |        |        |       | 79.9 |        |        |       | 39.0 | 
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|                                                                 | (Loss) earnings from discontinued operations                                                                                                |                                                                   |                                                                        | (0.6  | )     |      |        | (41.2  | )     |      |        | 9.0    |      
|                                                                 | Adjustments to reconcile (loss) earnings from
    discontinued operations to net cash (used in) provided by
    discontinued operations:    |                                                                   |                                                                        |       |       |      |        |        |       |      |        |        |      
|                                                                 |                                                                                                                                             | Loss (gain) on disposal of discontinued
    operations            |                                                                        |       |      |      |        |        | 39.9  |      |        |        | (7.8  | )   
|                                                                 |                                                                                                                                             | Other (increases) decreases in net assets
    held for sale       |                                                                        |       | (1.2  | )    |        |        | (3.7  | )    |        |        | 31.9  |     
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|                                                                 |                                                                                                                                             |                                                                   | Net cash (used in) provided by discontinued
    operations             |       |       | (1.8 | )      |        |       | (5.0 | )      |        |       | 33.1 | 
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|NET CASH PROVIDED BY OPERATING ACTIVITIES                        |                                                                                                                                             |                                                                   | 44.6                                                                   |       |       |      | 74.9   |        |       |      | 72.1   |       
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|INVESTING ACTIVITIES:                                            |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|                                                                 | Proceeds from sale of businesses                                                                                                            |                                                                   |                                                                        | 4.5   |       |      |        | 120.5  |       |      |        | 388.2  |      
|                                                                 | Proceeds from sale of Strategic notes                                                                                                       |                                                                   |                                                                        |      |       |      |        |       |       |      |        | 105.9  |      
|                                                                 | Purchases of property, plant and equipment                                                                                                  |                                                                   |                                                                        | (23.3 | )     |      |        | (19.2  | )     |      |        | (15.0  | )    
|                                                                 | Proceeds from sale of property, plant and
    equipment                                                                                     |                                                                   |                                                                        | 0.4   |       |      |        | 0.2    |       |      |        | 1.5    |      
|                                                                 | Proceeds from sale of real estate                                                                                                           |                                                                   |                                                                        | 3.5   |       |      |        | 11.1   |       |      |        | 0.5    |      
|                                                                 | Other investing activities, net                                                                                                             |                                                                   |                                                                        | 2.4   |       |      |        |       |       |      |        | 1.3    |      
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|NET CASH (USED IN) PROVIDED BY INVESTING
    ACTIVITIES          |                                                                                                                                             |                                                                   | (12.5                                                                  | )     |       |      | 112.6  |        |       |      | 482.4  |       
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|FINANCING ACTIVITIES:                                            |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|                                                                 | Proceeds from long-term debt                                                                                                                |                                                                   |                                                                        | 46.4  |       |      |        | 127.0  |       |      |        | 72.5   |      
|                                                                 | Repayment of long-term debt                                                                                                                 |                                                                   |                                                                        | (72.3 | )     |      |        | (449.3 | )     |      |        | (498.3 | )    
|                                                                 | Deposits into restricted cash collateral accounts                                                                                           |                                                                   |                                                                        |      |       |      |        | (66.5  | )     |      |        | (152.7 | )    
|                                                                 | Withdrawals from restricted cash collateral
    accounts                                                                                    |                                                                   |                                                                        |      |       |      |        | 224.3  |       |      |        |       |      
|                                                                 | Proceeds from issuance of Senior Notes                                                                                                      |                                                                   |                                                                        |      |       |      |        | 380.0  |       |      |        |       |      
|                                                                 | Redemption of senior notes                                                                                                                  |                                                                   |                                                                        |      |       |      |        | (375.0 | )     |      |        |       |      
|                                                                 | Payment of debt issuance and other financing costs                                                                                          |                                                                   |                                                                        | (1.5  | )     |      |        | (45.6  | )     |      |        | (12.2  | )    
|                                                                 | (Repayment of) proceeds from notes payable, net                                                                                             |                                                                   |                                                                        | (4.4  | )     |      |        | 7.2    |       |      |        | 2.6    |      
|                                                                 | Proceeds from issuance of common stock for option
    exercise                                                                              |                                                                   |                                                                        | 0.9   |       |      |        |       |       |      |        |       |      
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|NET CASH USED IN FINANCING ACTIVITIES                            |                                                                                                                                             |                                                                   | (30.9                                                                  | )     |       |      | (197.9 | )      |       |      | (588.1 | )     
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                                                                             |                                                                   | 7.2                                                                    |       |       |      | 9.5    |        |       |      | 0.5    |       
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS             |                                                                                                                                             |                                                                   | 8.4                                                                    |       |       |      | (0.9   | )      |       |      | (33.1  | )     
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                   |                                                                                                                                             |                                                                   | 31.2                                                                   |       |       |      | 32.1   |        |       |      | 65.2   |       
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       
|CASH AND CASH EQUIVALENTS AT END OF YEAR                         |                                                                                                                                             | $                                                                 | 39.6                                                                   |       |       | $    | 31.2   |        |       | $    | 32.1   |       
|                                                                 |                                                                                                                                             |                                                                   |                                                                        |       |       |      |        |        |       |      |        |       

See Notes to Consolidated Financial Statements.

41



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##### Table of Contents



JACUZZI BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY

For the Fiscal Years Ended September 30,
2004, 2003 and 2002


(in millions, except share data)


|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |   |  | 
|----------------------------------------------------------------------- | ---------------------------- | ---------------------------- | --- | ------- |  | ------------ | ----- | ---------- |  | ------------- | ----- | -------- |  | ------------- | ---- | ----- |  | - | ----- | - |  | - | ------ | - |  | - | ----- | ---- | ---- | - | ----- | - |  | 
|                                                                        |                              |                              |     |         |  | Retained     |       |            |  | Accumulated   |       |          |  |               |      |      
|                                                                        |                              |                              |     |         |  | Earnings     |       | Unearned   |  | Other         |       |          |  | Comprehensive |      |      
|                                                                        |                              | Common                       |     | Paid-in |  | (Accumulated |       | Restricted |  | Comprehensive |       | Treasury |  | Earnings      |      |      
|                                                                        |                              | Stock                        |     | Capital |  | Deficit)     |       | Stock      |  | Loss          |       | Stock    |  | (Loss)        |      | Total
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |      
|Balance at September 30, 2001                                           |                              | $                            | 1.0 |         |  | $            | 660.8 |            |  | $             | (43.5 | )        |  | $             | (6.0 | )     |  | $ | (30.8 | ) |  | $ | (364.5 | ) |  |   |       |      |      | $ | 217.0 |  
|Net earnings                                                            |                              |                              |     |         |  |              |       |            |  |               | 40.9  |          |  |               |      |       |  |   |       |   |  |   |        |   |  | $ | 40.9  |      |      |   | 40.9  |  
|Amortization of unearned restricted stock                               |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               | 2.3  |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   | 2.3   |  
|Amortization of unearned restricted stock
    (discontinued operations) |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               | 1.8  |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   | 1.8   |  
|Treasury stock issued to directors
    (90,880 shares)                  |                              |                              |     |         |  |              | (1.3  | )          |  |               |       |          |  |               |      |       |  |   |       |   |  |   | 1.5    |   |  |   |       |      |      |   | 0.2   |  
|Treasury stock issued in 401K match
    (262,804 shares)                |                              |                              |     |         |  |              | (3.5  | )          |  |               |       |          |  |               |      |       |  |   |       |   |  |   | 4.4    |   |  |   |       |      |      |   | 0.9   |  
|Forfeiture of restricted stock
    (32,833 shares)                      |                              |                              |     |         |  |              | (0.5  | )          |  |               |       |          |  |               | 0.2  |       |  |   |       |   |  |   | (0.1   | ) |  |   |       |      |      |   | (0.4  | )
|Foreign currency translation adjustment                                 |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   | 3.4   |   |  |   |        |   |  |   | 3.4   |      |      |   | 3.4   |  
|Fair value of derivatives adjustment, net of tax                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   | 1.4   |   |  |   |        |   |  |   | 1.4   |      |      |   | 1.4   |  
|Minimum pension liability adjustment,
    net of tax                    |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   | (13.1 | ) |  |   |        |   |  |   | (13.1 | )    |      |   | (13.1 | )
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  
|                                                                        | Other comprehensive loss     |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       | (8.3 | )    |   |       |   | 
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  
|                                                                        |                              | Total comprehensive earnings |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       | $    | 32.6 |   |       |   |  | 
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  
|Balance at September 30, 2002                                           |                              |                              | 1.0 |         |  |              | 655.5 |            |  |               | (2.6  | )        |  |               | (1.7 | )     |  |   | (39.1 | ) |  |   | (358.7 | ) |  |   |       |      |      |   | 254.4 |  
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  
|Net loss                                                                |                              |                              |     |         |  |              |       |            |  |               | (31.1 | )        |  |               |      |       |  |   |       |   |  |   |        |   |  | $ | (31.1 | )    |      |   | (31.1 | )
|Amortization of unearned restricted stock                               |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               | 0.6  |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   | 0.6   |  
|Treasury stock issued to directors
    (79,793 shares)                  |                              |                              |     |         |  |              | (1.0  | )          |  |               |       |          |  |               |      |       |  |   |       |   |  |   | 1.3    |   |  |   |       |      |      |   | 0.3   |  
|Treasury stock issued in 401K match
    (309,815 shares)                |                              |                              |     |         |  |              | (4.1  | )          |  |               |       |          |  |               |      |       |  |   |       |   |  |   | 5.2    |   |  |   |       |      |      |   | 1.1   |  
|Forfeiture of restricted stock
    (12,500 shares)                      |                              |                              |     |         |  |              | (0.3  | )          |  |               |       |          |  |               | 0.3  |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |      |  
|Exercise of stock options (2,375 shares)                                |                              |                              |     |         |  |              |      |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |       |   |  |   |       |      |      |   |      |  
|Foreign currency translation adjustment                                 |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   | 21.4  |   |  |   |        |   |  |   | 21.4  |      |      |   | 21.4  |  
|Minimum pension liability adjustment,
    net of tax                    |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   | (3.8  | ) |  |   |        |   |  |   | (3.8  | )    |      |   | (3.8  | )
|Net unrealized gains on investment securities,
    net of tax           |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   | 12.8  |   |  |   |        |   |  |   | 12.8  |      |      |   | 12.8  |  
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  
|                                                                        | Other comprehensive earnings |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       | 30.4 |      |   |       |   | 
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  
|                                                                        |                              | Total comprehensive loss     |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       | $    | (0.7 | ) |       |   |  | 
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  
|Balance at September 30, 2003                                           |                              |                              | 1.0 |         |  |              | 650.1 |            |  |               | (33.7 | )        |  |               | (0.8 | )     |  |   | (8.7  | ) |  |   | (352.2 | ) |  |   |       |      |      |   | 255.7 |  
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  
|Net earnings                                                            |                              |                              |     |         |  |              |       |            |  |               | 28.5  |          |  |               |      |       |  |   |       |   |  |   |        |   |  | $ | 28.5  |      |      |   | 28.5  |  
|Amortization of unearned restricted stock                               |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               | 2.1  |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   | 2.1   |  
|Treasury stock issued to directors
    (6,988 shares)                   |                              |                              |     |         |  |              |      |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   | 0.1    |   |  |   |       |      |      |   | 0.1   |  
|Treasury stock issued in 401K match
    (135,098 shares)                |                              |                              |     |         |  |              | (1.1  | )          |  |               |       |          |  |               |      |       |  |   |       |   |  |   | 2.2    |   |  |   |       |      |      |   | 1.1   |  
|Forfeiture of restricted stock (1,714 shares)                           |                              |                              |     |         |  |              |      |            |  |               |       |          |  |               |     |       |  |   |       |   |  |   |       |   |  |   |       |      |      |   |      |  
|Exercise of stock options (277,875 shares)                              |                              |                              |     |         |  |              | (3.7  | )          |  |               |       |          |  |               |      |       |  |   |       |   |  |   | 4.6    |   |  |   |       |      |      |   | 0.9   |  
|Issuance of restricted stock grants
    (698,230 shares)                |                              |                              |     |         |  |              | (5.6  | )          |  |               |       |          |  |               | (5.9 | )     |  |   |       |   |  |   | 11.7   |   |  |   |       |      |      |   | 0.2   |  
|Foreign currency translation adjustment                                 |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   | 16.3  |   |  |   |        |   |  |   | 16.3  |      |      |   | 16.3  |  
|Minimum pension liability adjustment, net of tax                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   | (5.4  | ) |  |   |        |   |  |   | (5.4  | )    |      |   | (5.4  | )
|Net unrealized losses on investments, net of tax                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   | (10.4 | ) |  |   |        |   |  |   | (10.4 | )    |      |   | (10.4 | )
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  
|                                                                        | Other comprehensive earnings |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       | 0.5  |      |   |       |   | 
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  
|                                                                        |                              | Total comprehensive earnings |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       | $    | 29.0 |   |       |   |  | 
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  
|Balance at September 30, 2004                                           |                              | $                            | 1.0 |         |  | $            | 639.7 |            |  | $             | (5.2  | )        |  | $             | (4.6 | )     |  | $ | (8.2  | ) |  | $ | (333.6 | ) |  |   |       |      |      | $ | 289.1 |  
|                                                                        |                              |                              |     |         |  |              |       |            |  |               |       |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |       |      |      |   |       |  

See Notes to Consolidated Financial Statements.

42



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##### Table of Contents



JACUZZI BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1  Basis of
Presentation

We manufacture and distribute a broad range of
consumer and industrial products through our operating
subsidiaries in three business segments  Bath
Products, Plumbing Products and Rexair. Please refer to
Note 11regarding our business segments.

We operate on a 52- or 53-week fiscal year ending
on the Saturday nearest to September 30. The fiscal year
periods presented in our consolidated financial statements
consist of the 53 weeks ended on October 2, 2004
(2004) and the 52 weeks ended
September 27, 2003 (2003) and
September 28, 2002 (2002), but are presented as
of September 30 in each of those years for convenience.
Businesses over which we had the ability to exercise significant
influence, but are not consolidated into our results, were
accounted for using the equity method. In March 2000, we
completed the disposition of a majority equity interest in
several businesses to Strategic Industries LLC
(Strategic). We accounted for our retained interest
in Strategic under the equity method of accounting from March
2000 until January 2002, when we sold all remaining interests in
that company. We eliminate inter-company balances and
transactions when consolidating the account balances of our
subsidiaries.

Any potential variable interest entity
(VIE) in which we hold a variable interest has been
assessed to determine whether the VIE should be consolidated
into our results based on criteria established by FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities, and Interpretation of ARB No. 51(FIN 46). We have evaluated our interests
in our wholly-owned subsidiaries and continue to consolidate
them under the guidelines set forth in ARB No. 51,
Consolidated Financial Statements, and FASB Statement
No. 94, Consolidation of All Majority
Owned-Subsidiaries. We have also completed an evaluation of
our variable interests and believe that we do not have any
interests in variable interest entities, as defined by
FIN 46. However, even after exhaustive efforts, we have
been unable to obtain information from Woodlands Ventures, LLC,
a property developer from whom we obtained a $9.3 million
note receivable upon the sale of a piece of property in October
2002, that would allow us to assess whether the entity is a VIE.
We will continue to make exhaustive efforts to obtain the
information necessary to complete our evaluation.

Certain amounts have been reclassified in our
prior year consolidated financial statements to conform them to
the presentation used in the current year.



|         |                    
|-------- | -------------------
|Note 2  | Accounting Policies

Use of Estimates:Generally accepted accounting principles require us to make
estimates and assumptions that affect amounts reported in our
financial statements and accompanying notes. Actual results
could differ from those estimates.

Foreign Currency
Translation:Our subsidiaries outside
of the U.S. record transactions using their local currency
as their functional currency. In accordance with FASB Statement
No. 52, Foreign Currency Translation,the assets and
liabilities of our foreign subsidiaries are translated into
U.S. dollars using the exchange rates in effect at the
balance sheet dates. Revenues, expenses and cash flow items are
translated at average daily exchange rates for the period. The
gains and losses resulting from the changes in exchange rates
from year to year have been reported in other comprehensive
earnings.

Cash and Cash
Equivalents:We consider all highly
liquid investments with original maturities of three months or
less to be cash equivalents.

Trade Receivables and Concentration of Credit
Risk:We record an allowance for
doubtful accounts, reducing our receivables balance to an amount
we estimate is collectible from our customers.

We operate in the U.S., Europe and, to a lesser
extent, in other regions of the world. We perform periodic
credit evaluations of our customers financial condition
and generally do not require collateral. We encounter a certain
amount of credit risk as a result of a concentration of
receivables among a few significant

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                
|-------- | -------------------------------
|Note 2  | Accounting Policies (Continued)

customers. Our Bath Products segment has one
customer, Home Depot, which accounted for 6%, 8% and 10% of our
total sales in 2004, 2003 and 2002, respectively. Credit losses
have not been significant and have been within managements
expectations.

Income Taxes:Deferred tax assets and liabilities represent the tax effects,
based on current law, of any temporary differences in the timing
of when revenues and expenses are recognized for tax purposes
and when they are recognized for financial statement purposes.
The deferred tax assets are reviewed periodically for
recoverability and valuation allowances are provided as
necessary.

Inventories:Our
inventories are stated at the lower of cost or market value. We
used the first-in-first-out (FIFO) method for determining
the cost of approximately 53.4% of our inventories in 2004 and
approximately 55.6% of our inventories in 2003, and the
last-in-first-out (LIFO) method for the remainder of our
inventories. The carrying value of our LIFO method inventories
approximate their FIFO cost value at September 30, 2004 and
2003. The FIFO method approximates replacement cost. Our
inventories are categorized as follows:

|                    |  |                  |       |      |  |   |       | 
|------------------- |  | ---------------- | ----- | ---- |  | - | ----- | 
|                    |  |                 
|                    |  | At September 30,
|                    |  |                 
|                    |  | 2004             |       | 2003
|                    |  |                  |       |     
|                    |  |                 
|                    |  | (in millions)   
|Finished products   |  | $                | 132.1 |      |  | $ | 103.3 | 
|In-process products |  |                  | 13.1  |      |  |   | 13.0  | 
|Raw materials       |  |                  | 50.2  |      |  |   | 48.7  | 
|                    |  |                  |       |      |  |   |       | 
|                    |  | $                | 195.4 |      |  | $ | 165.0 | 
|                    |  |                  |       |      |  |   |       | 

Property, Plant and
Equipment:We record our property,
plant and equipment at cost. We record depreciation and
amortization in a manner that recognizes the cost of our
depreciable assets in operations over their estimated useful
lives using the straight-line method. We estimate the useful
lives of our depreciable assets to be 20-50 years for
buildings and 1-15 years for machinery, equipment and
furniture. Leasehold improvements are amortized over the shorter
of the terms of the underlying leases, including probable
renewal periods, or the estimated useful lives of the
improvements.

Property, plant and equipment consist of:

|                                   |  |                  |        |      |  |   |        |  
|---------------------------------- |  | ---------------- | ------ | ---- |  | - | ------ | -
|                                   |  |                 
|                                   |  | At September 30,
|                                   |  |                 
|                                   |  | 2004             |        | 2003
|                                   |  |                  |        |     
|                                   |  |                 
|                                   |  | (in millions)   
|Land and buildings                 |  | $                | 78.3   |      |  | $ | 75.7   |  
|Machinery, equipment and furniture |  |                  | 203.1  |      |  |   | 185.2  |  
|Accumulated depreciation           |  |                  | (156.5 | )    |  |   | (131.2 | )
|                                   |  |                  |        |      |  |   |        |  
|                                   |  | $                | 124.9  |      |  | $ | 129.7  |  
|                                   |  |                  |        |      |  |   |        |  

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                
|-------- | -------------------------------
|Note 2  | Accounting Policies (Continued)

Depreciation and amortization consist of:

|                                          |  |                            |      |      |  |      |      |  |  |   |      | 
|----------------------------------------- |  | -------------------------- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                          |  |                           
|                                          |  | For the Fiscal Years Ended
|                                          |  | September 30,             
|                                          |  |                           
|                                          |  | 2004                       |      | 2003 |  | 2002
|                                          |  |                            |      |      |  |     
|                                          |  |                           
|                                          |  | (in millions)             
|Depreciation                              |  | $                          | 23.1 |      |  | $    | 22.8 |  |  | $ | 22.6 | 
|Amortization of intangible assets         |  |                            | 1.2  |      |  |      | 1.2  |  |  |   | 1.2  | 
|Amortization of unearned restricted stock |  |                            | 2.1  |      |  |      | 0.6  |  |  |   | 2.3  | 
|                                          |  |                            |      |      |  |      |      |  |  |   |      | 
|                                          |  | $                          | 26.4 |      |  | $    | 24.6 |  |  | $ | 26.1 | 
|                                          |  |                            |      |      |  |      |      |  |  |   |      | 

Other Non-current
Assets:Included in other non-current
assets is a $5.0 million, 6% convertible note
receivable, which we received from PolyAir Interpak, Inc.
(Ticker: PPK) in conjunction with the sale of our swimming pool
and equipment business in May 2003. The note is convertible, at
our option, into 598,802 shares of the buyers common
stock anytime from March 31, 2004 through the due date of
March 31, 2009. The note has been bifurcated and the call
option is accounted for in accordance with FASB Statement
No. 133, Accounting for Derivative Instruments and
Hedging Activities(SFAS No. 133),
with adjustments to the carrying value being recorded through
the statement of operations. The note portion is being accounted
for in accordance with FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity
Securities(SFAS No. 115), with
adjustments to the carrying value being recorded through other
comprehensive earnings as unrealized gains and losses, net of
tax. The combined carrying value of the bifurcated instruments
was $4.8 million at September 30, 2004 and
$5.0 million at September 30, 2003.

Also included in other non-current assets is an
equity investment in the common shares of the buyer of
Spear & Jackson. Upon the sale of Spear &
Jackson in September 2002, we retained 3,543,281 common shares
of the buyer which subsequently changed its name to
Spear & Jackson. We are subject to restrictions on the
voting of these shares and have no involvement in the management
or operations of Spear & Jackson. The investment was
recorded at its fair value of $1.0 million at the date of
acquisition based on an independent valuation. The carrying
value of the investment was subsequently adjusted to fair value
in accordance with SFAS No. 115.
SFAS No. 115 requires that investments in marketable
equity securities be adjusted to fair market value at the end of
each reporting period. We classify this investment as available
for sale, and therefore, fluctuations in the value of this
investment are recorded in other comprehensive earnings as
unrealized gains and losses, net of tax. The carrying value of
the investment has been adjusted to its market value of
$4.7 million as of September 30, 2004. This represents
a reduction in fair market value of $17.3 million since
September 30, 2003.

Goodwill and Other Intangible
Assets:We adopted FASB Statement
No. 142, Goodwill and Other Intangible Assets(SFAS No. 142), on October 1,
2001. Thus, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized, but are subject to
annual impairment tests. Finite-lived intangible assets are
amortized over their useful lives and are subject to impairment
evaluation under FASB Statement No. 144, Accounting for
the Impairment or Disposal of Long-lived Assets(SFAS No. 144).

We test our goodwill and indefinite-lived
intangible assets for impairment at the reporting unit level
utilizing a two-step methodology. The initial step requires us
to determine the fair value of each reporting unit and of each
indefinite-lived intangible asset and compare it to the carrying
value, including goodwill and other intangible assets, of such
reporting unit or of such intangible asset. If the fair value
exceeds the carrying value, no impairment loss is recognized and
the second step, which is a calculation of the impairment, is
not performed. However, if the carrying value of the reporting
unit or intangible asset exceeds its fair value, an impairment
charge equal to the difference in the values should be recorded.
We perform an impairment test annually in the fourth quarter of
each year, unless an event occurs earlier in the year that

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                
|-------- | -------------------------------
|Note 2  | Accounting Policies (Continued)

requires us to perform an interim test. In 2004
and 2003, the fair values of each of our reporting units
exceeded their respective carrying values. Consequently, no
impairment of our goodwill was indicated. In 2004 and 2003, the
fair value of our indefinite-lived intangible asset exceeded its
carrying value, thus no impairment was indicated.

Goodwill by reporting unit is as follows:

|                  |  |                  |       |      |  |   |       | 
|----------------- |  | ---------------- | ----- | ---- |  | - | ----- | 
|                  |  |                 
|                  |  | At September 30,
|                  |  |                 
|                  |  | 2004             |       | 2003
|                  |  |                  |       |     
|                  |  |                 
|                  |  | (in millions)   
|Bath Products     |  | $                | 103.4 |      |  | $ | 104.8 | 
|Plumbing Products |  |                  | 125.8 |      |  |   | 125.8 | 
|Rexair            |  |                  | 52.5  |      |  |   | 52.5  | 
|                  |  |                  |       |      |  |   |       | 
|                  |  | $                | 281.7 |      |  | $ | 283.1 | 
|                  |  |                  |       |      |  |   |       | 

Identifiable intangible assets, which are
included in the Rexair segment, are comprised of:

|                    |  |           |            |                       |  |                       |      |                |  |              |     |  |  |   |      |  |  |   |     | 
|------------------- |  | --------- | ---------- | --------------------- |  | --------------------- | ---- | -------------- |  | ------------ | --- |  |  | - | ---- |  |  | - | --- | 
|                    |  |           |            |                       |  |                      
|                    |  |           |            | At September 30, 2004 |  | At September 30, 2003
|                    |  |           |            |                       |  |                      
|                    |  | Estimated |            | Gross Carrying        |  | Accumulated           |      | Gross Carrying |  | Accumulated 
|                    |  | Life      |            | Amount                |  | Amortization          |      | Amount         |  | Amortization
|                    |  |           |            |                       |  |                       |      |                |  |             
|                    |  |           |            |                      
|                    |  |           |            | (in millions)        
|Patented technology |  |           | 10 years   |                       |  | $                     | 2.6  |                |  | $            | 0.8 |  |  | $ | 2.6  |  |  | $ | 0.6 | 
|Distributor network |  |           | 40 years   |                       |  |                       | 36.0 |                |  |              | 2.8 |  |  |   | 36.0 |  |  |   | 1.9 | 
|Trade name          |  |           | Indefinite |                       |  |                       | 24.7 |                |  |              |    |  |  |   | 24.7 |  |  |   |    | 
|                    |  |           |            |                       |  |                       |      |                |  |              |     |  |  |   |      |  |  |   |     | 
|                    |  |           |            |                       |  | $                     | 63.3 |                |  | $            | 3.6 |  |  | $ | 63.3 |  |  | $ | 2.5 | 
|                    |  |           |            |                       |  |                       |      |                |  |              |     |  |  |   |      |  |  |   |     | 

Accrued Expenses and Other Current
Liabilities:Accrued expenses and
other current liabilities consist of the following:

|                     |  |                  |       |      |  |   |       | 
|-------------------- |  | ---------------- | ----- | ---- |  | - | ----- | 
|                     |  |                 
|                     |  | At September 30,
|                     |  |                 
|                     |  | 2004             |       | 2003
|                     |  |                  |       |     
|                     |  |                 
|                     |  | (in millions)   
|Compensation related |  | $                | 26.1  |      |  | $ | 26.4  | 
|Insurance            |  |                  | 7.9   |      |  |   | 9.1   | 
|Customer incentives  |  |                  | 30.9  |      |  |   | 24.2  | 
|Interest             |  |                  | 10.5  |      |  |   | 1.2   | 
|Warranty             |  |                  | 11.9  |      |  |   | 10.3  | 
|Other                |  |                  | 47.1  |      |  |   | 57.0  | 
|                     |  |                  |       |      |  |   |       | 
|                     |  | $                | 134.4 |      |  | $ | 128.2 | 
|                     |  |                  |       |      |  |   |       | 

We record a reserve for future warranty costs
based on current unit sales, historical experience and
managements judgment regarding anticipated rates of
warranty claims and cost per claim. The adequacy of the recorded
warranty reserves is assessed each quarter and adjustments are
made as necessary. The specific terms and conditions of the
warranties vary depending on the products sold and the countries
in which we do business.

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                
|-------- | -------------------------------
|Note 2  | Accounting Policies (Continued)

Changes in our warranty reserves, a portion of
which are classified as long-term on our consolidated balance
sheets, during 2004 and 2003 are as follows:

|                  |                  |                  |      |       |   |   |      |       |  
|----------------- | ---------------- | ---------------- | ---- | ----- | - | - | ---- | ----- | -
|                  |                  |                 
|                  |                  | At September 30,
|                  |                  |                 
|                  |                  | 2004             |      | 2003 
|                  |                  |                  |      |      
|                  |                  |                 
|                  |                  | (in millions)   
|Beginning balance |                  | $                | 19.0 |       |   | $ | 12.0 |      
|                  | Warranty accrual |                  |      | 21.8  |   |   |      | 21.3  |  
|                  | Cash payments    |                  |      | (17.4 | ) |   |      | (14.6 | )
|                  | Translation      |                  |      |      |   |   |      | 0.3   |  
|                  |                  |                  |      |       |   |   |      |      
|Ending balance    |                  | $                | 23.4 |       |   | $ | 19.0 |      
|                  |                  |                  |      |       |   |   |      |      

Fair Value of Financial
Instruments:FASB Statement
No. 107, Disclosure about Fair Value of Financial
Instruments, requires that we disclose the fair value of our
financial instruments when it is practical to estimate. We have
determined the estimated fair values of our financial
instruments, which are either recognized in our consolidated
balance sheets or disclosed within these notes, using available
market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting
market data to develop estimates of fair value. Accordingly, the
estimates presented are not necessarily indicative of the
amounts we could realize in a current market exchange.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Short-term Assets and
    Liabilities: The fair values of our
    cash and cash equivalents, trade receivables and accounts
    payable approximate their carrying values because of their
    short-term nature.                                                                                                                                                                                                                                        
|
| | Long-term Debt: The
    fair values of our Senior Notes (as defined in
    Note 5) were determined by reference to quoted
    market prices. The fair value of our remaining debt is
    determined by discounting the cash flows using current interest
    rates for financial instruments with similar characteristics and
    maturities. The fair value of our remaining debt approximates
    its carrying value as of September 30, 2004 and 2003.
|
| | There were no other significant differences as of
    September 30, 2004 and 2003 between the carrying value and
    fair value of our financial instruments except as disclosed
    below:                                                                                                                                                                                                                                                              

|                    |  |                       |       |                       |  |          |       |       |  |   |       |  |  |   |       | 
|------------------- |  | --------------------- | ----- | --------------------- |  | -------- | ----- | ----- |  | - | ----- |  |  | - | ----- | 
|                    |  |                       |       |                      
|                    |  | At September 30, 2004 |       | At September 30, 2003
|                    |  |                       |       |                      
|                    |  | Carrying              |       | Fair                  |  | Carrying |       | Fair 
|                    |  | Amount                |       | Value                 |  | Amount   |       | Value
|                    |  |                       |       |                       |  |          |       |      
|                    |  |                      
|                    |  | (in millions)        
|9.625% Senior Notes |  | $                     | 380.0 |                       |  | $        | 418.6 |       |  | $ | 380.0 |  |  | $ | 394.3 | 
|                    |  |                       |       |                       |  |          |       |       |  |   |       |  |  |   |       | 

Revenue Recognition:We recognize revenue when all of the following criteria are met:
persuasive evidence of the arrangement exists; delivery has
occurred and we have no remaining obligations; prices are fixed
or determinable; and collectibility is probable. We make
shipments to approved customers based on orders placed. Prices
are fixed when the customer places the order. An approved
customer is one that has been subjected to our credit
evaluation. We record revenue when title passes, which is either
at the time of shipment or upon delivery to the customer. The
passage of title is dependent on the arrangements made with each
customer. Provisions are made for sales returns and allowances
at the time of sale.

Management uses significant judgment in
estimating sales returns, considering numerous factors such as
current overall and industry-specific economic conditions and
historical sales return rates. Although we consider our sales
return reserves to be adequate and proper, changes in historical
customer patterns could require adjustments to the reserves. We
also record reductions to our revenues for customer and
distributor

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 2  Accounting Policies
(Continued)

programs and incentive offerings including
special pricing agreements, promotions and other volume-based
incentives.

We adopted Emerging Issues Task Force
(EITF) Issue No. 01-09, Accounting for
Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendors Products),in 2002. As
required by this guidance, we account for sales incentives, such
as discounts, rebates and volume incentives, as a reduction of
revenue at the later of 1) the date that the related
revenue is recognized or 2) the date when the sales
incentive is offered. In the case of volume incentives, we
recognize the reduction of revenue ratably over the period of
the underlying transactions that result in progress by the
customer toward earning the incentive. We record free product
given to customers as a sales incentive in cost of products sold.

Shipping and Handling Fees and
Costs:We classify amounts charged to
our customers for shipping and handling as revenues, while
shipping and handling costs are recorded as cost of products
sold.

Other Expense, net:Other expense, net consists of the following:

|                         |  |                      |      |      |  |      |      |  |  |   |      | 
|------------------------ |  | -------------------- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                         |  |                     
|                         |  | For the Fiscal Years
|                         |  | Ended September 30, 
|                         |  |                     
|                         |  | 2004                 |      | 2003 |  | 2002
|                         |  |                      |      |      |  |     
|                         |  |                     
|                         |  | (in millions)       
|Keller Ladder expenses   |  | $                    | 1.6  |      |  | $    | 3.7  |  |  | $ | 5.2  | 
|Settlement gain          |  |                      | (3.2 | )    |  |      |     |  |  |   |     | 
|Asset write downs        |  |                      | 2.2  |      |  |      |     |  |  |   |     | 
|Debt restructuring costs |  |                      |     |      |  |      | 2.3  |  |  |   | 9.2  | 
|Debt refinancing costs   |  |                      |     |      |  |      | 19.2 |  |  |   |     | 
|Other, net               |  |                      | 2.3  |      |  |      | 1.3  |  |  |   | 1.1  | 
|                         |  |                      |      |      |  |      |      |  |  |   |      | 
|                         |  | $                    | 2.9  |      |  | $    | 26.5 |  |  | $ | 15.5 | 
|                         |  |                      |      |      |  |      |      |  |  |   |      | 

We retained certain obligations related to our
Keller Ladder operations when we sold them in October 1999. We
continue to incur expenses related to those obligations. Debt
restructuring costs are associated with the senior note exchange
in November 2002 and the extension of our facilities in October
2002, while the debt refinancing costs are associated with the
refinancing of our debt in July 2003.

Advertising Costs:Advertising costs are charged to expense when incurred.
Advertising expense totaled $29.3 million,
$25.7 million and $19.2 million in 2004, 2003 and
2002, respectively.

Research and Development
Costs:Research and development costs
are expensed as incurred. Such amounts totaled
$4.1 million, $5.5 million and $3.9 million in
2004, 2003 and 2002, respectively.

Derivative Financial
Instruments:We report all derivative
instruments on the balance sheet at fair value and establish
criteria for designation and assessment of the effectiveness of
hedging relationships in accordance with SFAS No. 133.
In 2002, we hedged a portion of our variable-rate debt by
entering into an interest rate swap in which we agreed to
exchange, at specified intervals, the calculated difference
between fixed and variable interest amounts on $90 million
of our debt. The swap, which was designated a cash flow hedge,
matured on June 30, 2002. We recorded additional interest
expense of $1.4 million during 2002 related to this
contract. We have not entered into any other cash flow hedges or
any fair value hedges since the swap expired.

As noted earlier, we received a convertible note
receivable in connection with the sale of our swimming pool and
equipment business in May 2003. In accordance with
SFAS No. 133, the conversion option is recorded at
fair value with changes in the carrying amount recorded in the
statement of operations.

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                
|-------- | -------------------------------
|Note 2  | Accounting Policies (Continued)

Stock-based
Compensation:We account for
stock-based compensation under the intrinsic value method in
accordance with the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees(APB
No. 25), and related interpretations. Compensation
cost recorded for our Stock Plans (as defined in
Note 8) approximated $3.8 million,
$1.7 million and $2.8 million in 2004, 2003 and 2002,
respectively. Had compensation cost for awards under our
stock-based compensation plans been determined using the fair
value method prescribed by FASB Statement No. 123,
Accounting for Stock-Based Compensation(SFAS No. 123), our net earnings
(loss) and earnings (loss) per share would have been reduced to
the pro forma amounts presented below:

|                                 |                                                                                                    |                            |      |      |   |      |       |       |   |   |      |      |  
|-------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------- | ---- | ---- | - | ---- | ----- | ----- | - | - | ---- | ---- | -
|                                 |                                                                                                    |                           
|                                 |                                                                                                    | For the Fiscal Years Ended
|                                 |                                                                                                    | September 30,             
|                                 |                                                                                                    |                           
|                                 |                                                                                                    | 2004                       |      | 2003 |   | 2002
|                                 |                                                                                                    |                            |      |      |   |     
|                                 |                                                                                                    |                           
|                                 |                                                                                                    | (in millions, except per  
|                                 |                                                                                                    | share amounts)            
|Net earnings (loss), as reported |                                                                                                    | $                          | 28.5 |      |   | $    | (31.1 | )     |   | $ | 40.9 |     
|                                 | Stock-based employee compensation expense, net of
    tax                                          |                            |      | 2.2  |   |      |       | 1.0   |   |   |      | 1.8  |  
|                                 | Total stock-based employee compensation expense
    determined under fair value method, net of tax |                            |      | (3.0 | ) |      |       | (2.5  | ) |   |      | (3.7 | )
|                                 |                                                                                                    |                            |      |      |   |      |       |       |   |   |      |     
|Pro forma net earnings (loss)    |                                                                                                    | $                          | 27.7 |      |   | $    | (32.6 | )     |   | $ | 39.0 |     
|                                 |                                                                                                    |                            |      |      |   |      |       |       |   |   |      |     
|Earnings (loss) per share:       |                                                                                                    |                            |      |      |   |      |       |       |   |   |      |     
|                                 | Basic  as reported                                                                                |                            | $    | 0.38 |   |      | $     | (0.42 | ) |   | $    | 0.55 |  
|                                 | Basic  pro forma                                                                                  |                            |      | 0.37 |   |      |       | (0.44 | ) |   |      | 0.53 |  
|                                
|                                 | Diluted  as reported                                                                              |                            | $    | 0.37 |   |      | $     | (0.42 | ) |   | $    | 0.55 |  
|                                 | Diluted  pro forma                                                                                |                            |      | 0.37 |   |      |       | (0.44 | ) |   |      | 0.53 |  

These pro forma results are not necessarily
indicative of results that may be expected in future periods
since additional options may be granted and the estimated fair
value of the stock options is assumed to be amortized to expense
over the vesting periods.

Earnings (Loss) Per
Share:Net earnings (loss) per basic
share is based on the weighted-average number of shares
outstanding during each period, excluding the weighted average
of restricted shares outstanding during each period (see
Note 8). Net earnings (loss) per diluted share
further assumes that, under the treasury stock method, any
dilutive stock options are exercised, restricted stock awards
are vested and any other dilutive equity instruments are
converted.

The information required to compute net earnings
(loss) per basic and diluted share is as follows:

|                                                                 |  |                      |      |      |  |      |      |  |  |  |      | 
|---------------------------------------------------------------- |  | -------------------- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                                                                 |  |                     
|                                                                 |  | For the Fiscal Years
|                                                                 |  | Ended September 30, 
|                                                                 |  |                     
|                                                                 |  | 2004                 |      | 2003 |  | 2002
|                                                                 |  |                      |      |      |  |     
|                                                                 |  |                     
|                                                                 |  | (in millions)       
|Basic weighted-average number of common shares
    outstanding   |  |                      | 75.0 |      |  |      | 74.6 |  |  |  | 73.8 | 
|                                                                 |  |                      |      |      |  |      |      |  |  |  |      | 
|Potential dilution of common shares                              |  |                      | 0.7  |      |  |      | 0.1  |  |  |  |     | 
|                                                                 |  |                      |      |      |  |      |      |  |  |  |      | 
|Diluted weighted-average number of common shares
    outstanding |  |                      | 75.7 |      |  |      | 74.7 |  |  |  | 73.8 | 
|                                                                 |  |                      |      |      |  |      |      |  |  |  |      | 

Options to purchase 1.0 million,
3.7 million and 4.7 million shares in the years ended
September 30, 2004, 2003 and 2002, respectively, were not
included in the computation of earnings (loss) per share because
the exercise prices of these options exceeded the average market
price of the common shares during the respective periods.

49



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                
|-------- | -------------------------------
|Note 2  | Accounting Policies (Continued)

Comprehensive Earnings
(Loss):Comprehensive earnings (loss)
represents the change in stockholders equity from
transactions and other events and circumstances arising from
non-stockholder sources. Our comprehensive earnings (loss)
consists of net earnings (loss), changes in cumulative foreign
currency translation, changes in fair value of derivative
instruments, changes in our minimum pension liability and
changes in net unrealized gains (losses) on investments, all net
of applicable income taxes.

Accumulated other comprehensive loss consists of
the following:

|                      |  |               |       |               |  |              |      |                |  |               |       |   |  |   |       |   |  |   |       |  
|--------------------- |  | ------------- | ----- | ------------- |  | ------------ | ---- | -------------- |  | ------------- | ----- | - |  | - | ----- | - |  | - | ----- | -
|                      |  | Changes in    |       |               |  |              |      |                |  |              
|                      |  | Cumulative    |       | Changes in    |  | Changes in   |      | Changes in     |  | Accumulated  
|                      |  | Foreign       |       | Fair Value    |  | Minimum      |      | Net Unrealized |  | Other        
|                      |  | Currency      |       | of Derivative |  | Pension      |      | Gain (loss) on |  | Comprehensive
|                      |  | Translation   |       | Instrument    |  | Liability(1) |      | Investments(2) |  | Loss         
|                      |  |               |       |               |  |              |      |                |  |              
|                      |  |              
|                      |  | (in millions)
|At September 30, 2001 |  | $             | (28.4 | )             |  | $            | (1.4 | )              |  | $             | (1.0  | ) |  | $ |      |   |  | $ | (30.8 | )
|Fiscal 2002 change    |  |               | 3.4   |               |  |              | 1.4  |                |  |               | (13.1 | ) |  |   |      |   |  |   | (8.3  | )
|                      |  |               |       |               |  |              |      |                |  |               |       |   |  |   |       |   |  |   |       |  
|At September 30, 2002 |  |               | (25.0 | )             |  |              |     |                |  |               | (14.1 | ) |  |   |      |   |  |   | (39.1 | )
|Fiscal 2003 change    |  |               | 21.4  |               |  |              |     |                |  |               | (3.8  | ) |  |   | 12.8  |   |  |   | 30.4  |  
|                      |  |               |       |               |  |              |      |                |  |               |       |   |  |   |       |   |  |   |       |  
|At September 30, 2003 |  |               | (3.6  | )             |  |              |     |                |  |               | (17.9 | ) |  |   | 12.8  |   |  |   | (8.7  | )
|Fiscal 2004 change    |  |               | 16.3  |               |  |              |     |                |  |               | (5.4  | ) |  |   | (10.4 | ) |  |   | 0.5   |  
|                      |  |               |       |               |  |              |      |                |  |               |       |   |  |   |       |   |  |   |       |  
|At September 30, 2004 |  | $             | 12.7  |               |  | $            |     |                |  | $             | (23.3 | ) |  | $ | 2.4   |   |  | $ | (8.2  | )
|                      |  |               |       |               |  |              |      |                |  |               |       |   |  |   |       |   |  |   |       |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The minimum pension liability adjustment is net
    of tax benefit of $1.0 million, $2.1 million and
    $7.6 million in 2004, 2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                          
|   
|(2) | The net unrealized gains (loss) on investments
    are primarily related to our equity investment in the buyer of
    Spear & Jackson, which is classified as available for
    sale at September 30, 2004. As of September 30, 2003
    and 2004 we adjusted this investment to its market value and, as
    a result, recorded an unrealized loss in 2004 of
    $10.9 million, net of $6.4 million in taxes and an
    unrealized gain in 2003 of $12.8 million, net of
    $8.2 million in taxes.

New Accounting
Pronouncement:In November 2004, FASB
Statement No. 151, Inventory Costs, an Amendment of ARB
No. 43, Chapter 4(SFAS No. 151), was issued. The
amendments made by SFAS No. 151 clarify that abnormal
amounts of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as
current-period charges and require the allocation of fixed
production overheads to inventory based on the normal capacity
of the production facilities. SFAS No. 151 will become
effective for us beginning in fiscal 2006. We are in the process
of assessing the impact SFAS No. 151 will have on our
financial position and results of operations.

Note 3  Dispositions and
Discontinued Operations

On December 28, 2001, our Board of Directors
approved a formal disposal plan for five businesses 
Ames True Temper, Selkirk, Lighting Corporation of America,
Spear & Jackson and SiTeco (the 2001 Disposal
Plan). In connection with the disposal plan, we recorded a
charge in 2001 of $232.6 million, net of tax, which
represented the difference between the historical net carrying
value and the estimated net realizable value of the five
businesses. In 2002, we recorded a gain on the disposal of
discontinued operations of $7.8 million, net of tax, as we
re-evaluated our estimated net loss on these businesses. We sold
Ames True Temper in January 2002, Lighting Corporation of
America in April 2002, Selkirk in June 2002, Spear &
Jackson in September 2002 and SiTeco in October 2002.

50



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



Note 3  Dispositions and
Discontinued Operations (Continued)


In January 2002, we sold all of our remaining
interests in Strategic Industries, including the notes we
originally acquired in March 2000 when we sold a majority equity
interest in several businesses to Strategic Industries, for net
proceeds of $105.9 million.

In February 2003, our Board of Directors adopted
a formal disposal plan to dispose of our swimming pool and
equipment, hearth and water systems businesses (the 2003
Disposal Plan). In connection with the disposal plan, we
recorded a charge in 2003 of $39.9 million, net of tax,
which represents the difference between the historical net
carrying value (including allocated goodwill of
$7.2 million) and the estimated net realizable value of
these businesses. We sold the swimming pool and equipment
business in May 2003, the hearth business in June 2003 and the
water systems business in October 2003.

Each of these disposal plans qualified for
treatment as discontinued operations. As of September 30,
2003, the assets and liabilities of the water systems business
are included in assets held for sale and liabilities associated
with assets held for sale, respectively. The assets of our water
systems business included $5.0 million in net trade
receivables, $6.3 million in inventories and
$0.1 million in other current assets, and the liabilities
included $2.6 million in trade accounts payable,
$3.9 million in other current liabilities, and
$2.2 million in other non-current liabilities.

Also included in assets held for sale are
properties of $3.6 million at September 30, 2004 and
$5.4 million at September 30, 2003. These properties
meet all of the criteria for classification as held for sale as
required by SFAS No. 144. The properties are recorded
at the lower of their carrying value or fair value less cost to
sell.

The operating income of these discontinued
operations was not included in our results from continuing
operations. Instead, the results were recorded as income (loss)
from discontinued operations in the period in which they
occurred in accordance with SFAS No. 144, or the
results were included in the gain (loss) on the sale of the
business in accordance with APB Opinion No. 30,
Reporting the Results of Operations 
Reporting the Effect of Disposal of a Segment of a Business
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions(APB No. 30). Our 2001
Disposal Plan was accounted for in accordance with APB
No. 30, while our 2003 Disposal Plan was accounted for in
accordance with SFAS No. 144.

Summarized results of the discontinued operations
through the dates of sale are as follows:

|                        |  |                            |      |      |  |      |      |   |  |   |       | 
|----------------------- |  | -------------------------- | ---- | ---- |  | ---- | ---- | - |  | - | ----- | 
|                        |  |                           
|                        |  | For the Fiscal Years Ended
|                        |  | September 30,             
|                        |  |                           
|                        |  | 2004                       |      | 2003 |  | 2002
|                        |  |                            |      |      |  |     
|                        |  |                           
|                        |  | (in millions)             
|Net sales               |  | $                          | 2.1  |      |  | $    | 66.9 |   |  | $ | 807.3 | 
|Operating (loss) income |  |                            | (0.8 | )    |  |      | (0.7 | ) |  |   | 34.7  | 

In accordance with EITF Issue No. 87-24,
Allocation of Interest to Discontinued Operations, we
allocated a portion of our interest expense to discontinued
operations. Amounts allocated reflect the interest expense on
the estimated amount of debt that was repaid as a result of the
disposal transactions. Amounts reclassified were inconsequential
in 2004 and were $1.0 million in both 2003 and 2002.

51



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                                
|-------- | -----------------------------------------------
|Note 4  | Impairment, Restructuring and Other
    Charges

The principal components of impairment,
restructuring and other charges are:

|                                        |  |                      |      |      |  |      |      |   |  |   |     | 
|--------------------------------------- |  | -------------------- | ---- | ---- |  | ---- | ---- | - |  | - | --- | 
|                                        |  |                     
|                                        |  | For the Fiscal Years
|                                        |  | Ended September 30, 
|                                        |  |                     
|                                        |  | 2004                 |      | 2003 |  | 2002
|                                        |  |                      |      |      |  |     
|                                        |  |                     
|                                        |  | (in millions)       
|Impairment of other assets              |  | $                    | 4.9  |      |  | $    | 9.2  |   |  | $ |    | 
|Lease obligations and other commitments |  |                      | 4.7  |      |  |      | (1.7 | ) |  |   | 4.1 | 
|Severance and related costs             |  |                      | 12.7 |      |  |      | 12.4 |   |  |   | 3.1 | 
|                                        |  |                      |      |      |  |      |      |   |  |   |     | 
|                                        |  | $                    | 22.3 |      |  | $    | 19.9 |   |  | $ | 7.2 | 
|                                        |  |                      |      |      |  |      |      |   |  |   |     | 
|Cash charges                            |  | $                    | 14.3 |      |  | $    | 7.4  |   |  | $ | 6.4 | 
|Non-cash charges                        |  |                      | 8.0  |      |  |      | 12.5 |   |  |   | 0.8 | 
|                                        |  |                      |      |      |  |      |      |   |  |   |     | 
|                                        |  | $                    | 22.3 |      |  | $    | 19.9 |   |  | $ | 7.2 | 
|                                        |  |                      |      |      |  |      |      |   |  |   |     | 

Below is a summary of the impairment,
restructuring and other charges we incurred in 2004 and 2003.
Charges are recorded when a liability is incurred in accordance
with FASB Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities(SFAS No. 146), FASB Statement
No. 88, Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and SFAS No. 144 or other
applicable guidance.

|                                          |                              |                           |      |                           |   |               |      |           |  |         |      |          |   |       |      |     |  |   |      |      |  |   |     |     |  |   |      |      | 
|----------------------------------------- | ---------------------------- | ------------------------- | ---- | ------------------------- | - | ------------- | ---- | --------- |  | ------- | ---- | -------- | - | ----- | ---- | --- |  | - | ---- | ---- |  | - | --- | --- |  | - | ---- | ---- | 
|                                          |                              |                           |      |                          
|                                          |                              | For the Fiscal Year Ended |      | For the Fiscal Year Ended
|                                          |                              | September 30, 2004        |      | September 30, 2003       
|                                          |                              |                           |      |                          
|                                          |                              | Restructuring             |      |                           |   | Restructuring |      |          
|                                          |                              | and                       |      | Plant                     |   |               |      | and       |  | Plant   |      | Cost of  |   |      
|                                          |                              | Severance                 |      | Closure                   |   |               |      | Severance |  | Closure |      | Products |   |      
|                                          |                              | Charges                   |      | Costs                     |   | Total         |      | Charges   |  | Costs   |      | Sold     |   | Total
|                                          |                              |                           |      |                           |   |               |      |           |  |         |      |          |   |      
|                                          |                              |                           |      |                          
|                                          |                              | (in millions)             |      | (in millions)            
|Bath Products:                            |                              |                           |      |                           |   |               |      |           |  |         |      |          |   |       |      |     |  |   |      |      |  |   |     |     |  |   |      |     
|Closure of Tupelo, MS facility            |                              | $                         | 2.2  |                           |   | $             | 7.9  |           |  | $       | 10.1 |          |   | $     |     |     |  | $ |     |      |  | $ |    |     |  | $ |     |     
|Closure of Ford City, PA facility         |                              |                           | 2.4  |                           |   |               | 0.9  |           |  |         | 3.3  |          |   |       |     |     |  |   |     |      |  |   |    |     |  |   |     |     
|Closure of Salem, OH facility             |                              |                           | 4.7  |                           |   |               | 1.3  |           |  |         | 6.0  |          |   |       |     |     |  |   | 8.5  |      |  |   | 0.9 |     |  |   | 9.4  |     
|Closure of Plant City, FL facility        |                              |                           |     |                           |   |               |     |           |  |         |     |          |   |       |     |     |  |   | 3.9  |      |  |   |    |     |  |   | 3.9  |     
|Consolidation of administrative functions |                              |                           | 3.5  |                           |   |               |     |           |  |         | 3.5  |          |   |       | 0.4  |     |  |   |     |      |  |   |    |     |  |   | 0.4  |     
|Dismissal of wholesale sales force        |                              |                           |     |                           |   |               |     |           |  |         |     |          |   |       | 0.9  |     |  |   |     |      |  |   |    |     |  |   | 0.9  |     
|                                          |                              |                           |      |                           |   |               |      |           |  |         |      |          |   |       |      |     |  |   |      |      |  |   |     |     |  |   |      |     
|                                          | Sub-total Bath Products      |                           |      | 12.8                      |   |               |      | 10.1      |  |         |      | 22.9     |   |       |      | 1.3 |  |   |      | 12.4 |  |   |     | 0.9 |  |   |      | 14.6 | 
|                                          |                              |                           |      |                           |   |               |      |           |  |         |      |          |   |       |      |     |  |   |      |      |  |   |     |     |  |   |      |     
|Corporate Expenses:                       |                              |                           |      |                           |   |               |      |           |  |         |      |          |   |       |      |     |  |   |      |      |  |   |     |     |  |   |      |     
|Adjustment of estimated lease obligation  |                              |                           | (0.6 | )                         |   |               |     |           |  |         | (0.6 | )        |   |       | (3.2 | )   |  |   |     |      |  |   |    |     |  |   | (3.2 | )   
|Corporate headquarters restructuring      |                              |                           |     |                           |   |               |     |           |  |         |     |          |   |       | 8.5  |     |  |   |     |      |  |   |    |     |  |   | 8.5  |     
|                                          |                              |                           |      |                           |   |               |      |           |  |         |      |          |   |       |      |     |  |   |      |      |  |   |     |     |  |   |      |     
|                                          | Sub-total Corporate Expenses |                           |      | (0.6                      | ) |               |      |          |  |         |      | (0.6     | ) |       |      | 5.3 |  |   |      |     |  |   |     |    |  |   |      | 5.3  | 
|                                          |                              |                           |      |                           |   |               |      |           |  |         |      |          |   |       |      |     |  |   |      |      |  |   |     |     |  |   |      |     
|                                          |                              | $                         | 12.2 |                           |   | $             | 10.1 |           |  | $       | 22.3 |          |   | $     | 6.6  |     |  | $ | 12.4 |      |  | $ | 0.9 |     |  | $ | 19.9 |     
|                                          |                              |                           |      |                           |   |               |      |           |  |         |      |          |   |       |      |     |  |   |      |      |  |   |     |     |  |   |      |     

Each of the following actions is part of our
previously announced plans related to our transformation to a
focused operating company. Many of the initiatives are designed
to improve margins in the Bath Products segment and the sanitary
ware business specifically by eliminating high-cost
manufacturing through lower-cost sourcing, eliminating
unprofitable product lines and improving customer service.

52



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                                            
|-------- | -----------------------------------------------------------
|Note 4  | Impairment, Restructuring and Other Charges
    (Continued)



| |                 
| | ----------------
| | 2004 Initiatives

In 2004, management approved a plan to close the
Tupelo, MS plant as part of our ongoing initiatives to improve
operating performance in our Bath Products business segment. We
recorded $10.1 million in charges associated with the
closure of the plant, which includes pension and post-employment
benefits curtailments of $2.2 million and commitments
related to exiting the facility of $3.0 million. In 2004,
we performed a recoverability test of the long-lived assets and
determined that an impairment charge of $4.9 million, which
included an asset retirement obligation related to a landfill at
the site, was required to reduce the carrying value of the
Tupelo property, plant and equipment to its estimated fair
value. The closure of the plant will result in the termination
of approximately 255 employees and is expected to be completed
by the end of third quarter of 2005.

Management approved a plan in 2004 to downsize
the Ford City, PA plant in an effort to eliminate high-cost
manufacturing through lower-cost sourcing. As a result, we
recorded $3.3 million of charges during 2004. Included in
the charges were $1.5 million in severance related to the
termination of approximately 200 employees and $0.9 million
in pension and post-employment benefit curtailments. The
downsizing is expected to be substantially completed by December
2004.



| |                 
| | ----------------
| | 2003 Initiatives

In 2003, management initiated a plan to close the
Salem, OH plant, which was completed in 2004. We recorded
charges of $6.0 million in 2004 and $9.4 million in
2003 as a result of this initiative. In 2003, we performed a
recoverability test of the long-lived assets and determined that
an impairment charge of $5.2 million was required to reduce
the carrying value of these long-lived assets to their estimated
fair value. The estimated fair value of the plant was determined
based on the value of comparable plants in the area. The 2003
charges also included a pension and post-employment benefit
curtailment charge of $3.0 million, a $0.3 million
charge for other commitments related to exiting the facility and
$0.9 million charged to cost of products sold related to
scrapped inventory. The 2004 charges relate to severance and
facility exit costs. As a result of this plant closing,
approximately 253 employees were terminated.

In 2003, we adopted a plan to consolidate and
relocate of a number of administrative functions into a shared
services operations center in Dallas, TX in an effort to reduce
costs in our Bath Products segment. In the third quarter of
2004, we added the customer service functions of our domestic
whirlpool bath and spa businesses to the list of functions to be
consolidated into this shared services center, which is expected
to further decrease costs and improve customer satisfaction. We
incurred severance charges of $3.5 million in 2004 and
$0.4 million in 2003 related to 113 employees that were
terminated in conjunction with these initiatives.

The shared service center occupies a portion of
the unused office space in Dallas, TX that had remained vacant
since our closing of the Zurn Industries, Inc.
(Zurn) corporate office. Favorable adjustments of
$0.6 million and $3.2 million were recorded in 2004
and 2003, respectively, to reduce the associated accrual for
lease costs that had originally been established in 2000 and
increased in 2002 (see below) for the vacant leased space.

In 2003, management also approved a plan to close
our Plant City, FL spa manufacturing plant, which was closed in
November 2003. During 2003, we recorded a $3.9 million
charge associated with the closure of this facility. As a result
of our decision to close the plant, we performed a
recoverability test of the long-lived assets and determined that
an impairment charge of $3.1 million was required to reduce
the carrying value of the property, plant and equipment to their
estimated fair value. The estimated fair value of the plant was
determined based on the value of comparable plants in the area
plus the book value of the equipment that was transferred to our
Chino facility.

53



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                                            
|-------- | -----------------------------------------------------------
|Note 4  | Impairment, Restructuring and Other Charges
    (Continued)

Management also approved a plan in 2003 to
replace our entire domestic sanitary bath wholesale sales force
with independent manufacturer representatives to market our
ELJER® brand products to the wholesale channel on a
commission basis. As a result, we incurred $0.9 million in
severance costs in 2003 related to the dismissal of 26 employees.

In April 2003, management initiated a
restructuring and consolidation of the corporate headquarters
that included a number of management changes and the relocation
and consolidation of the Jacuzzi headquarters in Walnut Creek,
CA into our principal offices in West Palm Beach, FL. Upon
approval of our Board of Directors and stockholders, we also
changed our name from U.S. Industries, Inc. to Jacuzzi
Brands, Inc. We incurred charges of $8.5 million during
2003 primarily for employee severance, lease termination costs,
relocation expenses and other related exit costs.



| |                 
| | ----------------
| | 2002 Initiatives

In 2002, we recorded restructuring charges of
$3.1 million associated with management changes within the
segment previously reported as Bath & Plumbing. The
restructuring charge consisted of $2.3 million in cash
severance payments and $0.8 million in non-cash charges
associated with the accelerated vesting of restricted stock. We
also recorded restructuring charges of $0.7 million in our
Plumbing Products segment to adjust reserves associated with a
restructuring plan initiated in a prior year. Our estimates of
the remaining product liability and warranty claims associated
with these products required revision based on updated
information.

In 2002, we also recorded a charge of
$3.4 million to increase reserves associated with a
restructuring plan initiated in a prior year. The charge related
to the Zurn corporate lease obligation. When we initially
estimated our lease obligation in 2000, we assumed that we would
be able to sublease portions of the space over the course of the
lease. In 2002, it became apparent, based on market conditions,
that the space would likely remain empty for the remaining term
of the lease.

The activity in the restructuring liability
accounts by cost category is as follows:

|                      |                        |               |     |             |   |       |     |       |   |   |      |       |  
|--------------------- | ---------------------- | ------------- | --- | ----------- | - | ----- | --- | ----- | - | - | ---- | ----- | -
|                      |                        | Lease and     |     |             |   |      
|                      |                        | Contract      |     | Severance   |   |      
|                      |                        | Related       |     | and Related |   | Total
|                      |                        | Costs         |     | Costs       |   | Costs
|                      |                        |               |     |             |   |      
|                      |                        |              
|                      |                        | (in millions)
|At September 30, 2002 |                        | $             | 8.8 |             |   | $     | 0.6 |       |   | $ | 9.4  |      
|                      | 2003 (credits) charges |               |     | (1.7        | ) |       |     | 9.1   |   |   |      | 7.4   |  
|                      | Cash payments          |               |     | (1.6        | ) |       |     | (3.7  | ) |   |      | (5.3  | )
|                      |                        |               |     |             |   |       |     |       |   |   |      |      
|At September 30, 2003 |                        |               | 5.5 |             |   |       | 6.0 |       |   |   | 11.5 |      
|                      | 2004 charges           |               |     | 4.7         |   |       |     | 9.6   |   |   |      | 14.3  |  
|                      | Cash payments          |               |     | (2.3        | ) |       |     | (11.1 | ) |   |      | (13.4 | )
|                      |                        |               |     |             |   |       |     |       |   |   |      |      
|At September 30, 2004 |                        | $             | 7.9 |             |   | $     | 4.5 |       |   | $ | 12.4 |      
|                      |                        |               |     |             |   |       |     |       |   |   |      |      

At September 30, 2004, approximately
$9.7 million of the reserves are included in the balance
sheet caption Accrued expenses and other current
liabilities, while the remaining $2.7 million are
recorded in the balance sheet caption Other
liabilities. We expect the remaining accruals to be paid
with cash over the periods provided by the severance and lease
agreements over the next three years.

54



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |               
|-------- | --------------
|Note 5  | Long-Term Debt

Long-term debt consists of the following:

|                         |                             |                  |       |       |  |   |       |       | 
|------------------------ | --------------------------- | ---------------- | ----- | ----- |  | - | ----- | ----- | 
|                         |                             |                 
|                         |                             | At September 30,
|                         |                             |                 
|                         |                             | 2004             |       | 2003 
|                         |                             |                  |       |      
|                         |                             |                 
|                         |                             | (in millions)   
|Senior Notes             |                             | $                | 380.0 |       |  | $ | 380.0 |      
|Bank Facilities:         |                             |                  |       |       |  |   |       |      
|                         | Asset-based credit facility |                  |       | 2.5   |  |   |       | 23.9  | 
|                         | Term loan                   |                  |       | 61.8  |  |   |       | 65.0  | 
|Other long-term debt     |                             |                  | 6.4   |       |  |   | 7.7   |      
|                         |                             |                  |       |       |  |   |       |      
|                         |                             |                  | 450.7 |       |  |   | 476.6 |      
|Less: current maturities |                             |                  | (3.9  | )     |  |   | (25.2 | )    
|                         |                             |                  |       |       |  |   |       |      
|                         |                             |                  | $     | 446.8 |  |   | $     | 451.4 | 
|                         |                             |                  |       |       |  |   |       |      

On July 15, 2003, we completed a
comprehensive re-financing of our corporate debt by closing on
the issuance of $380.0 million in aggregate principal
amount of 9.625% senior secured notes (the Senior
Notes), as well as a new five-year $200.0 million
asset-based revolving credit facility and a five-year
$65.0 million term loan (collectively the Bank
Facilities). The net proceeds from the Senior Notes,
together with the initial borrowings under the Bank Facilities,
were used to repay the debt and redeem senior notes that were
outstanding at that time.

On June 30, 2004, we amended our Bank
Facilities, and on July 2, 2004, we made a
$3.2 million payment to the bank permanently reducing our
term loan to $61.8 million. The amendment provides for:



| |   |                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a reduction in the interest rate of our term loan
    from Prime plus 5.0%, with a minimum rate of 9.25%, to LIBOR
    plus 5.0%, with no minimum rate;                                                                                                              
|
| |  | the elimination of annual prepayments on our term
    loan of $10.0 million, which were scheduled to begin in
    August 2005;                                                                                                                                       
|
| |  | the elimination of annual prepayments on our term
    loan equal to 25% of our annual consolidated excess cash flow,
    as determined by the original loan agreement;                                                                                               
|
| |  | the extension of the maturity date of our term
    loan by one year to July 15, 2009; and                                                                                                                                                                            
|
| |  | the elimination of all debt covenants except the
    requirement to maintain a minimum consolidated fixed charge
    coverage ratio. This requirement is applicable only if our
    availability under the asset-based credit facility falls below
    $20.0 million.

This amendment was not considered a substantial
modification of our debt under the guidance provided in EITF
Issue No. 96-19, Debtors Accounting for a
Modification or Exchange of Debt Instruments.

The Senior Notes, which are due July 1, 2010
and require the payment of interest of $18.3 million on
January 1 and July 1 of each year, were subject to
registration with the Securities and Exchange Commission
pursuant to a registration rights agreement. On
February 17, 2004, we completed an offer to exchange new,
registered Senior Notes for the then outstanding unregistered
notes. The terms of the new, registered Senior Notes are
identical, in all material respects, to the terms of the then
outstanding unregistered notes, except that the new Senior Notes
have been registered under the Securities Act, and the transfer
restrictions and registration rights relating to the
unregistered notes do not apply to the registered Senior Notes.

55



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                           
|-------- | --------------------------
|Note 5  | Long-Term Debt (Continued)

We are restricted in the redemption of the Senior
Notes per the terms of the agreement with the note holders (the
Agreement). Prior to July 1, 2006, we can
redeem up to 35% of the Senior Notes with the net cash proceeds
of an equity offering, as defined in the Agreement. On and after
July 1, 2007, we can redeem the Senior Notes subject to a
redemption premium of 104.8% for the first 12 months and
102.4% for the following 12 months. On and after
July 1, 2009, the Senior Notes can be redeemed at face
value.

Under the five-year asset-based revolving credit
facility, we can borrow up to $200.0 million subject to a
borrowing base consisting of eligible accounts receivable and
eligible inventory, plus eligible trademarks. The initial amount
of eligible trademarks of $20.0 million is being amortized
evenly over the first two years of the facility as a reduction
of the borrowing base. The interest rate under the facility is
currently 2.25% over LIBOR or 0.25% over Prime. This rate will
reset each quarter based on our Consolidated Leverage Ratio as
defined in the agreement, and could range from 2.0% to 2.5% over
LIBOR (Applicable LIBOR Margin). The
weighted-average interest rate for 2004 was 3.98%.

The Bank Facilities contain a subjective
acceleration clause and a requirement to maintain a lockbox
associated with our asset-based facility. As required by EITF
Issue No. 95-22, Balance Sheet Classification of
Borrowings Outstanding under Revolving Credit Agreements that
Include both a Subjective Acceleration Clause and a Lockbox
Arrangement, the entire balance of the asset-based facility
is included in current maturities of long-term debt.

Certain of our existing and future domestic
restricted subsidiaries guarantee the Senior Notes, jointly and
severally, on a senior basis. The Senior Notes are secured by an
eligible first lien on domestic property, plant and equipment,
and a second lien on the assets that secure the Bank Facilities.
The asset-based credit facility is secured by a first lien on
accounts receivable, inventory, intangibles, the stock of our
domestic subsidiaries and 65% of the stock of our first-tier
foreign subsidiaries. In addition, the asset-based credit
facility has a second lien on the property, plant and equipment
securing the Senior Notes. The term loan is secured by the same
assets that secure the asset-based credit facility, but the term
loan will be paid on a last out basis following the
payment of the obligations under the asset-based credit facility.

We paid $45.2 million, $56.8 million
and $69.7 million of interest on our borrowings in 2004,
2003 and 2002, respectively.

Principal reductions of senior debt and other
borrowings for the next five years ended September 30 and
thereafter are as follows (in millions):

|           |  |   |       | 
|---------- |  | - | ----- | 
|2005       |  | $ | 3.9   | 
|2006       |  |   | 1.5   | 
|2007       |  |   | 1.7   | 
|2008       |  |   | 1.8   | 
|2009       |  |   | 61.8  | 
|Thereafter |  |   | 380.0 | 
|           |  |   |       | 
|           |  | $ | 450.7 | 
|           |  |   |       | 



| |            
| | -----------
| | Commitments

At September 30, 2004, we had approximately
$145.7 million available to be borrowed under the
asset-based facility, of which we had utilized approximately
$44.6 million (including $42.1 million of letters of
credit), leaving $101.1 million available for additional
borrowings. In addition, we have outstanding foreign commercial
letters of credit of $1.8 million which do not affect
availability under the asset-based facility.

56



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                             
|-------- | ----------------------------
|Note 6  | Pension and Retirement Plans



| |                              
| | -----------------------------
| | Domestic Benefit Arrangements

Prior to 2004, we sponsored a number of
non-contributory defined benefit pension plans covering the
majority of our U.S. employees. In 2004, all domestic
pension plans were merged into a single pension plan. The
benefits under this plan are based primarily on years of
credited service and/or compensation as defined under the plan
provisions. Our funding policy is to contribute amounts to the
plan sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974,
plus such additional amounts as we may determine to be
appropriate from time to time.

We also sponsor a number of defined contribution
plans. Contributions relating to defined contribution plans are
made based upon the respective plans provisions.
Additionally, we provide health care and life insurance benefits
to certain groups of retirees with most retirees contributing
back to us a portion of our costs. These other post-employment
benefit plans are presented as Other Plans in the
tables that follow. We use a September 30 measurement date
for the plans.

The following table provides a reconciliation of
changes in the projected benefit obligation, fair value of plan
assets and the funded status of our defined benefit pension and
other post-employment benefit plans to the amounts recorded in
our balance sheets:

|                                                                      |                                          |                  |       |                  |   |      |       |       |   |   |       |       |   |   |       |      |  
|--------------------------------------------------------------------- | ---------------------------------------- | ---------------- | ----- | ---------------- | - | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ----- | ---- | -
|                                                                      |                                          |                  |       |                 
|                                                                      |                                          | Pension Plans    |       | Other Plans     
|                                                                      |                                          | at September 30, |       | at September 30,
|                                                                      |                                          |                  |       |                 
|                                                                      |                                          | 2004             |       | 2003             |   | 2004 |       | 2003 
|                                                                      |                                          |                  |       |                  |   |      |       |      
|                                                                      |                                          |                 
|                                                                      |                                          | (in millions)   
|Benefit obligation at beginning of year                               |                                          | $                | 307.0 |                  |   | $    | 267.2 |       |   | $ | 66.5  |       |   | $ | 45.3  |     
|                                                                      | Service cost                             |                  |       | 6.7              |   |      |       | 6.7   |   |   |       | 0.5   |   |   |       | 0.7  |  
|                                                                      | Interest cost                            |                  |       | 18.1             |   |      |       | 17.6  |   |   |       | 3.5   |   |   |       | 3.4  |  
|                                                                      | Plan amendments                          |                  |       | 14.8             |   |      |       | 0.7   |   |   |       | (17.9 | ) |   |       | (4.3 | )
|                                                                      | Actuarial losses                         |                  |       | 11.4             |   |      |       | 29.5  |   |   |       | 8.3   |   |   |       | 28.3 |  
|                                                                      | Benefits paid                            |                  |       | (19.2            | ) |      |       | (15.8 | ) |   |       | (8.0  | ) |   |       | (4.8 | )
|                                                                      | Curtailments                             |                  |       | (0.3             | ) |      |       | 1.1   |   |   |       | (0.6  | ) |   |       | (2.1 | )
|                                                                      |                                          |                  |       |                  |   |      |       |       |   |   |       |       |   |   |       |     
|                                                                      | Benefit obligation at end of year        |                  | $     | 338.5            |   |      | $     | 307.0 |   |   | $     | 52.3  |   |   | $     | 66.5 |  
|                                                                      |                                          |                  |       |                  |   |      |       |       |   |   |       |       |   |   |       |     
|Fair value of plan assets at beginning of year                        |                                          | $                | 342.5 |                  |   | $    | 299.9 |       |   | $ |      |       |   | $ |      |     
|                                                                      | Actual return on plan assets             |                  |       | 42.9             |   |      |       | 57.1  |   |   |       |      |   |   |       |     |  
|                                                                      | Contributions                            |                  |       | 3.6              |   |      |       | 1.3   |   |   |       | 8.0   |   |   |       | 4.8  |  
|                                                                      | Benefits paid                            |                  |       | (19.2            | ) |      |       | (15.8 | ) |   |       | (8.0  | ) |   |       | (4.8 | )
|                                                                      |                                          |                  |       |                  |   |      |       |       |   |   |       |       |   |   |       |     
|                                                                      | Fair value of plan assets at end of year |                  | $     | 369.8            |   |      | $     | 342.5 |   |   | $     |      |   |   | $     |     |  
|                                                                      |                                          |                  |       |                  |   |      |       |       |   |   |       |       |   |   |       |     
|Plan assets in excess of (less than) projected
    benefit obligation |                                          | $                | 31.3  |                  |   | $    | 35.5  |       |   | $ | (52.3 | )     |   | $ | (66.5 | )   
|Unrecognized net actuarial losses                                     |                                          |                  | 89.1  |                  |   |      | 91.1  |       |   |   | 35.1  |       |   |   | 29.4  |     
|Unrecognized prior service cost (income)                              |                                          |                  | 16.3  |                  |   |      | 4.9   |       |   |   | (22.2 | )     |   |   | (4.9  | )   
|                                                                      |                                          |                  |       |                  |   |      |       |       |   |   |       |       |   |   |       |     
|                                                                      |                                          | $                | 136.7 |                  |   | $    | 131.5 |       |   | $ | (39.4 | )     |   | $ | (42.0 | )   
|                                                                      |                                          |                  |       |                  |   |      |       |       |   |   |       |       |   |   |       |     

57



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                             
|-------- | --------------------------------------------
|Note 6  | Pension and Retirement Plans
    (Continued)

|                                       |  |                  |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|-------------------------------------- |  | ---------------- | ----- | ---------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                       |  |                  |       |                 
|                                       |  | Pension Plans    |       | Other Plans     
|                                       |  | at September 30, |       | at September 30,
|                                       |  |                  |       |                 
|                                       |  | 2004             |       | 2003             |  | 2004 |       | 2003
|                                       |  |                  |       |                  |  |      |       |     
|                                       |  |                 
|                                       |  | (in millions)   
|Prepaid benefits                       |  | $                | 148.7 |                  |  | $    | 146.4 |      |  | $ |      |   |  | $ |      |  
|Accrued benefits                       |  |                  | (18.6 | )                |  |      | (24.4 | )    |  |   | (39.4 | ) |  |   | (42.0 | )
|Intangible assets                      |  |                  | 1.6   |                  |  |      | 1.9   |      |  |   |      |   |  |   |      |  
|Accumulated other comprehensive income |  |                  | 5.0   |                  |  |      | 7.6   |      |  |   |      |   |  |   |      |  
|                                       |  |                  |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|                                       |  | $                | 136.7 |                  |  | $    | 131.5 |      |  | $ | (39.4 | ) |  | $ | (42.0 | )
|                                       |  |                  |       |                  |  |      |       |      |  |   |       |   |  |   |       |  

Certain portions of the pension and other plans
were amended in 2004 as a result of union negotiations. In 2004,
the fair value of the pension plans assets exceeded its
accumulated benefit obligation and projected benefit obligation
at September 30, 2004. At September 30, 2003, one of
the pension plans had an accumulated benefit obligation
($36.6 million) and projected benefit obligation
($39.8 million) in excess of the fair value of its plan
assets of $12.3 million.

The components of net periodic (income) expense
for our domestic defined benefit pension and other plans are
presented below:

|                               |                                                                 |                            |       |                      |   |      |       |      |   |      |       |       |   |   |      |     |  |   |     |     |  |   |      |     | 
|------------------------------ | --------------------------------------------------------------- | -------------------------- | ----- | -------------------- | - | ---- | ----- | ---- | - | ---- | ----- | ----- | - | - | ---- | --- |  | - | --- | --- |  | - | ---- | --- | 
|                               |                                                                 |                            |       |                      |   |      |       |     
|                               |                                                                 |                            |       | Other Plans         
|                               |                                                                 | Pension Plans              |       | for the Fiscal Years
|                               |                                                                 | for the Fiscal Years Ended |       | Ended               
|                               |                                                                 | September 30,              |       | September 30,       
|                               |                                                                 |                            |       |                     
|                               |                                                                 | 2004                       |       | 2003                 |   | 2002 |       | 2004 |   | 2003 |       | 2002 
|                               |                                                                 |                            |       |                      |   |      |       |      |   |      |       |      
|                               |                                                                 |                           
|                               |                                                                 | (in millions)             
|Service cost                   |                                                                 | $                          | 6.7   |                      |   | $    | 6.7   |      |   | $    | 8.5   |       |   | $ | 0.5  |     |  | $ | 0.7 |     |  | $ | 0.3  |    
|Interest cost                  |                                                                 |                            | 18.2  |                      |   |      | 17.6  |      |   |      | 19.1  |       |   |   | 3.6  |     |  |   | 3.4 |     |  |   | 2.5  |    
|Expected return on plan assets |                                                                 |                            | (31.8 | )                    |   |      | (32.3 | )    |   |      | (40.8 | )     |   |   |     |     |  |   |    |     |  |   |     |    
|Prior service cost             |                                                                 |                            | 0.9   |                      |   |      | 0.6   |      |   |      | 1.0   |       |   |   | (1.3 | )   |  |   |    |     |  |   | (0.1 | )  
|Net actuarial loss (gain)      |                                                                 |                            | 1.9   |                      |   |      | 0.1   |      |   |      | (1.9  | )     |   |   | 2.0  |     |  |   | 0.6 |     |  |   | (1.3 | )  
|Curtailments/settlements       |                                                                 |                            | 2.5   |                      |   |      | 2.9   |      |   |      | 58.3  |       |   |   | 0.6  |     |  |   | 0.4 |     |  |   |     |    
|                               |                                                                 |                            |       |                      |   |      |       |      |   |      |       |       |   |   |      |     |  |   |     |     |  |   |      |    
|                               | Periodic (income) expense of defined benefit plans              |                            |       | (1.6                 | ) |      |       | (4.4 | ) |      |       | 44.2  |   |   |      | 5.4 |  |   |     | 5.1 |  |   |      | 1.4 | 
|                               | Net reclassification adjustment for discontinued
    operations |                            |       |                     |   |      |       | 0.1  |   |      |       | (56.0 | ) |   |      |    |  |   |     |    |  |   |      |    | 
|                               |                                                                 |                            |       |                      |   |      |       |      |   |      |       |       |   |   |      |     |  |   |     |     |  |   |      |    
|Net periodic (income) expense: |                                                                 |                            |       |                      |   |      |       |      |   |      |       |       |   |   |      |     |  |   |     |     |  |   |      |    
|                               | Defined benefit plans                                           |                            |       | (1.6                 | ) |      |       | (4.3 | ) |      |       | (11.8 | ) |   |      | 5.4 |  |   |     | 5.1 |  |   |      | 1.4 | 
|                               | Defined contribution plans                                      |                            |       | 1.4                  |   |      |       | 1.4  |   |      |       | 0.9   |   |   |      |    |  |   |     |    |  |   |      |    | 
|                               |                                                                 |                            |       |                      |   |      |       |      |   |      |       |       |   |   |      |     |  |   |     |     |  |   |      |    
|                               |                                                                 | $                          | (0.2  | )                    |   | $    | (2.9  | )    |   | $    | (10.9 | )     |   | $ | 5.4  |     |  | $ | 5.1 |     |  | $ | 1.4  |    
|                               |                                                                 |                            |       |                      |   |      |       |      |   |      |       |       |   |   |      |     |  |   |     |     |  |   |      |    

58



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                             
|-------- | --------------------------------------------
|Note 6  | Pension and Retirement Plans
    (Continued)



| |            
| | -----------
| | Assumptions

The weighted-average assumptions used to
determine the benefit obligation for our domestic defined
benefit pension and other plans are as follow:

|                               |  |                  |      |                  |  |      |      |      |  |      |      |      |  |  |      |   |  |  |      |   |  |  |      |  
|------------------------------ |  | ---------------- | ---- | ---------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|                               |  |                  |      |                 
|                               |  | Pension Plans    |      | Other Plans     
|                               |  | at September 30, |      | at September 30,
|                               |  |                  |      |                 
|                               |  | 2004             |      | 2003             |  | 2002 |      | 2004 |  | 2003 |      | 2002
|                               |  |                  |      |                  |  |      |      |      |  |      |      |     
|Discount rate                  |  |                  | 5.75 | %                |  |      | 6.00 | %    |  |      | 6.75 | %    |  |  | 5.75 | % |  |  | 6.00 | % |  |  | 6.75 | %
|Rate of compensation increases |  |                  | 3.25 | %                |  |      | 3.25 | %    |  |      | 3.25 | %    |  |  |     |   |  |  |     |   |  |  |     |  

The weighted-average assumptions used to
determine the net periodic pension (income) expense for our
domestic defined benefit pension and other plans are as follow:

|                                  |  |                      |      |                      |  |      |      |      |  |      |      |      |  |  |      |   |  |  |      |   |  |  |      |  
|--------------------------------- |  | -------------------- | ---- | -------------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|                                  |  |                      |      |                     
|                                  |  | Pension Plans        |      | Other Plans         
|                                  |  | for the Fiscal Years |      | for the Fiscal Years
|                                  |  | Ended September 30,  |      | Ended September 30, 
|                                  |  |                      |      |                     
|                                  |  | 2004                 |      | 2003                 |  | 2002 |      | 2004 |  | 2003 |      | 2002
|                                  |  |                      |      |                      |  |      |      |      |  |      |      |     
|Discount rate                     |  |                      | 6.00 | %                    |  |      | 6.00 | %    |  |      | 6.75 | %    |  |  | 6.00 | % |  |  | 6.00 | % |  |  | 6.75 | %
|Rate of compensation increases    |  |                      | 3.25 | %                    |  |      | 3.25 | %    |  |      | 3.25 | %    |  |  |     |   |  |  |     |   |  |  |     |  
|Expected rate of return on assets |  |                      | 8.75 | %                    |  |      | 8.75 | %    |  |      | 8.75 | %    |  |  |     |   |  |  |     |   |  |  |     |  

The expected rate of return on assets is based on
several factors. Such factors include current and expected
target asset allocation, the historical experience of returns
provided by plan assets, the evaluation of market conditions and
interest rates, tolerance for risk within plan guidelines and
cash requirements for benefit payments. In conjunction with our
actuaries we analyze the foregoing factors as well as the advice
of our pension investment advisors to develop the return on
assets assumptions.

The weighted-average annual assumed rate of
increase in the per capita cost of covered benefits (i.e., the
health care cost trend rate) for the other post-employment
benefit plans was 10.0% for 2004 and 7.5% for 2003. The rate
used as of September 30, 2004 was 10.0% and is assumed to
decrease 0.5% a year to 5.0%. A one-percentage-point change in
the assumed health care cost trend rate would have had the
following effects as of and for the year ended
September 30, 2004 (in millions):

|                                                                   |                                                |                     |   |      |  
|------------------------------------------------------------------ | ---------------------------------------------- | ------------------- | - | ---- | -
|                                                                   |                                                | Increase (Decrease)
|                                                                   |                                                | Costs/Obligations  
|                                                                   |                                                |                    
|Effect of a 1% increase in the health care cost
    trend rate on: |                                                |                     |   |     
|                                                                   | Service cost plus interest cost                |                     | $ | 0.3  |  
|                                                                   | Accumulated post-employment benefit obligation |                     |   | 3.2  |  
|Effect of a 1% decrease in the health care cost
    trend rate on: |                                                |                     |   |     
|                                                                   | Service cost plus interest cost                |                     | $ | (0.3 | )
|                                                                   | Accumulated post-employment benefit obligation |                     |   | (3.0 | )

59



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                             
|-------- | --------------------------------------------
|Note 6  | Pension and Retirement Plans
    (Continued)



| |            
| | -----------
| | Plan Assets

Our domestic defined benefit pension plans
weighted-average asset allocations by asset category are as
follows:

|                  |  |                  |       |      |  |   |       | 
|----------------- |  | ---------------- | ----- | ---- |  | - | ----- | 
|                  |  |                 
|                  |  | At September 30,
|                  |  |                 
|                  |  | 2004             |       | 2003
|                  |  |                  |       |     
|                  |  |                 
|                  |  | (in millions)   
|Equity securities |  | $                | 246.6 |      |  | $ | 212.2 | 
|Debt securities   |  |                  | 99.6  |      |  |   | 119.8 | 
|Other             |  |                  | 23.6  |      |  |   | 10.5  | 
|                  |  |                  |       |      |  |   |       | 
|                  |  | $                | 369.8 |      |  | $ | 342.5 | 
|                  |  |                  |       |      |  |   |       | 

The overall investment strategy for our domestic
pension plan is to manage the plans assets in a prudent
and productive manner. The selected investment managers seek to
increase the aggregate value of the assets under management
while conscious of the need to preserve asset value. Reasonable
consistency of returns is expected on a year-to-year basis.
Active management strategies are used to meet investment
objectives of the pension plan, which are to satisfy all pension
benefit payments and to realize investment returns in excess of
market indices. Consistent with these investment objectives, the
plan has set the following range of target percentages for the
allocation of plan assets by each major category.

|                  |  |  |           | 
|----------------- |  |  | --------- | 
|Equity securities |  |  | 45%  75% | 
|Debt securities   |  |  | 20%  40% | 
|Real estate       |  |  | 0%   5%  | 
|Other             |  |  | 0%  25%  | 

The assets for our domestic plan are included in
a master trust which principally invests in listed stocks and
bonds, including the common stock of our company. At
September 30, 2004 and 2003, 1,333,100 shares of our
common stock representing $12.4 million and
$8.3 million of the master trusts assets as of
September 30, 2004 and September 30, 2003,
respectively, were included in plan assets.



| |                                                
| | -----------------------------------------------
| | Expected Contributions and Benefit
    Payments

We do not expect to make any contributions to our
domestic defined benefit pension plan in 2005. Based on our
assumptions discussed above, we expect to make the following
estimated future benefit payments under the plans as follows:

|            |  |               |       |       |  |   |      | 
|----------- |  | ------------- | ----- | ----- |  | - | ---- | 
|            |  | Pension       |       | Other
|            |  | Plans         |       | Plans
|            |  |               |       |      
|            |  |              
|            |  | (in millions)
|2005        |  | $             | 16.7  |       |  | $ | 3.6  | 
|2006        |  |               | 17.0  |       |  |   | 3.7  | 
|2007        |  |               | 17.2  |       |  |   | 3.9  | 
|2008        |  |               | 18.0  |       |  |   | 4.1  | 
|2009        |  |               | 19.1  |       |  |   | 4.2  | 
|2010  2014 |  |               | 129.7 |       |  |   | 22.9 | 
|            |  |               |       |       |  |   |      | 
|            |  | $             | 217.7 |       |  | $ | 42.4 | 
|            |  |               |       |       |  |   |      | 

60



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                             
|-------- | --------------------------------------------
|Note 6  | Pension and Retirement Plans
    (Continued)

The tables above and on the previous pages set
forth the historical components of net periodic pension cost and
a reconciliation of the funded status of the pension and other
plans for our domestic employees. This information, however, is
not necessarily indicative of the amounts we will recognize on a
prospective basis.

In 2004, we recorded a reduction to the minimum
pension liability in accordance with FASB Statement No. 87,
Employers Accounting for Pensions
(SFAS No. 87), totaling $3.0 million
($1.9 million net of taxes) upon completion of our annual
pension valuations. The adjustment to the minimum pension
liability was included in accumulated other comprehensive loss
as a direct charge to shareholders equity, net of related
tax effect.

In December 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Medicare
Act) was signed into law. The Medicare Act introduced a
prescription drug benefit under Medicare Part D and a
federal subsidy to sponsors of retirement health care plans that
provide a benefit that is at least actuarially equivalent to
Medicare Part D. In May 2004, FASB Staff Position
No. FAS 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003(FSP
106-2), was issued. FSP 106-2, which provides
guidance on accounting for the effects of the Medicare Act,
requires companies eligible for Federal subsidies under the
Medicare Act to recognize the expected benefit in their
determination of the accumulated benefit obligation for their
post-employment plans.

FSP 106-2 became effective for us in the fourth
quarter of 2004. Although detailed regulations necessary to
implement the Medicare Act have not yet been finalized, we
believe that certain drug benefits offered under our
post-retirement health care plans will qualify for the subsidy
under Medicare Part D. As such, the effects of the subsidy
were factored into the 2004 plan valuation. The resulting
reduction in the benefit obligation attributable to past service
cost was approximately $0.1 million in 2004 and has been
reflected as an actuarial gain. The reduction in benefit cost
for 2005 related to the Medicare Act will be approximately
$0.2 million.



| |                             
| | ----------------------------
| | Foreign Benefit Arrangements

Our foreign defined benefit pension plans cover
certain employees in our U.K. and Canadian operations. The
following table provides a reconciliation of changes in the
projected benefit obligation, the fair value of plan assets and
the funded status of our foreign defined benefit pension plans
with the amounts recognized on our balance sheets:

|                                        |                                        |                  |      |      |   |   |      |      |  
|--------------------------------------- | -------------------------------------- | ---------------- | ---- | ---- | - | - | ---- | ---- | -
|                                        |                                        |                 
|                                        |                                        | At September 30,
|                                        |                                        |                 
|                                        |                                        | 2004             |      | 2003
|                                        |                                        |                  |      |     
|                                        |                                        |                 
|                                        |                                        | (in millions)   
|Benefit obligation at beginning of year |                                        | $                | 51.4 |      |   | $ | 43.0 |     
|                                        | Service cost                           |                  |      | 1.1  |   |   |      | 1.1  |  
|                                        | Interest cost                          |                  |      | 3.1  |   |   |      | 2.5  |  
|                                        | Employee contributions                 |                  |      | 0.8  |   |   |      | 0.5  |  
|                                        | Foreign currency exchange rate changes |                  |      | 4.4  |   |   |      | 3.0  |  
|                                        | Actuarial losses                       |                  |      | 9.6  |   |   |      | 2.7  |  
|                                        | Benefits paid                          |                  |      | (1.2 | ) |   |      | (1.4 | )
|                                        |                                        |                  |      |      |   |   |      |     
|                                        | Benefit obligation at end of year      |                  | $    | 69.2 |   |   | $    | 51.4 |  
|                                        |                                        |                  |      |      |   |   |      |     

61



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                             
|-------- | --------------------------------------------
|Note 6  | Pension and Retirement Plans
    (Continued)

|                                                   |                                          |                  |       |      |   |   |       |      |  
|-------------------------------------------------- | ---------------------------------------- | ---------------- | ----- | ---- | - | - | ----- | ---- | -
|                                                   |                                          |                 
|                                                   |                                          | At September 30,
|                                                   |                                          |                 
|                                                   |                                          | 2004             |       | 2003
|                                                   |                                          |                  |       |     
|                                                   |                                          |                 
|                                                   |                                          | (in millions)   
|Fair value of plan assets at beginning of year     |                                          | $                | 35.5  |      |   | $ | 28.4  |     
|                                                   | Actual return on plan assets             |                  |       | 3.4  |   |   |       | 4.3  |  
|                                                   | Foreign currency exchange rate changes   |                  |       | 3.0  |   |   |       | 2.1  |  
|                                                   | Employer contributions                   |                  |       | 2.1  |   |   |       | 1.6  |  
|                                                   | Employee contributions                   |                  |       | 0.8  |   |   |       | 0.5  |  
|                                                   | Benefits paid                            |                  |       | (1.3 | ) |   |       | (1.4 | )
|                                                   |                                          |                  |       |      |   |   |       |     
|                                                   | Fair value of plan assets at end of year |                  | $     | 43.5 |   |   | $     | 35.5 |  
|                                                   |                                          |                  |       |      |   |   |       |     
|Plan assets less than projected benefit obligation |                                          | $                | (25.7 | )    |   | $ | (15.9 | )   
|Unrecognized net actuarial losses                  |                                          |                  | 36.2  |      |   |   | 24.4  |     
|                                                   |                                          |                  |       |      |   |   |       |     
|                                                   |                                          | $                | 10.5  |      |   | $ | 8.5   |     
|                                                   |                                          |                  |       |      |   |   |       |     
|Accrued benefits                                   |                                          | $                | (21.2 | )    |   | $ | (12.5 | )   
|Accumulated other comprehensive income             |                                          |                  | 31.7  |      |   |   | 21.0  |     
|                                                   |                                          |                  |       |      |   |   |       |     
|                                                   |                                          | $                | 10.5  |      |   | $ | 8.5   |     
|                                                   |                                          |                  |       |      |   |   |       |     

The components of net periodic expense for our
foreign defined benefit pension plans are presented below:

|                               |  |                      |      |      |  |      |      |   |  |   |      |  
|------------------------------ |  | -------------------- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                               |  |                     
|                               |  | For the Fiscal Years
|                               |  | Ended September 30, 
|                               |  |                     
|                               |  | 2004                 |      | 2003 |  | 2002
|                               |  |                      |      |      |  |     
|                               |  |                     
|                               |  | (in millions)       
|Service cost                   |  | $                    | 1.1  |      |  | $    | 1.1  |   |  | $ | 0.8  |  
|Interest cost                  |  |                      | 3.2  |      |  |      | 2.5  |   |  |   | 2.5  |  
|Expected return on plan assets |  |                      | (3.8 | )    |  |      | (3.4 | ) |  |   | (3.4 | )
|Net actuarial loss             |  |                      | 0.4  |      |  |      |     |   |  |   | 0.1  |  
|                               |  |                      |      |      |  |      |      |   |  |   |      |  
|                               |  | $                    | 0.9  |      |  | $    | 0.2  |   |  | $ |     |  
|                               |  |                      |      |      |  |      |      |   |  |   |      |  



| |            
| | -----------
| | Assumptions

The weighted-average assumptions used to
determine the benefit obligation for our foreign defined benefit
plans are as follow:

|                               |  |                  |      |      |  |      |      |   |  |  |      |  
|------------------------------ |  | ---------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                               |  |                 
|                               |  | At September 30,
|                               |  |                 
|                               |  | 2004             |      | 2003 |  | 2002
|                               |  |                  |      |      |  |     
|Discount rate                  |  |                  | 5.75 | %    |  |      | 5.75 | % |  |  | 5.75 | %
|Rate of compensation increases |  |                  | 3.25 | %    |  |      | 3.25 | % |  |  | 3.00 | %

62



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                             
|-------- | --------------------------------------------
|Note 6  | Pension and Retirement Plans
    (Continued)

The weighted-average assumptions used to
determine the net periodic pension expense for our foreign
defined benefit pension plans are as follow:

|                                  |  |                      |      |      |  |      |      |   |  |  |      |  
|--------------------------------- |  | -------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                  |  |                     
|                                  |  | For the Fiscal Years
|                                  |  | Ended September 30, 
|                                  |  |                     
|                                  |  | 2004                 |      | 2003 |  | 2002
|                                  |  |                      |      |      |  |     
|Discount rate                     |  |                      | 5.75 | %    |  |      | 5.75 | % |  |  | 5.75 | %
|Rate of compensation increases    |  |                      | 3.00 | %    |  |      | 3.25 | % |  |  | 3.00 | %
|Expected rate of return on assets |  |                      | 8.00 | %    |  |      | 7.50 | % |  |  | 7.50 | %

The expected rate of return on assets is based on
several factors. Such factors include current and expected
target asset allocation, the historical experience of returns
provided by plan assets, the evaluation of market conditions and
interest rates, tolerance for risk within plan guidelines and
cash requirements for benefit payments. Our actuaries and we
analyze the foregoing factors as well as the advice of our
pension investment advisor to develop the return on assets
assumption.



| |            
| | -----------
| | Plan Assets

Our foreign defined benefit pension plans
weighted-average asset allocations by asset category are as
follows:

|                  |  |                  |      |      |  |   |      | 
|----------------- |  | ---------------- | ---- | ---- |  | - | ---- | 
|                  |  |                 
|                  |  | At September 30,
|                  |  |                 
|                  |  | 2004             |      | 2003
|                  |  |                  |      |     
|                  |  |                 
|                  |  | (in millions)   
|Equity securities |  | $                | 34.4 |      |  | $ | 28.0 | 
|Debt securities   |  |                  | 8.7  |      |  |   | 6.4  | 
|Other             |  |                  | 0.4  |      |  |   | 1.1  | 
|                  |  |                  |      |      |  |   |      | 
|                  |  | $                | 43.5 |      |  | $ | 35.5 | 
|                  |  |                  |      |      |  |   |      | 

The plans asset allocation strategy was
determined with regard to the actuarial characteristics of the
plan, in particular the strength of the funding position and the
liability profile. It was based on the assumption that equity
securities would outperform debt securities over the longer
term. The trustees considered written advice from their
investment advisers when choosing the plans asset
allocation strategy.



| |                                                
| | -----------------------------------------------
| | Expected Contributions and Benefit
    Payments

We expect to contribute $2.0 million to our
foreign defined benefit pension plans in 2005. Based on our
assumptions discussed above, we expect to make the following
estimated future benefit payments under the plan as follows (in
millions):

|            |  |   |      | 
|----------- |  | - | ---- | 
|2005        |  | $ | 0.9  | 
|2006        |  |   | 1.0  | 
|2007        |  |   | 1.1  | 
|2008        |  |   | 1.1  | 
|2009        |  |   | 1.2  | 
|2010  2014 |  |   | 6.4  | 
|            |  |   |      | 
|            |  | $ | 11.7 | 
|            |  |   |      | 

63



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                             
|-------- | --------------------------------------------
|Note 6  | Pension and Retirement Plans
    (Continued)

In 2004, we recorded an additional minimum
pension liability for our foreign plans in accordance with
SFAS No. 87, totaling $11.7 million
($7.3 million net of taxes) upon completion of our annual
pension valuations. The adjustment to the minimum pension
liability was included in accumulated other comprehensive loss
as a direct charge to shareholders equity, net of related
tax effect.



|         |             
|-------- | ------------
|Note 7  | Income Taxes

Earnings (loss) from continuing operations,
before income taxes, consists of the following:

|              |  |                            |      |      |  |      |       |   |  |   |       |  
|------------- |  | -------------------------- | ---- | ---- |  | ---- | ----- | - |  | - | ----- | -
|              |  |                           
|              |  | For the Fiscal Years Ended
|              |  | September 30,             
|              |  |                           
|              |  | 2004                       |      | 2003 |  | 2002
|              |  |                            |      |      |  |     
|              |  |                           
|              |  | (in millions)             
|United States |  | $                          | 18.2 |      |  | $    | (17.8 | ) |  | $ | (15.1 | )
|Foreign       |  |                            | 29.5 |      |  |      | 13.9  |   |  |   | 23.9  |  
|              |  |                            |      |      |  |      |       |   |  |   |       |  
|              |  | $                          | 47.7 |      |  | $    | (3.9  | ) |  | $ | 8.8   |  
|              |  |                            |      |      |  |      |       |   |  |   |       |  

The provision for (benefit from) income taxes
attributable to our earnings (loss) from continuing operations
before income taxes consists of the following:

|         |         |                            |      |      |   |      |       |       |   |   |       |     | 
|-------- | ------- | -------------------------- | ---- | ---- | - | ---- | ----- | ----- | - | - | ----- | --- | 
|         |         |                           
|         |         | For the Fiscal Years Ended
|         |         | September 30,             
|         |         |                           
|         |         | 2004                       |      | 2003 |   | 2002
|         |         |                            |      |      |   |     
|         |         |                           
|         |         | (in millions)             
|Current: |         |                            |      |      |   |      |       |       |   |   |       |    
|         | Federal |                            | $    | (0.6 | ) |      | $     | (14.3 | ) |   | $     |    | 
|         | State   |                            |      | 1.6  |   |      |       | 1.7   |   |   |       | 3.2 | 
|         | Foreign |                            |      | 15.4 |   |      |       | 7.3   |   |   |       | 8.5 | 
|Deferred |         |                            | 2.2  |      |   |      | (8.7  | )     |   |   | (34.8 | )  
|         |         |                            |      |      |   |      |       |       |   |   |       |    
|         |         | $                          | 18.6 |      |   | $    | (14.0 | )     |   | $ | (23.1 | )  
|         |         |                            |      |      |   |      |       |       |   |   |       |    

We were able to carry back net operating losses
in 2002 for which we had previously established a valuation
allowance in 2001 as a result of a change in tax law under the
Job Creation and Workers Assistance Act of 2002. We had
established the valuation allowance in 2001 to reflect the
uncertainty of the future realization of losses recognized in
connection with the 2001 Disposal Plan (see Note 3).

64



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                         
|-------- | ------------------------
|Note 7  | Income Taxes (Continued)

The components of deferred income tax assets and
liabilities are as follows:

|                          |                                                                       |                                    |   |        |       |  |   |       |       |  
|------------------------- | --------------------------------------------------------------------- | ---------------------------------- | - | ------ | ----- |  | - | ----- | ----- | -
|                          |                                                                       |                                   
|                          |                                                                       | At September 30,                  
|                          |                                                                       |                                   
|                          |                                                                       | 2004                               |   | 2003  
|                          |                                                                       |                                    |   |       
|                          |                                                                       |                                   
|                          |                                                                       | (in millions)                     
|Deferred tax assets:      |                                                                       |                                    |   |        |       |  |   |      
|                          | Accruals and allowances                                               |                                    | $ | 50.8   |       |  | $ | 36.3  |      
|                          | Post-employment benefits                                              |                                    |   | 15.0   |       |  |   | 8.2   |      
|                          | Property, plant and equipment                                         |                                    |   | 1.7    |       |  |   |      |      
|                          | Inventory                                                             |                                    |   | 0.6    |       |  |   |      |      
|                          | Other                                                                 |                                    |   | 2.8    |       |  |   | 1.5   |      
|                          | Foreign tax credits                                                   |                                    |   | 18.2   |       |  |   | 11.4  |      
|                          | Expected benefit from Disposal Plans &
    capital loss carryforwards |                                    |   | 86.4   |       |  |   | 70.1  |      
|                          |                                                                       |                                    |   |        |       |  |   |      
|                          |                                                                       | Gross deferred tax assets          |   |        | 175.5 |  |   |       | 127.5 |  
|                          | Valuation allowance                                                   |                                    |   | (103.8 | )     |  |   | (79.8 | )    
|                          |                                                                       |                                    |   |        |       |  |   |      
|                          |                                                                       | Total deferred tax assets          |   |        | 71.7  |  |   |       | 47.7  |  
|                          |                                                                       |                                    |   |        |       |  |   |      
|Deferred tax liabilities: |                                                                       |                                    |   |        |       |  |   |      
|                          | Property, plant and equipment                                         |                                    |   |       |       |  |   | 5.9   |      
|                          | Inventory                                                             |                                    |   |       |       |  |   | 2.8   |      
|                          | Net pension assets                                                    |                                    |   | 39.2   |       |  |   | 12.2  |      
|                          | Deductible goodwill                                                   |                                    |   | 3.7    |       |  |   | 3.2   |      
|                          | Purchased intangibles                                                 |                                    |   | 22.2   |       |  |   | 24.2  |      
|                          | Mark-to-market investments                                            |                                    |   | 1.4    |       |  |   | 8.2   |      
|                          | Other                                                                 |                                    |   |       |       |  |   | 1.9   |      
|                          |                                                                       |                                    |   |        |       |  |   |      
|                          |                                                                       | Total deferred tax liabilities     |   |        | 66.5  |  |   |       | 58.4  |  
|                          |                                                                       |                                    |   |        |       |  |   |      
|                          |                                                                       | Net deferred tax asset (liability) |   | $      | 5.2   |  |   | $     | (10.7 | )
|                          |                                                                       |                                    |   |        |       |  |   |      

We have established a valuation allowance
principally related to deferred tax assets resulting from the
losses recognized in connection with the 2001 Disposal Plan,
foreign losses (ordinary) and U.S. foreign tax credits
reflecting the uncertainty of the future realization of these
assets. At September 30, 2004 and 2003, we had
approximately $200.2 million in capital loss carryforwards
in the U.S. for which we established a valuation allowance
of $74.0 million and $70.1 million, respectively.
These capital losses expire in 2007. In addition, we had foreign
tax credit carryforwards of $18.2 million and
$11.4 million at September 30, 2004 and 2003,
respectively, for which we established valuation allowances of
$18.2 million and $9.7 million at the end of 2004 and
2003, respectively. A substantial portion of these foreign tax
credits will expire in 2011 and 2013. During 2004, we recognized
the existence of U.K. and Canadian loss carryforwards and, at
the same time, established full valuation allowances against
them of $10.5 million and $1.1 million, respectively.

During the first quarter of 2003, the IRS
completed its examination of our federal income tax returns for
1995 through 1997. As a result of the audit settlement, a tax
benefit of $13.6 million was recorded in 2003. The IRS did
not include an interest calculation on the refund of taxes;
therefore, interest income of $2.5 million was recorded
once it was determined, which was in 2004. In early November
2003, the IRS informed us that it was ready to begin its audit
of our returns for years after 1997. The IRS is only at the
information gathering stage of the process and has not
communicated any areas of concern. The IRS

65



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                         
|-------- | ------------------------
|Note 7  | Income Taxes (Continued)

anticipates completing their audit in June 2005.
In addition, several states and various other countries have
examinations either in the planning stages or currently
underway, and one of our subsidiaries is also under audit by the
IRS for 1997 and 1998, a period prior to our acquisition of that
subsidiary.

The number of years with open tax audits varies
depending on the tax jurisdiction. A number of years may elapse
before a particular matter is audited and finally resolved.
While it is often difficult to predict the final outcome or the
timing of resolution of any particular tax matter, we believe
that our financial statements reflect the probable outcome of
known tax contingencies.

During the first quarter of 2004, a law was
passed in Italy eliminating certain refunds of previously paid
tax that would have been available when our Italian subsidiary
declared a dividend. Under FASB Statement No. 109,
Accounting for Income Taxes(SFAS No. 109), this $2.6 million
dollar charge with an anticipated corresponding foreign tax
credit is included in our tax provision in 2004.

The deferred tax balances have been classified in
the balance sheets as follows:

|                        |                                    |                  |       |       |   |   |       |       |  
|----------------------- | ---------------------------------- | ---------------- | ----- | ----- | - | - | ----- | ----- | -
|                        |                                    |                 
|                        |                                    | At September 30,
|                        |                                    |                 
|                        |                                    | 2004             |       | 2003 
|                        |                                    |                  |       |      
|                        |                                    |                 
|                        |                                    | (in millions)   
|Current assets          |                                    | $                | 30.3  |       |   | $ | 18.3  |      
|Current liabilities     |                                    |                  |      |       |   |   | (2.8  | )    
|                        |                                    |                  |       |       |   |   |       |      
|                        | Net current asset                  |                  |       | 30.3  |   |   |       | 15.5  |  
|                        |                                    |                  |       |       |   |   |       |      
|Non-current assets      |                                    |                  | 41.4  |       |   |   | 29.4  |      
|Non-current liabilities |                                    |                  | (66.5 | )     |   |   | (55.6 | )    
|                        |                                    |                  |       |       |   |   |       |      
|                        | Net non-current liability          |                  |       | (25.1 | ) |   |       | (26.2 | )
|                        |                                    |                  |       |       |   |   |       |      
|                        | Net deferred tax asset (liability) |                  | $     | 5.2   |   |   | $     | (10.7 | )
|                        |                                    |                  |       |       |   |   |       |      

Our effective tax rate is based on expected
income, statutory tax rates and tax planning opportunities
available to us in the various jurisdictions in which we
operate. The tax rate is sensitive to the jurisdiction where the
income is earned since different jurisdictions will have
different statutory tax rates. Significant judgment is required
in determining our effective tax rate and in evaluation of our
tax provisions. Despite our belief that our tax return positions
are fully supportable, we estimate tax exposures and establish
accruals when in our judgment we believe that certain positions
are likely to be challenged and that we may not succeed. We
adjust these reserves in light of changing facts and
circumstances, such as the progress of a tax audit.

66



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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                         
|-------- | ------------------------
|Note 7  | Income Taxes (Continued)

The following is a reconciliation of income taxes
at the federal statutory rate of 35% to the provision for
(benefit from) income taxes attributable to continuing
operations:

|                                                                   |  |                            |      |      |  |      |       |   |  |   |       |  
|------------------------------------------------------------------ |  | -------------------------- | ---- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                   |  |                           
|                                                                   |  | For the Fiscal Years Ended
|                                                                   |  | September 30,             
|                                                                   |  |                           
|                                                                   |  | 2004                       |      | 2003 |  | 2002
|                                                                   |  |                            |      |      |  |     
|                                                                   |  |                           
|                                                                   |  | (in millions)             
|Federal tax provision (benefit) computed at the
    statutory rate |  | $                          | 16.7 |      |  | $    | (1.4  | ) |  | $ | 3.1   |  
|Foreign income tax differential                                    |  |                            | 0.5  |      |  |      | 1.4   |   |  |   | 2.0   |  
|State income taxes (net of Federal benefit)                        |  |                            | 1.1  |      |  |      | 1.1   |   |  |   | 2.1   |  
|Resolution of tax contingencies                                    |  |                            |     |      |  |      | (13.6 | ) |  |   |      |  
|Other non-deductible items                                         |  |                            | 0.4  |      |  |      |      |   |  |   | (0.7  | )
|Valuation allowance                                                |  |                            | 0.6  |      |  |      | (1.7  | ) |  |   | (29.6 | )
|Other, net                                                         |  |                            | (0.7 | )    |  |      | 0.2   |   |  |   |      |  
|                                                                   |  |                            |      |      |  |      |       |   |  |   |       |  
|                                                                   |  | $                          | 18.6 |      |  | $    | (14.0 | ) |  | $ | (23.1 | )
|                                                                   |  |                            |      |      |  |      |       |   |  |   |       |  

Income taxes paid during 2004, 2003 and 2002 were
$16.9 million, $18.0 million and $18.5 million,
respectively.



|         |                       
|-------- | ----------------------
|Note 8  | Employee Benefit Plans



| |                      
| | ---------------------
| | Incentive Stock Plans

We maintain stock incentive plans (the
Stock Plans) that provide for the grants of stock
options and restricted stock awards to our directors, officers
and key employees. As of September 30, 2004, there were
3,441,122 shares of common stock reserved for issuance to
directors, officers and key employees under our Stock Plans.
Under these Stock Plans, stock options must be granted at an
option price equal to the market value of the stock on the date
of the grant. Options granted under this plan become exercisable
over four years in equal annual installments after the date of
grant, provided that the individual is continuously employed by
our company. All options granted expire ten years from the date
of grant. We had authorization under the Stock Plan to grant
4,264,270 additional stock awards at September 30, 2004. In
the third quarter of 2004, we cashed-out options to
purchase 469,887 shares of our common stock held by
former employees for $0.4 million.

At September 30, 2004 and 2003,
respectively, we had 776,989 and 236,499 restricted shares of
our common stock (restricted stock awards)
outstanding. On March 17, 2004, in connection with an
option exchange offer, we accepted for cancellation options to
purchase 1,903,337 shares of our common stock, and
granted 435,730 restricted stock awards in exchange.
Participants tendered 100% of the options eligible to be
exchanged. Later in 2004, an additional 215,000 restricted stock
awards were granted to employees.

Restricted stock awards granted in the last year
vest in quarterly increments over four years. Restricted stock
awards issued in prior years either vest in equal annual
increments over five years or vest over seven years (either in
thirds  on the third year, fifth year and seventh
year  or solely at the end of the seventh year).
Although subject to certain restrictions and forfeiture
provisions, restricted stock awards are considered to be issued
and outstanding common stock. The restricted stock awards
intrinsic value, which is determined on the date of the grant,
is amortized over the vesting period in tranches consistent with
our accounting policy of recognizing expense for awards with
graded vesting under the expense attribution method described in
FASB Interpretation No. 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans. Unamortized compensation expense associated with the
restricted stock awards is included in

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                   
|-------- | ----------------------------------
|Note 8  | Employee Benefit Plans (Continued)

our balance sheets as a separate component of
stockholders equity. During 2004, 2003 and 2002, we
recognized $2.1 million, $0.6 million and
$2.3 million, respectively, of compensation expense
associated with our restricted stock awards.

In accordance with EITF No. 00-23, Issues
Related to the Accounting for Stock Compensation under APB
Opinion No. 25, Accounting for Stock Issued to Employees,and FASB Interpretation No. 44, Accounting for
Certain Transactions involving Stock Compensation, employee
stock options issued within six months of the option exchange
are considered replacement awards and are subject to variable
accounting until the award is exercised, forfeited or canceled.
As of September 30, 2004, there are 91,250 employee stock
options being accounted for under these provisions. During 2004,
less than $0.1 million of expense was recognized under
these variable accounting provisions.



| |                         
| | ------------------------
| | Retirement Savings Plans

We have two 401(k) retirement savings plans that
allow eligible employees to contribute up to 17% of their
salaries, commissions and bonuses, up to $13,000 annually, to
the plan on a pretax basis in accordance with the provisions of
Section 401(k) of the Internal Revenue Code. Matching
contributions of common stock or cash that are made into the
plan are equivalent to 50% of the first 6% of an employees
contributions. During 2004, 2003 and 2002, $1.4 million,
$1.4 million and $0.7 million, respectively, was
recognized as compensation expense under these programs.



| |                                            
| | -------------------------------------------
| | Accounting for Stock-Based
    Compensation

We apply APB No. 25 and related
Interpretations in accounting for our stock-based compensation
plans. Thus, we use the intrinsic value method to determine the
compensation cost for our stock-based awards. A summary of the
status of and changes in our stock option plans for the last
three years is presented below:

|                                 |  |           |            |          |  |           |       |          |  |           |           |          |  |   |       |  |  |  |            |   |  |   |       | 
|-------------------------------- |  | --------- | ---------- | -------- |  | --------- | ----- | -------- |  | --------- | --------- | -------- |  | - | ----- |  |  |  | ---------- | - |  | - | ----- | 
|                                 |  |           |            |          |  |          
|                                 |  | 2004      |            | 2003     |  | 2002     
|                                 |  |           |            |          |  |          
|                                 |  |           |            | Weighted |  |           |       | Weighted |  |           |           | Weighted
|                                 |  |           |            | Average  |  |           |       | Average  |  |           |           | Average 
|                                 |  | Number of |            | Exercise |  | Number of |       | Exercise |  | Number of |           | Exercise
|                                 |  | Options   |            | Price    |  | Options   |       | Price    |  | Options   |           | Price   
|                                 |  |           |            |          |  |           |       |          |  |           |           |         
|Outstanding at beginning of year |  |           | 5,190,202  |          |  | $         | 9.97  |          |  |           | 5,202,796 |          |  | $ | 11.88 |  |  |  | 6,170,932  |   |  | $ | 13.57 | 
|Granted                          |  |           | 298,750    |          |  |           | 9.42  |          |  |           | 849,250   |          |  |   | 3.39  |  |  |  | 731,500    |   |  |   | 3.73  | 
|Exercised                        |  |           | (277,875   | )        |  |           |      |          |  |           | (875      | )        |  |   | 3.82  |  |  |  |           |   |  |   |      | 
|Canceled/ expired                |  |           | (2,570,518 | )        |  |           | 13.93 |          |  |           | (860,969  | )        |  |   | 13.96 |  |  |  | (1,699,636 | ) |  |   | 14.52 | 
|                                 |  |           |            |          |  |           |       |          |  |           |           |          |  |   |       |  |  |  |            |   |  |   |       | 
|Outstanding at end of year       |  |           | 2,640,559  |          |  |           | 6.35  |          |  |           | 5,190,202 |          |  |   | 9.97  |  |  |  | 5,202,796  |   |  |   | 11.88 | 
|                                 |  |           |            |          |  |           |       |          |  |           |           |          |  |   |       |  |  |  |            |   |  |   |       | 
|Exercisable at end of year       |  |           | 1,632,434  |          |  |           | 7.42  |          |  |           | 3,743,793 |          |  |   | 11.87 |  |  |  | 3,678,995  |   |  |   | 13.34 | 

68



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                   
|-------- | ----------------------------------
|Note 8  | Employee Benefit Plans (Continued)

The following table summarizes the status of the
stock options outstanding and exercisable at September 30,
2004:

|                         |  |                     |           |                     |  |          |     |           |  |          |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | -------- | --- | --------- |  | -------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                     |           |                    
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  |                     |           | Weighted            |  |          |     |          
|                         |  |                     |           | Average             |  | Weighted |     |           |  | Weighted
|                         |  |                     |           | Remaining           |  | Average  |     |           |  | Average 
|                         |  | Number of           |           | Contractual         |  | Exercise |     | Number of |  | Exercise
|Range of Exercise Prices |  | Options             |           | Life (in years)     |  | Price    |     | Options   |  | Price   
|                         |  |                     |           |                     |  |          |     |           |  |         
|$2.20 to $5.49           |  |                     | 1,178,375 |                     |  |          | 7.6 |           |  | $        | 3.56  |  |  |  | 475,250   |  |  | $ | 2.20  | 
|$5.50 to $7.99           |  |                     | 296,250   |                     |  |          | 9.2 |           |  |          | 6.73  |  |  |  | 43,750    |  |  |   | 6.31  | 
|$8.00 to $9.42           |  |                     | 1,164,334 |                     |  |          | 1.6 |           |  |          | 9.09  |  |  |  | 1,111,834 |  |  |   | 9.11  | 
|$9.43 to $15.31          |  |                     | 1,600     |                     |  |          | 0.2 |           |  |          | 15.31 |  |  |  | 1,600     |  |  |   | 15.31 | 
|                         |  |                     |           |                     |  |          |     |           |  |          |       |  |  |  |           |  |  |   |       | 
|                         |  |                     | 2,640,559 |                     |  |          | 5.1 |           |  |          | 6.35  |  |  |  | 1,632,434 |  |  |   | 7.42  | 
|                         |  |                     |           |                     |  |          |     |           |  |          |       |  |  |  |           |  |  |   |       | 

Had compensation cost for awards under our
stock-based compensation plans been determined using the fair
value method prescribed by SFAS No. 123, our net
income (loss) and income (loss) per share would have been
reduced to the pro forma amounts presented in
Note 2. The pro forma information was determined
using the Black-Scholes option-pricing model based on the
following assumptions:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | expected volatility rates of 66% for both 2004
    and 2003 and 58% for 2002;     
|
| |  | risk-free interest rates of 2.97% for 2004, 2.66%
    for 2003 and 3.99% for 2002;
|
| |  | expected option lives of 4 years for all
    three years; and                     
|
| |  | expected dividend yield of 0% for all three years.                                

The weighted average fair values of options
granted during 2004, 2003 and 2002 were $5.73, $4.03 and
$1.80 per option, respectively.



|         |              
|-------- | -------------
|Note 9  | Capital Stock



| |             
| | ------------
| | Common Stock

In March 2001, our Board of Directors
indefinitely suspended the quarterly payment of dividends on our
common stock.



| |                        
| | -----------------------
| | Stockholder Rights Plan

We adopted a Stockholder Rights Plan (the
Rights Plan) effective October 15, 1998. Under
the Rights Plan, each of our stockholders on the date of record
were issued one right (the Right) to acquire
one-hundredth of a share of our Series A Junior Preferred
Stock (Preferred Stock), having a market value of
two times the exercise price for the Rights, for each
outstanding share of Jacuzzi Brands, Inc. common stock they own.

Initially, the Rights trade with our common stock
and are not exercisable. The Rights will separate from the
Common Stock and only become exercisable when a single person or
company acquires or makes an offer to acquire 15% or more of our
outstanding common stock, unless otherwise agreed by our Board
of Directors. Upon exercise of the Right, the economic and
voting terms of the Preferred Stock acquired by the stockholders
will be equivalent to those possessed when they held shares of
our Common Stock.

The Rights will expire on October 15, 2008
or 90 days following the date the Rights become
exercisable, whichever is earlier. The Board of Directors has
agreed to permit Southeastern Asset

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 9  Capital Stock
(Continued)

Management, Inc. and its managed funds to
purchase up to 19.9% of the outstanding voting securities
without causing the Rights to separate and become exercisable,
and we have entered into a standstill agreement with
Southeastern Asset Management containing limitations and
restrictions on the voting and transfer of shares of common
stock acquired in excess of 15%.



|          |                              
|--------- | -----------------------------
|Note 10  | Commitments and Contingencies



| |                 
| | ----------------
| | Operating Leases

The table below shows our future minimum lease
payments due under non-cancelable leases as of
September 30, 2004. Certain of these leases contain stated
escalation clauses while others contain renewal options. These
minimum lease payments (presented in millions) have not been
reduced by minimum sublease rental income of $1.7 million;
however, they include facility leases that were accrued as
restructuring costs (see Note 4).

|           |  |   |      | 
|---------- |  | - | ---- | 
|2005       |  | $ | 9.3  | 
|2006       |  |   | 8.2  | 
|2007       |  |   | 6.0  | 
|2008       |  |   | 3.6  | 
|2009       |  |   | 3.0  | 
|Thereafter |  |   | 19.4 | 
|           |  |   |      | 
|           |  | $ | 49.5 | 
|           |  |   |      | 

Rent expense, including equipment rental, was
approximately $16.9 million, $17.4 million and
$18.2 million in 2004, 2003 and 2002, respectively.



| |                         
| | ------------------------
| | Environmental Regulation

We are subject to numerous foreign, federal,
state and local laws and regulations concerning such matters as
zoning, health and safety and protection of the environment.
Laws and regulations protecting the environment may in certain
circumstances impose strict liability, rendering a
person liable for environmental damage without regard to
negligence or fault on the part of such person. In addition,
from time to time, we may receive notices of violation or may be
denied applications for environmental licenses or permits
because the practices of the operating unit are not consistent
with regulations or ordinances.

Our subsidiaries have made capital and
maintenance expenditures over time to comply with these laws and
regulations. While the amount of expenditures in future years
will depend on legal and technological developments which cannot
be predicted at this time, these expenditures may progressively
increase if regulations become more stringent. In addition,
while future costs for compliance cannot be predicted with
precision, no information currently available reasonably
suggests that these expenditures will have a material adverse
effect on our financial condition, results of operations or cash
flows.

We are investigating and remediating
contamination at a number of present and former operating sites
under the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (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
the cleanup of sites. We have been named as a potentially
responsible party at a number of Superfund sites under CERCLA or
comparable state statutes. Under these statutes, responsibility
for the entire cost of cleanup of a contaminated site can be
imposed upon any current or former site owner or operator, or
upon any party who sent waste to the site, regardless of the
lawfulness of

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 10  Commitments and
Contingencies (Continued)

the original activities that led to the
contamination. No information currently available reasonably
suggests that projected expenditures associated with any of
these proceedings or any remediation of these sites will have a
material adverse effect on our financial condition, results of
operations or cash flows.

As of September 30, 2004, we had accrued
approximately $4.2 million ($0.7 million accrued as
current liabilities and $2.5 million as non-current
liabilities), including $0.8 million for discontinued
operations, for environmental liabilities. These amounts have
not been discounted. We accrue an amount for each case when the
likelihood of an unfavorable outcome is probable and the amount
of loss associated with such unfavorable outcome is reasonably
estimable. We believe that the range of liability for these
matters could reach $16.7 million if it included cases
where the likelihood of an unfavorable outcome is only
reasonably possible. We cannot predict whether future
developments in laws and regulations concerning environmental
protection or unanticipated enforcement actions will require
material capital expenditures or otherwise affect our financial
condition, results of operations or cash flows in a materially
adverse manner, or whether our businesses will be successful in
meeting future demands of regulatory agencies in a manner which
will not have a material adverse effect on our financial
condition, results of operations or cash flows.



| |           
| | ----------
| | Litigation

We and our subsidiaries are parties to legal
proceedings that we believe to be either ordinary, routine
litigation incidental to the business of present and former
operations or immaterial to our financial condition, results of
operations or cash flows.

Certain of our subsidiaries are defendants or
plaintiffs in lawsuits that have arisen in the normal course of
business. While certain of these matters involve substantial
amounts, it is managements opinion, based on the advice of
counsel, that the ultimate resolution of such litigation and
environmental matters will not have a material adverse effect on
our financial condition, results of operations or cash flows.

Litigation resulting from a dispute with the
former owners of the Sundance Spas business has resulted in a
judgment of approximately $5.1 million in our favor. The
gain of $3.9 million resulting from the judgment is not
included in the results of our operations in fiscal 2004 as it
is still subject to appeal.

In June 1998, we merged with Zurn, which now
operates as one of our wholly-owned subsidiaries. At the time of
our acquisition, Zurn had itself owned various subsidiaries.
Zurn, along with many other unrelated companies, is a
co-defendant in numerous asbestos related lawsuits pending in
the U.S. Plaintiffs claims primarily allege personal
injuries allegedly caused by exposure to asbestos used primarily
in industrial boilers formerly manufactured by a segment of Zurn
that has been accounted for as a discontinued operation. Zurn
did not manufacture asbestos or asbestos components. Instead,
Zurn purchased it from suppliers.

Federal legislation has been proposed that would
remove asbestos claims from the current tort system and place
them in a trust fund system. This trust would be funded by the
insurers and defendant companies. There can be no assurance as
to when or if this or any other legislation will be passed and
become law or what, if any, the financial impact it could have
on Zurn.

New claims filed against Zurn in fiscal 2004 were
lower year-over-year. During fiscal 2004, approximately 25,000
new asbestos claims were filed against Zurn versus 32,400 in
fiscal 2003. As of September 30, 2004, the number of
asbestos claims pending against Zurn was approximately 75,500
compared to 59,000 as of September 30, 2003. The increase
in pending claims is a result of new claims exceeding the number
of claims newly resolved during the period. The claims are
handled pursuant to a defense strategy funded by Zurns
insurers. The pending claims against Zurn as of
September 30, 2004 were included in approximately 5,872
lawsuits, in which Zurn and an average of 85 other companies are
named as defendants, and which cumulatively allege damages of
approximately $10.3 billion against all defendants.

71



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                              
|--------- | ---------------------------------------------
|Note 10  | Commitments and Contingencies
    (Continued)

Defense costs currently do not erode the coverage
amounts in the insurance policies, although a few policies that
will be accessed in the future may count defense costs toward
aggregate limits.

During fiscal 2004 and as of the end of such
period, approximately 26,000 claims were paid and/or pending
payment and approximately 4,900 claims were dismissed and/or
pending dismissal. During fiscal 2003 and as of the end of such
period, approximately 45,000 claims were paid and/or pending
payment and approximately 3,000 claims were dismissed and/or
pending dismissal. Since Zurn received its first asbestos claim
in the 1980s, Zurn has paid or dismissed or agreed to settle or
dismiss approximately 100,600 asbestos claims including
dismissals or agreements to dismiss of approximately 10,600 of
such claims through September 30, 2004 compared to 84,000
and 6,400 claims, respectively, through September 30, 2003.

Zurn engaged an independent economic consulting
firm with substantial experience in asbestos liability
valuations to assist in the estimation of Zurns potential
asbestos liability. At September 30, 2004, that firm
estimated that Zurns potential liability for asbestos
claims pending against it and for claims estimated to be filed
through 2014 is approximately $171 million. That firm
estimated Zurn will pay approximately $127.6 million
through 2014 on such claims, with the balance of the estimated
liability being paid in subsequent years. As discussed below in
more detail, Zurn expects all such payments to be paid by its
carriers. The estimated liability of $171 million is
comprised of approximately (i) $12 million in claims
that had been settled but unpaid as of September 30, 2004;
(ii) $26 million in proposed settlements of certain
pending and future claims; and (iii) $133 million for
other pending and future claims. At September 30, 2003, it
was estimated that Zurns potential liability for asbestos
claims pending against it and for claims estimated to be filed
through 2013 was approximately $160 million.

These asbestos liability estimates were based on
the current and anticipated number of future asbestos claims,
the timing and amounts of asbestos payments, the status of
ongoing litigation and the potential impact of defense
strategies and settlement initiatives. However, there are
inherent uncertainties involved in estimating the number of
future asbestos claims, future settlement costs, and the
effectiveness of Zurns defense strategies and settlement
initiatives. In addition, Zurns current estimate could be
adversely affected due to changes in law and other factors
beyond its control. As a result, Zurns actual liability
could exceed Zurns estimate described herein.

Zurns current estimate of its asbestos
liability of $171 million for claims filed through 2014
assumes that (i) its continuous vigorous defense strategy
will remain effective; (ii) new asbestos claims filed
annually against it will decline modestly through 2014;
(iii) the values by disease will remain consistent with
past experience; and (iv) its insurers will continue to pay
defense costs without eroding the coverage amounts of its
insurance policies. While Zurn believes there is evidence, in
recent claims settlements, for such an impact of a successful
defense strategy, if the defense strategy ultimately is not
successful to the extent assumed by Zurn, the severity and
frequency of asbestos claims could increase substantially above
Zurns estimates. Further, while Zurns current
asbestos liability is based on an estimate of claims through
2014, such liability may continue beyond 2014, and such
liability could be substantial.

Zurn estimates that its available insurance to
cover its potential asbestos liability as of September 30,
2004 is approximately $302.1 million. Zurn estimated that
its available insurance to cover its potential asbestos
liability as of September 30, 2003 was approximately
$314.0 million. The decrease in the amount of available
insurance reflects the payments made during fiscal 2004 offset
by a credit in the third quarter of fiscal 2004 of approximately
$1.5 million from the carriers relating to claims processed
in prior periods. Zurn believes, based on its experience in
defending and dismissing such claims and the coverage available,
that it has sufficient insurance to cover the pending and
reasonably estimable future claims. This conclusion was reached
after considering Zurns experience in asbestos litigation,
the insurance payments made to date by Zurns insurance
carriers, existing insurance policies, the industry ratings of
the insurers and the advice of

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                              
|--------- | ---------------------------------------------
|Note 10  | Commitments and Contingencies
    (Continued)

insurance coverage counsel with respect to
applicable insurance coverage law relating to the terms and
conditions of those policies. As of September 30, 2004 and
September 30, 2003, Zurn recorded a receivable from its
insurance carriers of $171 million and $160 million,
respectively, which corresponds to the amount of Zurns
potential asbestos liability that is covered by available
insurance and is probable of recovery.

However, there is no assurance that
$302.1 million of insurance coverage will ultimately be
available or that Zurns asbestos liabilities will not
ultimately exceed this amount. Factors that could cause a
decrease in the amount of available coverage include changes in
law governing the policies, potential disputes with the carriers
on the scope of coverage, and insolvencies of one or more of
Zurns carriers.

Principally as a result of the past insolvency of
certain of Zurns insurance carriers, coverage analysis
reveals that certain gaps exist in Zurns insurance
coverage, but only if and after Zurn uses approximately
$230.1 million of its remaining approximate
$302.1 million of insurance coverage. As noted above, the
estimate of Zurns potential liability for asbestos claims
pending against it and for claims estimated to be filed through
2014 is $171 million with the expected amount to be paid
through 2014 being $127.6 million. In order to use
approximately $277.1 million of the $302.1 million of
its insurance coverage from solvent carriers, Zurn estimates
that it would need to satisfy approximately $14 million of
asbestos claims, with additional gaps of $80 million
layered within the final $25 million of the
$302.1 million of coverage. We will pursue, if necessary,
any available recoveries on our approximately $148 million
of coverage with insolvent carriers, which includes
approximately $83 million of coverage attributable to the
gaps discussed above. These estimates are subject to the factors
noted above.

After review of the foregoing with Zurn and its
consultants, we believe that the resolution of Zurns
pending and reasonably estimable asbestos claims will not have a
material adverse effect on Zurns financial condition,
results of operations or cash flows.

Note 11  Segment
Information

We currently operate as three reportable business
segments, consisting of the Bath Products segment, the Plumbing
Products segment and the Rexair segment. Our Bath Products
segment manufactures whirlpool baths, spas, showers, sanitary
ware, including sinks and toilets, and bathtubs for the
construction and remodeling markets. Our Plumbing Products
segment manufactures professional grade drainage, water control,
commercial brass and PEX piping products for the commercial and
institutional construction, renovation and facilities
maintenance markets. Our Rexair segment manufactures premium
vacuum cleaner systems that are sold in the direct sales retail
channel.

The financial information of our segments is
regularly evaluated by the chief operating decision makers in
determining resource allocation and assessing performance and is
periodically reviewed by our Board of Directors. We evaluate the
performance of each business segment based on its operating
results and, other than general corporate expenses, allocate
specific corporate overhead to each segment. The same accounting
policies are used throughout the organization (see
Note 2).

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 11  Segment Information
(Continued)

The following is a summary of our financial
information by segment, reconciled to our consolidated totals.

|                               |                       |               |   |          |  |        |   |           |  |              |   |       |  |  |   |       |   |  |   |         | 
|------------------------------ | --------------------- | ------------- | - | -------- |  | ------ | - | --------- |  | ------------ | - | ----- |  |  | - | ----- | - |  | - | ------- | 
|                               |                       | Bath          |   | Plumbing |  |        |   |           |  | Consolidated
|                               |                       | Products      |   | Products |  | Rexair |   | Corporate |  | Total       
|                               |                       |               |   |          |  |        |   |           |  |             
|                               |                       |              
|                               |                       | (in millions)
|Net Sales                      |                       |               |   |          |  |        |   |           |  |              |   |       |  |  |   |       |   |  |   |        
|                               | 2004                  |               | $ | 934.4    |  |        | $ | 308.0     |  |              | $ | 104.8 |  |  | $ |      |   |  | $ | 1,347.2 | 
|                               | 2003                  |               |   | 813.9    |  |        |   | 276.6     |  |              |   | 102.1 |  |  |   |      |   |  |   | 1,192.6 | 
|                               | 2002                  |               |   | 711.9    |  |        |   | 257.8     |  |              |   | 98.6  |  |  |   |      |   |  |   | 1,068.3 | 
|Operating Income
    (Loss)(1) |                       |               |   |          |  |        |   |           |  |              |   |       |  |  |   |       |   |  |   |        
|                               | 2004                  |               | $ | 26.5     |  |        | $ | 60.7      |  |              | $ | 27.3  |  |  | $ | (18.0 | ) |  | $ | 96.5    | 
|                               | 2003                  |               |   | 7.4      |  |        |   | 62.1      |  |              |   | 26.6  |  |  |   | (14.9 | ) |  |   | 81.2    | 
|                               | 2002                  |               |   | 26.7     |  |        |   | 51.3      |  |              |   | 27.4  |  |  |   | (11.0 | ) |  |   | 94.4    | 
|Capital Expenditures           |                       |               |   |          |  |        |   |           |  |              |   |       |  |  |   |       |   |  |   |        
|                               | 2004                  |               | $ | 17.5     |  |        | $ | 3.5       |  |              | $ | 1.5   |  |  | $ | 0.8   |   |  | $ | 23.3    | 
|                               | 2003                  |               |   | 14.5     |  |        |   | 1.7       |  |              |   | 2.9   |  |  |   | 0.1   |   |  |   | 19.2    | 
|                               | 2002                  |               |   | 11.6     |  |        |   | 2.1       |  |              |   | 1.3   |  |  |   |      |   |  |   | 15.0    | 
|Depreciation and Amortization  |                       |               |   |          |  |        |   |           |  |              |   |       |  |  |   |       |   |  |   |        
|                               | 2004                  |               | $ | 15.4     |  |        | $ | 5.3       |  |              | $ | 3.3   |  |  | $ | 2.4   |   |  | $ | 26.4    | 
|                               | 2003                  |               |   | 14.5     |  |        |   | 5.8       |  |              |   | 3.5   |  |  |   | 0.8   |   |  |   | 24.6    | 
|                               | 2002                  |               |   | 14.0     |  |        |   | 5.4       |  |              |   | 4.2   |  |  |   | 2.5   |   |  |   | 26.1    | 
|Assets(2)                      |                       |               |   |          |  |        |   |           |  |              |   |       |  |  |   |       |   |  |   |        
|                               | At September 30, 2004 |               | $ | 645.3    |  |        | $ | 183.2     |  |              | $ | 157.9 |  |  | $ | 385.4 |   |  | $ | 1,371.8 | 
|                               | At September 30, 2003 |               |   | 612.5    |  |        |   | 163.9     |  |              |   | 153.4 |  |  |   | 407.0 |   |  |   | 1,336.8 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Operating income (loss) for the Bath Products
    segment includes impairment, restructuring, and other charges of
    $22.9 million, $14.6 million, and $2.5 million in
    2004, 2003 and 2002, respectively (see Note 4).
    Operating income (loss) for the Plumbing Products segment
    includes an $8.6 million sale of a technology license in
    2003 and restructuring and other charges of $1.3 million in
    2002. Corporate expenses include restructuring and other
    (credits) charges of $(0.6) million in 2004,
    $5.3 million in 2003 and $3.4 million in 2002.
|   
|(2) | Corporate assets include assets held for sale of
    $3.6 million and $16.8 million in 2004 and 2003,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Aside from the operating income (loss) amounts
noted above, our income from continuing operations includes
interest income and expense, other income and expense items and
income taxes, none of which are included in our measurement of
segment operating profit. Corporate includes pension income of
$10.3 million, $13.4 million and $17.1 million
for 2004, 2003 and 2002, respectively. Corporate assets consist
primarily of real property, assets held for sale, escrow
deposits, cash and cash equivalents and other investments.

Our operations are principally located in North
America and Europe and to a lesser extent, in other regions of
the world. Our country of domicile is the United States. Export
sales represented 9%, 8% and 7% of total sales for 2004, 2003
and 2002, respectively. Principal international markets served
include Europe, South America, Canada and Asia.

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



Note 11  Segment Information
(Continued)


The following table presents summarized financial
information by geographic area:

|                                  |                |                            |         |       |  |      |         |       |  |   |         |       | 
|--------------------------------- | -------------- | -------------------------- | ------- | ----- |  | ---- | ------- | ----- |  | - | ------- | ----- | 
|                                  |                |                           
|                                  |                | For the Fiscal Years Ended
|                                  |                | September 30,             
|                                  |                |                           
|                                  |                | 2004                       |         | 2003  |  | 2002
|                                  |                |                            |         |       |  |     
|                                  |                |                           
|                                  |                | (in millions)             
|Net Sales                         |                |                            |         |       |  |      |         |       |  |   |         |      
|                                  | United States  |                            | $       | 971.2 |  |      | $       | 884.0 |  |   | $       | 802.8 | 
|                                  | United Kingdom |                            |         | 240.0 |  |      |         | 191.0 |  |   |         | 154.8 | 
|                                  | Other foreign  |                            |         | 136.0 |  |      |         | 117.6 |  |   |         | 110.7 | 
|                                  |                |                            |         |       |  |      |         |       |  |   |         |      
|                                  |                | $                          | 1,347.2 |       |  | $    | 1,192.6 |       |  | $ | 1,068.3 |      
|                                  |                |                            |         |       |  |      |         |       |  |   |         |      
|Operating Income(1)               |                |                            |         |       |  |      |         |       |  |   |         |      
|                                  | United States  |                            | $       | 59.8  |  |      | $       | 48.2  |  |   | $       | 63.6  | 
|                                  | United Kingdom |                            |         | 12.6  |  |      |         | 11.2  |  |   |         | 6.6   | 
|                                  | Other foreign  |                            |         | 24.1  |  |      |         | 21.8  |  |   |         | 24.2  | 
|                                  |                |                            |         |       |  |      |         |       |  |   |         |      
|                                  |                | $                          | 96.5    |       |  | $    | 81.2    |       |  | $ | 94.4    |      
|                                  |                |                            |         |       |  |      |         |       |  |   |         |      
|Long-lived Assets (at period end) |                |                            |         |       |  |      |         |       |  |   |         |      
|                                  | United States  |                            | $       | 363.9 |  |      | $       | 374.7 |  |   |         |       | 
|                                  | United Kingdom |                            |         | 91.9  |  |      |         | 88.6  |  |   |         |       | 
|                                  | Other foreign  |                            |         | 10.5  |  |      |         | 10.3  |  |   |         |       | 
|                                  |                |                            |         |       |  |      |         |       |  |   |         |      
|                                  |                | $                          | 466.3   |       |  | $    | 473.6   |       |  |   |         |      
|                                  |                |                            |         |       |  |      |         |       |  |   |         |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Operating income for the years ended
    September 30, 2004, 2003 and 2002 include impairment,
    restructuring and other charges of $22.3 million,
    $19.9 million, and $7.2 million, respectively, all of
    which relate to operations in the United States. Also included
    in 2003 is an $8.6 million sale of a license for certain
    technology that had been the subject of patent litigation.
    Corporate expenses are included in the United States.

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                     
|--------- | ------------------------------------
|Note 12  | Quarterly Financial Data (Unaudited)

Summarized quarterly financial information for
the fiscal years ended September 30, 2004 and 2003 is as
follows (in millions, except per share amounts):

|                                           |  |                                    |       |                                    |  |         |       |          |  |         |       |          |  |         |       |          |  |   |       |  |  |   |       |   |  |   |       |  |  |   |       |  
|------------------------------------------ |  | ---------------------------------- | ----- | ---------------------------------- |  | ------- | ----- | -------- |  | ------- | ----- | -------- |  | ------- | ----- | -------- |  | - | ----- |  |  | - | ----- | - |  | - | ----- |  |  | - | ----- | -
|                                           |  |                                    |       |                                   
|                                           |  | For the Fiscal 2004 Quarters Ended |       | For the Fiscal 2003 Quarters Ended
|                                           |  |                                    |       |                                   
|                                           |  | Dec. 31                            |       | March 31                           |  | June 30 |       | Sept. 30 |  | Dec. 31 |       | March 31 |  | June 30 |       | Sept. 30
|                                           |  |                                    |       |                                    |  |         |       |          |  |         |       |          |  |         |       |         
|Net sales                                  |  | $                                  | 303.8 |                                    |  | $       | 332.9 |          |  | $       | 366.8 |          |  | $       | 343.7 |          |  | $ | 265.9 |  |  | $ | 283.8 |   |  | $ | 315.5 |  |  | $ | 327.4 |  
|Gross profit                               |  |                                    | 92.1  |                                    |  |         | 98.1  |          |  |         | 116.9 |          |  |         | 105.8 |          |  |   | 81.0  |  |  |   | 90.9  |   |  |   | 94.1  |  |  |   | 92.2  |  
|Earnings (loss) from continuing operations |  |                                    | 4.0   |                                    |  |         | 5.9   |          |  |         | 13.7  |          |  |         | 5.5   |          |  |   | 14.3  |  |  |   | 5.7   |   |  |   | 5.5   |  |  |   | (15.4 | )
|Net earnings (loss)                        |  |                                    | 3.4   |                                    |  |         | 5.9   |          |  |         | 13.7  |          |  |         | 5.5   |          |  |   | 13.5  |  |  |   | (33.4 | ) |  |   | 5.1   |  |  |   | (16.3 | )
|Earnings (loss) per basic common share:    |  |                                    |       |                                    |  |         |       |          |  |         |       |          |  |         |       |          |  |   |       |  |  |   |       |   |  |   |       |  |  |   |       |  
|Continuing operations                      |  | $                                  | 0.05  |                                    |  | $       | 0.08  |          |  | $       | 0.18  |          |  | $       | 0.07  |          |  | $ | 0.19  |  |  | $ | 0.08  |   |  | $ | 0.07  |  |  | $ | (0.21 | )
|Net earnings (loss)                        |  |                                    | 0.04  |                                    |  |         | 0.08  |          |  |         | 0.18  |          |  |         | 0.07  |          |  |   | 0.18  |  |  |   | (0.45 | ) |  |   | 0.07  |  |  |   | (0.22 | )
|Earnings (loss) per diluted common share:  |  |                                    |       |                                    |  |         |       |          |  |         |       |          |  |         |       |          |  |   |       |  |  |   |       |   |  |   |       |  |  |   |       |  
|Continuing operations                      |  | $                                  | 0.05  |                                    |  | $       | 0.08  |          |  | $       | 0.18  |          |  | $       | 0.07  |          |  | $ | 0.19  |  |  | $ | 0.08  |   |  | $ | 0.07  |  |  | $ | (0.21 | )
|Net earnings (loss)                        |  |                                    | 0.04  |                                    |  |         | 0.08  |          |  |         | 0.18  |          |  |         | 0.07  |          |  |   | 0.18  |  |  |   | (0.45 | ) |  |   | 0.07  |  |  |   | (0.22 | )

Operating income for the first quarter of 2004
includes a $0.9 million increase in the allowance for bad debts
resulting from the bankruptcy of one of our distributors.
Operating income for the second quarter 2004 includes a
$4.1 million charge for non-performing customer notes
incurred as a result of financial difficulties encountered by
several of our Brazilian bath product distributors and
$3.0 million of impairment, restructuring and other charges
associated with the shut down of our Salem, OH cast iron plant
and the downsizing of our Ford City, PA ceramic plant. Operating
income for the quarter ended June 30, 2004 includes
$3.2 million of restructuring charges associated with the
shut down of the Salem, OH cast iron plant, the downsizing of
the Ford City, PA ceramic plant and the continued consolidation
of administrative functions in the Dallas, TX shared services
center. The 2004 fourth quarter net earnings include
$10.1 million of restructuring charges related to the shut
down of our Tupelo, MS ceramic plant; $2.1 million related
to the downsizing of our Ford City, PA ceramic plant;
$0.2 million related to the shut down of the Salem, OH cast
iron plant; and $1.4 million associated with the
consolidation of our customer service center into the shared
services functions in Dallas, TX.

The quarter ended March 31, 2003 includes a
$39.9 million charge to reduce the carrying value of our
swimming pool and equipment, hearth and water systems businesses
to their net realizable value pursuant to our 2003 Disposal
Plan. It also includes revenues of $8.6 million related to
the sale of a license for certain technology that had been the
subject of patent litigation. The quarter ended
September 30, 2003 includes debt issuance and other
financing costs of $19.2 million. It also includes
impairment, restructuring and other charges of
$11.6 million.



|          |                                                                  
|--------- | -----------------------------------------------------------------
|Note 13  | Supplemental Joint Issuer and Guarantor
    Financial Information

The following represents the supplemental
condensed consolidating financial statements of Jacuzzi Brands,
Inc. (JBI), which is the issuer of our Senior Notes,
the subsidiaries which are guarantors of the Senior Notes and
our subsidiaries which are not guarantors of the Senior Notes as
of September 30, 2004 and September 30, 2003 and for
each of the three years in the period ended September 30,
2004. Certain of our existing and future domestic restricted
subsidiaries guarantee the Senior Notes, jointly and severally,
on a senior basis. The Senior Notes are secured by a
first-priority lien on and security interest in substantially
all of our domestic real property, plant and equipment (referred
to as Notes Collateral). The Senior Notes are

76



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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                                                              
|--------- | -----------------------------------------------------------------------------
|Note 13  | Supplemental Joint Issuer and Guarantor
    Financial Information (Continued)

also secured by a second-priority lien on and
security interest in the Bank Collateral (see
Note 5). Separate condensed consolidated financial
statements of each guarantor are not presented, as we have
determined that they would not be material to investors.

|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |       |      | 
|------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ----- | ------------ | ----- | ------------- | ----- | ------------ | ---- | ------------ | ----- | ----- | ---- | - | ----- | ---- | - | - | ------- | ----- | ---- | 
|                                                                    |                                              |                                             
|                                                                    |                                              | For the Fiscal Year Ended September 30, 2004
|                                                                    |                                              |                                             
|                                                                    |                                              |                                              |       | Combined     |       | Combined      |       |             
|                                                                    |                                              |                                              |       | Guarantor    |       | Non-Guarantor |       |             
|                                                                    |                                              | JBI                                          |       | Subsidiaries |       | Subsidiaries  |       | Eliminations |      | Consolidated
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |             
|                                                                    |                                              |                                             
|                                                                    |                                              | (in millions)                               
|Net sales                                                           |                                              | $                                            |      |              |       | $             | 990.3 |              |      | $            | 363.9 |       |      | $ | (7.0  | )    |   | $ | 1,347.2 |      
|Operating costs and expenses:                                       |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      
|                                                                    | Cost of products sold                        |                                              |       |             |       |               |       | 688.2        |      |              |       | 253.1 |      |   |       | (7.0 | ) |   |         | 934.3 |     
|                                                                    | Selling, general and administrative expenses |                                              |       | 18.0         |       |               |       | 199.9        |      |              |       | 76.2  |      |   |       |     |   |   |         | 294.1 |     
|                                                                    | Impairment, restructuring and other charges  |                                              |       |             |       |               |       | 22.3         |      |              |       |      |      |   |       |     |   |   |         | 22.3  |     
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      
|                                                                    |                                              | Operating (loss) income                      |       |              | (18.0 | )             |       |              | 79.9 |              |       |       | 34.6 |   |       |      |  |   |         |       | 96.5 | 
|Interest expense                                                    |                                              |                                              | (48.9 | )            |       |               | (0.9  | )            |      |              | (0.8  | )     |      |   |      |      |   |   | (50.6   | )    
|Interest income                                                     |                                              |                                              | 2.6   |              |       |               | 1.6   |              |      |              | 0.5   |       |      |   |      |      |   |   | 4.7     |      
|Intercompany interest (expense) income, net                         |                                              |                                              | (13.9 | )            |       |               | 14.0  |              |      |              | (0.1  | )     |      |   |      |      |   |   |        |      
|Equity in earnings (losses) of investees, net                       |                                              |                                              | 78.5  |              |       |               | 15.8  |              |      |              |      |       |      |   | (94.3 | )    |   |   |        |      
|Other expense, net                                                  |                                              |                                              | (0.1  | )            |       |               | (1.2  | )            |      |              | (1.6  | )     |      |   |      |      |   |   | (2.9    | )    
|Other intercompany income (expense), net                            |                                              |                                              | (0.1  | )            |       |               | 2.3   |              |      |              | (2.2  | )     |      |   |      |      |   |   |        |      
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      
|Earnings (loss) before income taxes and
    discontinued operations |                                              |                                              | 0.1   |              |       |               | 111.5 |              |      |              | 30.4  |       |      |   | (94.3 | )    |   |   | 47.7    |      
|Benefit from (provision for) income taxes                           |                                              |                                              | 29.0  |              |       |               | (33.9 | )            |      |              | (13.7 | )     |      |   |      |      |   |   | (18.6   | )    
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      
|Earnings (loss) from continuing operations                          |                                              |                                              | 29.1  |              |       |               | 77.6  |              |      |              | 16.7  |       |      |   | (94.3 | )    |   |   | 29.1    |      
|(Loss) earnings from discontinued operations                        |                                              |                                              | (0.6  | )            |       |               | (0.6  | )            |      |              | (0.9  | )     |      |   | 1.5   |      |   |   | (0.6    | )    
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      
|Net earnings (loss)                                                 |                                              | $                                            | 28.5  |              |       | $             | 77.0  |              |      | $            | 15.8  |       |      | $ | (92.8 | )    |   | $ | 28.5    |      
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      

77



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                                                              
|--------- | -----------------------------------------------------------------------------
|Note 13  | Supplemental Joint Issuer and Guarantor
    Financial Information (Continued)

|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |        |      |   |   |         |       |      | 
|------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ----- | ------------ | ----- | ------------- | ----- | ------------ | ---- | ------------ | ----- | ----- | ---- | - | ------ | ---- | - | - | ------- | ----- | ---- | 
|                                                                    |                                              |                                             
|                                                                    |                                              | For the Fiscal Year Ended September 30, 2003
|                                                                    |                                              |                                             
|                                                                    |                                              |                                              |       | Combined     |       | Combined      |       |             
|                                                                    |                                              |                                              |       | Guarantor    |       | Non-Guarantor |       |             
|                                                                    |                                              | JBI                                          |       | Subsidiaries |       | Subsidiaries  |       | Eliminations |      | Consolidated
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |             
|                                                                    |                                              |                                             
|                                                                    |                                              | (in millions)                               
|Net sales                                                           |                                              | $                                            |      |              |       | $             | 900.9 |              |      | $            | 296.5 |       |      | $ | (4.8   | )    |   | $ | 1,192.6 |      
|Operating costs and expenses:                                       |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |        |      |   |   |         |      
|                                                                    | Cost of products sold                        |                                              |       |             |       |               |       | 633.3        |      |              |       | 205.9 |      |   |        | (4.8 | ) |   |         | 834.4 |     
|                                                                    | Selling, general and administrative expenses |                                              |       | 9.0          |       |               |       | 190.1        |      |              |       | 58.9  |      |   |        |     |   |   |         | 258.0 |     
|                                                                    | Impairment, restructuring and other charges  |                                              |       | 8.5          |       |               |       | 10.5         |      |              |       |      |      |   |        |     |   |   |         | 19.0  |     
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |        |      |   |   |         |      
|                                                                    |                                              | Operating (loss) income                      |       |              | (17.5 | )             |       |              | 67.0 |              |       |       | 31.7 |   |        |      |  |   |         |       | 81.2 | 
|Interest expense                                                    |                                              |                                              | (44.3 | )            |       |               | (15.4 | )            |      |              | (1.0  | )     |      |   |       |      |   |   | (60.7   | )    
|Interest income                                                     |                                              |                                              | 0.6   |              |       |               | 1.0   |              |      |              | 0.5   |       |      |   |       |      |   |   | 2.1     |      
|Intercompany interest (expense) income, net                         |                                              |                                              | (17.2 | )            |       |               | 22.9  |              |      |              | (5.7  | )     |      |   |       |      |   |   |        |      
|Equity in earnings (losses) of investees, net                       |                                              |                                              | 129.0 |              |       |               | 8.5   |              |      |              |      |       |      |   | (137.5 | )    |   |   |        |      
|Minority interest (expense) income                                  |                                              |                                              | (61.6 | )            |       |               | 61.6  |              |      |              |      |       |      |   |       |      |   |   |        |      
|Other expense, net                                                  |                                              |                                              | (10.0 | )            |       |               | (16.8 | )            |      |              | 0.3   |       |      |   |       |      |   |   | (26.5   | )    
|Other intercompany income (expense), net                            |                                              |                                              | 0.3   |              |       |               | 10.8  |              |      |              | (11.1 | )     |      |   |       |      |   |   |        |      
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |        |      |   |   |         |      
|(Loss) earnings before income taxes and
    discontinued operations |                                              |                                              | (20.7 | )            |       |               | 139.6 |              |      |              | 14.7  |       |      |   | (137.5 | )    |   |   | (3.9    | )    
|Benefit from (provision for) income taxes                           |                                              |                                              | 30.8  |              |       |               | (10.6 | )            |      |              | (6.2  | )     |      |   |       |      |   |   | 14.0    |      
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |        |      |   |   |         |      
|Earnings (loss) from continuing operations                          |                                              |                                              | 10.1  |              |       |               | 129.0 |              |      |              | 8.5   |       |      |   | (137.5 | )    |   |   | 10.1    |      
|Loss (earnings) from discontinued operations                        |                                              |                                              | (41.2 | )            |       |               | (41.2 | )            |      |              | (26.0 | )     |      |   | 67.2   |      |   |   | (41.2   | )    
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |        |      |   |   |         |      
|Net earnings (loss)                                                 |                                              | $                                            | (31.1 | )            |       | $             | 87.8  |              |      | $            | (17.5 | )     |      | $ | (70.3  | )    |   | $ | (31.1   | )    
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |        |      |   |   |         |      

78



---



##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                                                              
|--------- | -----------------------------------------------------------------------------
|Note 13  | Supplemental Joint Issuer and Guarantor
    Financial Information (Continued)

|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |       |      | 
|------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ----- | ------------ | ----- | ------------- | ----- | ------------ | ---- | ------------ | ----- | ----- | ---- | - | ----- | ---- | - | - | ------- | ----- | ---- | 
|                                                                    |                                              |                                             
|                                                                    |                                              | For the Fiscal Year Ended September 30, 2002
|                                                                    |                                              |                                             
|                                                                    |                                              |                                              |       | Combined     |       |              
|                                                                    |                                              |                                              |       | Guarantor    |       | Non-Guarantor |       |             
|                                                                    |                                              | JBI                                          |       | Subsidiaries |       | Subsidiaries  |       | Eliminations |      | Consolidated
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |             
|                                                                    |                                              |                                             
|                                                                    |                                              | (in millions)                               
|Net sales                                                           |                                              | $                                            |      |              |       | $             | 820.1 |              |      | $            | 253.7 |       |      | $ | (5.5  | )    |   | $ | 1,068.3 |      
|Operating costs and expenses:                                       |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      
|                                                                    | Cost of products sold                        |                                              |       |             |       |               |       | 567.8        |      |              |       | 169.6 |      |   |       | (5.5 | ) |   |         | 731.9 |     
|                                                                    | Selling, general and administrative expenses |                                              |       | 20.4         |       |               |       | 162.8        |      |              |       | 51.6  |      |   |       |     |   |   |         | 234.8 |     
|                                                                    | Impairment, restructuring and other charges  |                                              |       |             |       |               |       | 7.2          |      |              |       |      |      |   |       |     |   |   |         | 7.2   |     
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      
|                                                                    |                                              | Operating (loss) income                      |       |              | (20.4 | )             |       |              | 82.3 |              |       |       | 32.5 |   |       |      |  |   |         |       | 94.4 | 
|Interest expense                                                    |                                              |                                              | (36.7 | )            |       |               | (37.1 | )            |      |              | (0.9  | )     |      |   |      |      |   |   | (74.7   | )    
|Interest income                                                     |                                              |                                              | 3.0   |              |       |               | 0.9   |              |      |              | 0.7   |       |      |   |      |      |   |   | 4.6     |      
|Intercompany interest (expense) income, net                         |                                              |                                              | (12.1 | )            |       |               | 16.5  |              |      |              | (4.4  | )     |      |   |      |      |   |   |        |      
|Management fee income (expense)                                     |                                              |                                              | 73.2  |              |       |               | (73.2 | )            |      |              |      |       |      |   |      |      |   |   |        |      
|Equity in earnings (losses) of investees, net                       |                                              |                                              | 8.0   |              |       |               | 15.7  |              |      |              |      |       |      |   | (23.7 | )    |   |   |        |      
|Minority interest income (expense)                                  |                                              |                                              | 19.7  |              |       |               | (19.7 | )            |      |              |      |       |      |   |      |      |   |   |        |      
|Other expense, net                                                  |                                              |                                              | (7.6  | )            |       |               | (7.5  | )            |      |              | (0.4  | )     |      |   |      |      |   |   | (15.5   | )    
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      
|Earnings (loss) before income taxes and
    discontinued operations |                                              |                                              | 27.1  |              |       |               | (22.1 | )            |      |              | 27.5  |       |      |   | (23.7 | )    |   |   | 8.8     |      
|Benefit from (provision for) income taxes                           |                                              |                                              | 4.8   |              |       |               | 30.1  |              |      |              | (11.8 | )     |      |   |      |      |   |   | 23.1    |      
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      
|Earnings (loss) from continuing operations                          |                                              |                                              | 31.9  |              |       |               | 8.0   |              |      |              | 15.7  |       |      |   | (23.7 | )    |   |   | 31.9    |      
|Earnings (loss) from discontinued operations                        |                                              |                                              | 9.0   |              |       |               | 9.0   |              |      |              | 20.1  |       |      |   | (29.1 | )    |   |   | 9.0     |      
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      
|Net earnings (loss)                                                 |                                              | $                                            | 40.9  |              |       | $             | 17.0  |              |      | $            | 35.8  |       |      | $ | (52.8 | )    |   | $ | 40.9    |      
|                                                                    |                                              |                                              |       |              |       |               |       |              |      |              |       |       |      |   |       |      |   |   |         |      

79



---



##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                                                              
|--------- | -----------------------------------------------------------------------------
|Note 13  | Supplemental Joint Issuer and Guarantor
    Financial Information (Continued)

|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |       |         | 
|--------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------ | ----- | ------------ | ----- | ------------- | ------- | ------------ | ------- | ------------ | ----- | ---- | ----- |  | -------- | - | -------- | - | ----- | ----- | ------- | 
|                                                                      |                                                  |                                           
|                                                                      |                                                  | At September 30, 2004                     
|                                                                      |                                                  |                                           
|                                                                      |                                                  |                                            |       | Combined     |       | Combined      |         |             
|                                                                      |                                                  |                                            |       | Guarantor    |       | Non-Guarantor |         |             
|                                                                      |                                                  | JBI                                        |       | Subsidiaries |       | Subsidiaries  |         | Eliminations |         | Consolidated
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |             
|                                                                      |                                                  |                                           
|                                                                      |                                                  | (in millions)                             
|ASSETS                                                               
|Current assets:                                                       |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      | Cash and cash equivalents                        |                                            | $     | 0.9          |       |               | $       | 1.0          |         |              | $     | 37.7 |       |  | $        |  |          |   | $     | 39.6  |        
|                                                                      | Trade receivables, net                           |                                            |       |             |       |               |         | 155.6        |         |              |       | 92.1 |       |  |          |  |          |   |       | 247.7 |        
|                                                                      | Inventories                                      |                                            |       |             |       |               |         | 152.8        |         |              |       | 42.6 |       |  |          |  |          |   |       | 195.4 |        
|                                                                      | Deferred income taxes                            |                                            |       | 29.3         |       |               |         |             |         |              |       | 1.0  |       |  |          |  |          |   |       | 30.3  |        
|                                                                      | Assets held for sale                             |                                            |       |             |       |               |         | 3.6          |         |              |       |     |       |  |          |  |          |   |       | 3.6   |        
|                                                                      | Other current assets                             |                                            |       | 3.3          |       |               |         | 8.7          |         |              |       | 11.7 |       |  |          |  |          |   |       | 23.7  |        
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total current assets                       |       |              | 33.5  |               |         |              | 321.7   |              |       |      | 185.1 |  |          |   |         |   |       |       | 540.3   | 
|Property, plant and equipment, net                                    |                                                  |                                            | 1.1   |              |       |               | 73.9    |              |         |              | 49.9  |      |       |  |         |   |          |   | 124.9 |      
|Pension assets                                                        |                                                  |                                            | 150.3 |              |       |               |        |              |         |              |      |      |       |  |         |   |          |   | 150.3 |      
|Insurance for asbestos claims                                         |                                                  |                                            |      |              |       |               | 171.0   |              |         |              |      |      |       |  |         |   |          |   | 171.0 |      
|Goodwill                                                              |                                                  |                                            |      |              |       |               | 229.2   |              |         |              | 52.5  |      |       |  |         |   |          |   | 281.7 |      
|Other intangibles, net                                                |                                                  |                                            |      |              |       |               | 59.7    |              |         |              |      |      |       |  |         |   |          |   | 59.7  |      
|Other non-current assets                                              |                                                  |                                            | 26.8  |              |       |               | 16.9    |              |         |              | 0.2   |      |       |  |         |   |          |   | 43.9  |      
|Investment in subsidiaries/Intercompany
    receivable (payable), net |                                                  |                                            | 571.0 |              |       |               | 823.9   |              |         |              | 178.1 |      |       |  | (1,573.0 | ) |          |   |      |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total assets                               |       | $            | 782.7 |               |         | $            | 1,696.3 |              |       | $    | 465.8 |  |          | $ | (1,573.0 | ) |       | $     | 1,371.8 | 
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|LIABILITIES AND STOCKHOLDERS EQUITY                                 
|Current liabilities:                                                  |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      | Notes payable                                    |                                            | $     |             |       |               | $       |             |         |              | $     | 21.1 |       |  | $        |  |          |   | $     | 21.1  |        
|                                                                      | Current maturities of long-term debt             |                                            |       | 2.5          |       |               |         | 1.4          |         |              |       |     |       |  |          |  |          |   |       | 3.9   |        
|                                                                      | Trade accounts payable                           |                                            |       | 0.4          |       |               |         | 68.8         |         |              |       | 54.5 |       |  |          |  |          |   |       | 123.7 |        
|                                                                      | Income taxes payable                             |                                            |       | 0.3          |       |               |         | 19.2         |         |              |       | (1.2 | )     |  |          |  |          |   |       | 18.3  |        
|                                                                      | Liabilities associated with assets held for sale |                                            |       |             |       |               |         |             |         |              |       |     |       |  |          |  |          |   |       |      |        
|                                                                      | Accrued expenses and other current liabilities   |                                            |       | 22.9         |       |               |         | 79.2         |         |              |       | 32.3 |       |  |          |  |          |   |       | 134.4 |        
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total current liabilities                  |       |              | 26.1  |               |         |              | 168.6   |              |       |      | 106.7 |  |          |   |         |   |       |       | 301.4   | 
|Long-term debt                                                        |                                                  |                                            | 441.8 |              |       |               | 5.0     |              |         |              |      |      |       |  |         |   |          |   | 446.8 |      
|Deferred income taxes                                                 |                                                  |                                            | (11.5 | )            |       |               | 37.1    |              |         |              | (0.5  | )    |       |  |         |   |          |   | 25.1  |      
|Asbestos claims                                                       |                                                  |                                            |      |              |       |               | 171.0   |              |         |              |      |      |       |  |         |   |          |   | 171.0 |      
|Other liabilities                                                     |                                                  |                                            | 37.2  |              |       |               | 73.2    |              |         |              | 28.0  |      |       |  |         |   |          |   | 138.4 |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total liabilities                          |       |              | 493.6 |               |         |              | 454.9   |              |       |      | 134.2 |  |          |   |         |   |       |       | 1,082.7 | 
|Stockholders equity                                                  |                                                  |                                            | 289.1 |              |       |               | 1,241.4 |              |         |              | 331.6 |      |       |  | (1,573.0 | ) |          |   | 289.1 |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total liabilities and stockholders equity |       | $            | 782.7 |               |         | $            | 1,696.3 |              |       | $    | 465.8 |  |          | $ | (1,573.0 | ) |       | $     | 1,371.8 | 
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      

80



---



##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                                                              
|--------- | -----------------------------------------------------------------------------
|Note 13  | Supplemental Joint Issuer and Guarantor
    Financial Information (Continued)

|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |       |         | 
|--------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------ | ----- | ------------ | ----- | ------------- | ------- | ------------ | ------- | ------------ | ----- | ---- | ----- |  | -------- | - | -------- | - | ----- | ----- | ------- | 
|                                                                      |                                                  |                                           
|                                                                      |                                                  | At September 30, 2003                     
|                                                                      |                                                  |                                           
|                                                                      |                                                  |                                            |       | Combined     |       | Combined      |         |             
|                                                                      |                                                  |                                            |       | Guarantor    |       | Non-Guarantor |         |             
|                                                                      |                                                  | JBI                                        |       | Subsidiaries |       | Subsidiaries  |         | Eliminations |         | Consolidated
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |             
|                                                                      |                                                  |                                           
|                                                                      |                                                  | (in millions)                             
|ASSETS                                                               
|Current assets:                                                       |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      | Cash and cash equivalents                        |                                            | $     | 0.2          |       |               | $       | 2.9          |         |              | $     | 28.1 |       |  | $        |  |          |   | $     | 31.2  |        
|                                                                      | Trade receivables, net                           |                                            |       |             |       |               |         | 143.9        |         |              |       | 85.7 |       |  |          |  |          |   |       | 229.6 |        
|                                                                      | Inventories                                      |                                            |       |             |       |               |         | 127.6        |         |              |       | 37.4 |       |  |          |  |          |   |       | 165.0 |        
|                                                                      | Deferred income taxes                            |                                            |       | 27.9         |       |               |         | (12.4        | )       |              |       |     |       |  |          |  |          |   |       | 15.5  |        
|                                                                      | Assets held for sale                             |                                            |       |             |       |               |         | 11.9         |         |              |       | 4.9  |       |  |          |  |          |   |       | 16.8  |        
|                                                                      | Other current assets                             |                                            |       | 3.2          |       |               |         | 12.0         |         |              |       | 14.9 |       |  |          |  |          |   |       | 30.1  |        
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total current assets                       |       |              | 31.3  |               |         |              | 285.9   |              |       |      | 171.0 |  |          |   |         |   |       |       | 488.2   | 
|Property, plant and equipment, net                                    |                                                  |                                            | 0.5   |              |       |               | 84.3    |              |         |              | 44.9  |      |       |  |         |   |          |   | 129.7 |      
|Pension assets                                                        |                                                  |                                            | 148.3 |              |       |               |        |              |         |              |      |      |       |  |         |   |          |   | 148.3 |      
|Insurance for asbestos claims                                         |                                                  |                                            |      |              |       |               | 160.0   |              |         |              |      |      |       |  |         |   |          |   | 160.0 |      
|Goodwill                                                              |                                                  |                                            |      |              |       |               | 229.2   |              |         |              | 53.9  |      |       |  |         |   |          |   | 283.1 |      
|Other intangibles, net                                                |                                                  |                                            |      |              |       |               | 60.8    |              |         |              |      |      |       |  |         |   |          |   | 60.8  |      
|Other non-current assets                                              |                                                  |                                            | 28.7  |              |       |               | 37.9    |              |         |              | 0.1   |      |       |  |         |   |          |   | 66.7  |      
|Investment in subsidiaries/Intercompany
    receivable (payable), net |                                                  |                                            | 568.7 |              |       |               | 829.1   |              |         |              | 160.6 |      |       |  | (1,558.4 | ) |          |   |      |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total assets                               |       | $            | 777.5 |               |         | $            | 1,687.2 |              |       | $    | 430.5 |  |          | $ | (1,558.4 | ) |       | $     | 1,336.8 | 
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|LIABILITIES AND STOCKHOLDERS EQUITY                                 
|Current liabilities:                                                  |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      | Notes payable                                    |                                            | $     |             |       |               | $       |             |         |              | $     | 23.5 |       |  | $        |  |          |   | $     | 23.5  |        
|                                                                      | Current maturities of long-term debt             |                                            |       | 23.9         |       |               |         | 1.3          |         |              |       |     |       |  |          |  |          |   |       | 25.2  |        
|                                                                      | Trade accounts payable                           |                                            |       |             |       |               |         | 56.0         |         |              |       | 46.3 |       |  |          |  |          |   |       | 102.3 |        
|                                                                      | Income taxes payable                             |                                            |       | 2.2          |       |               |         | 8.0          |         |              |       | 0.6  |       |  |          |  |          |   |       | 10.8  |        
|                                                                      | Liabilities associated with assets held for sale |                                            |       |             |       |               |         | 6.4          |         |              |       | 2.3  |       |  |          |  |          |   |       | 8.7   |        
|                                                                      | Accrued expenses and other current liabilities   |                                            |       | 27.9         |       |               |         | 71.7         |         |              |       | 28.6 |       |  |          |  |          |   |       | 128.2 |        
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total current liabilities                  |       |              | 54.0  |               |         |              | 143.4   |              |       |      | 101.3 |  |          |   |         |   |       |       | 298.7   | 
|Long-term debt                                                        |                                                  |                                            | 445.0 |              |       |               | 6.4     |              |         |              |      |      |       |  |         |   |          |   | 451.4 |      
|Minority interest                                                     |                                                  |                                            |      |              |       |               | 91.5    |              |         |              |      |      |       |  | (91.5    | ) |          |   |      |      
|Deferred income taxes                                                 |                                                  |                                            | (6.2  | )            |       |               | 31.9    |              |         |              | 0.5   |      |       |  |         |   |          |   | 26.2  |      
|Asbestos claims                                                       |                                                  |                                            |      |              |       |               | 160.0   |              |         |              |      |      |       |  |         |   |          |   | 160.0 |      
|Other liabilities                                                     |                                                  |                                            | 29.0  |              |       |               | 97.0    |              |         |              | 18.8  |      |       |  |         |   |          |   | 144.8 |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total liabilities                          |       |              | 521.8 |               |         |              | 530.2   |              |       |      | 120.6 |  |          |   | (91.5    | ) |       |       | 1,081.1 | 
|Stockholders equity                                                  |                                                  |                                            | 255.7 |              |       |               | 1,157.0 |              |         |              | 309.9 |      |       |  | (1,466.9 | ) |          |   | 255.7 |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total liabilities and stockholders equity |       | $            | 777.5 |               |         | $            | 1,687.2 |              |       | $    | 430.5 |  |          | $ | (1,558.4 | ) |       | $     | 1,336.8 | 
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      

81



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                                                              
|--------- | -----------------------------------------------------------------------------
|Note 13  | Supplemental Joint Issuer and Guarantor
    Financial Information (Continued)

|                                                                         |  |                                              |       |              |  |               |       |              |  |              |       |   |  |   |       |   |  |   |       |  
|------------------------------------------------------------------------ |  | -------------------------------------------- | ----- | ------------ |  | ------------- | ----- | ------------ |  | ------------ | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                                                         |  |                                             
|                                                                         |  | For the Fiscal Year Ended September 30, 2004
|                                                                         |  |                                             
|                                                                         |  |                                              |       | Combined     |  | Combined      |       |             
|                                                                         |  |                                              |       | Guarantor    |  | Non-Guarantor |       |             
|                                                                         |  | JBI                                          |       | Subsidiaries |  | Subsidiaries  |       | Eliminations |  | Consolidated
|                                                                         |  |                                              |       |              |  |               |       |              |  |             
|                                                                         |  |                                             
|                                                                         |  | (in millions)                               
|NET CASH PROVIDED BY (USED IN) OPERATING
    ACTIVITIES                  |  | $                                            | 24.4  |              |  | $             | (14.4 | )            |  | $            | 34.6  |   |  | $ |      |   |  | $ | 44.6  |  
|INVESTING ACTIVITIES:                                                    |  |                                              |       |              |  |               |       |              |  |              |       |   |  |   |       |   |  |   |       |  
|Proceeds from sale of businesses                                         |  |                                              |      |              |  |               | 2.4   |              |  |              | 2.1   |   |  |   |      |   |  |   | 4.5   |  
|Purchases of property, plant and equipment                               |  |                                              | (0.8  | )            |  |               | (14.7 | )            |  |              | (7.8  | ) |  |   |      |   |  |   | (23.3 | )
|Proceeds from sale of property, plant and
    equipment                  |  |                                              |      |              |  |               | 0.2   |              |  |              | 0.2   |   |  |   |      |   |  |   | 0.4   |  
|Proceeds from sale of excess real estate                                 |  |                                              | 3.2   |              |  |               | 0.3   |              |  |              |      |   |  |   |      |   |  |   | 3.5   |  
|Other investing activities                                               |  |                                              |      |              |  |               | 2.4   |              |  |              |      |   |  |   |      |   |  |   | 2.4   |  
|Net transfers with subsidiaries                                          |  |                                              | (1.8  | )            |  |               | 15.2  |              |  |              |      |   |  |   | (13.4 | ) |  |   |      |  
|                                                                         |  |                                              |       |              |  |               |       |              |  |              |       |   |  |   |       |   |  |   |       |  
|NET CASH PROVIDED BY (USED IN) INVESTING
    ACTIVITIES                  |  |                                              | 0.6   |              |  |               | 5.8   |              |  |              | (5.5  | ) |  |   | (13.4 | ) |  |   | (12.5 | )
|FINANCING ACTIVITIES:                                                    |  |                                              |       |              |  |               |       |              |  |              |       |   |  |   |       |   |  |   |       |  
|Proceeds from long-term debt                                             |  |                                              | 46.5  |              |  |               | (0.1  | )            |  |              |      |   |  |   |      |   |  |   | 46.4  |  
|Repayment of long-term debt                                              |  |                                              | (71.1 | )            |  |               | (1.2  | )            |  |              |      |   |  |   |      |   |  |   | (72.3 | )
|Deposits into restricted cash collateral accounts                        |  |                                              |      |              |  |               |      |              |  |              |      |   |  |   |      |   |  |   |      |  
|Withdrawals from restricted cash collateral
    accounts                 |  |                                              |      |              |  |               |      |              |  |              |      |   |  |   |      |   |  |   |      |  
|Proceeds for the issuance of common stock for
    stock option exercises |  |                                              | 0.9   |              |  |               |      |              |  |              |      |   |  |   |      |   |  |   | 0.9   |  
|Payment of debt issuance and other financing costs                       |  |                                              | (1.6  | )            |  |               | 0.1   |              |  |              |      |   |  |   |      |   |  |   | (1.5  | )
|Proceeds from notes payable, net                                         |  |                                              |      |              |  |               |      |              |  |              | (4.4  | ) |  |   |      |   |  |   | (4.4  | )
|Net transfers with parent                                                |  |                                              |      |              |  |               | 1.8   |              |  |              | (15.2 | ) |  |   | 13.4  |   |  |   |      |  
|                                                                         |  |                                              |       |              |  |               |       |              |  |              |       |   |  |   |       |   |  |   |       |  
|NET CASH PROVIDED BY (USED IN) FINANCING
    ACTIVITIES                  |  |                                              | (25.3 | )            |  |               | 0.6   |              |  |              | (19.6 | ) |  |   | 13.4  |   |  |   | (30.9 | )
|Effect of exchange rate changes on cash and cash
    equivalents         |  |                                              | 1.0   |              |  |               | 6.1   |              |  |              | 0.1   |   |  |   |      |   |  |   | 7.2   |  
|                                                                         |  |                                              |       |              |  |               |       |              |  |              |       |   |  |   |       |   |  |   |       |  
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                         |  |                                              | 0.7   |              |  |               | (1.9  | )            |  |              | 9.6   |   |  |   |      |   |  |   | 8.4   |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                           |  |                                              | 0.2   |              |  |               | 2.9   |              |  |              | 28.1  |   |  |   |      |   |  |   | 31.2  |  
|                                                                         |  |                                              |       |              |  |               |       |              |  |              |       |   |  |   |       |   |  |   |       |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                 |  | $                                            | 0.9   |              |  | $             | 1.0   |              |  | $            | 37.7  |   |  | $ |      |   |  | $ | 39.6  |  
|                                                                         |  |                                              |       |              |  |               |       |              |  |              |       |   |  |   |       |   |  |   |       |  

82



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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                                                              
|--------- | -----------------------------------------------------------------------------
|Note 13  | Supplemental Joint Issuer and Guarantor
    Financial Information (Continued)

|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|---------------------------------------------------------------- |  | -------------------------------------------- | ------ | ------------ |  | ------------- | ------ | ------------ |  | ------------ | ----- | - |  | - | ------ | - |  | - | ------ | -
|                                                                 |  |                                             
|                                                                 |  | For the Fiscal Year Ended September 30, 2003
|                                                                 |  |                                             
|                                                                 |  |                                              |        | Combined     |  | Combined      |        |             
|                                                                 |  |                                              |        | Guarantor    |  | Non-Guarantor |        |             
|                                                                 |  | JBI                                          |        | Subsidiaries |  | Subsidiaries  |        | Eliminations |  | Consolidated
|                                                                 |  |                                              |        |              |  |               |        |              |  |             
|                                                                 |  |                                             
|                                                                 |  | (in millions)                               
|NET CASH PROVIDED BY OPERATING ACTIVITIES                        |  | $                                            | 6.6    |              |  | $             | 25.8   |              |  | $            | 42.5  |   |  | $ |       |   |  | $ | 74.9   |  
|INVESTING ACTIVITIES:                                            |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|Proceeds from sale of businesses                                 |  |                                              |       |              |  |               | 107.1  |              |  |              | 13.4  |   |  |   |       |   |  |   | 120.5  |  
|Purchases of property, plant and equipment                       |  |                                              | (0.1   | )            |  |               | (15.1  | )            |  |              | (4.0  | ) |  |   |       |   |  |   | (19.2  | )
|Proceeds from sale of property, plant and
    equipment          |  |                                              |       |              |  |               | 0.2    |              |  |              |      |   |  |   |       |   |  |   | 0.2    |  
|Proceeds from sale of excess real estate                         |  |                                              |       |              |  |               | 11.1   |              |  |              |      |   |  |   |       |   |  |   | 11.1   |  
|Net transfers with subsidiaries                                  |  |                                              | (161.0 | )            |  |               | 49.0   |              |  |              |      |   |  |   | 112.0  |   |  |   |       |  
|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|NET CASH (USED IN) PROVIDED BY INVESTING
    ACTIVITIES          |  |                                              | (161.1 | )            |  |               | 152.3  |              |  |              | 9.4   |   |  |   | 112.0  |   |  |   | 112.6  |  
|FINANCING ACTIVITIES:                                            |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|Proceeds from long-term debt                                     |  |                                              | 127.0  |              |  |               |       |              |  |              |      |   |  |   |       |   |  |   | 127.0  |  
|Repayment of long-term debt                                      |  |                                              | (227.2 | )            |  |               | (222.1 | )            |  |              |      |   |  |   |       |   |  |   | (449.3 | )
|Deposits into restricted cash collateral accounts                |  |                                              | (66.5  | )            |  |               |       |              |  |              |      |   |  |   |       |   |  |   | (66.5  | )
|Withdrawals from restricted cash collateral
    accounts         |  |                                              | 224.3  |              |  |               |       |              |  |              |      |   |  |   |       |   |  |   | 224.3  |  
|Proceeds from issuance of New Notes                              |  |                                              | 380.0  |              |  |               |       |              |  |              |      |   |  |   |       |   |  |   | 380.0  |  
|Redemption of Old Notes                                          |  |                                              | (250.0 | )            |  |               | (125.0 | )            |  |              |      |   |  |   |       |   |  |   | (375.0 | )
|Payment of debt issuance and other financing costs               |  |                                              | (33.2  | )            |  |               | (12.4  | )            |  |              |      |   |  |   |       |   |  |   | (45.6  | )
|Proceeds from notes payable, net                                 |  |                                              |       |              |  |               |       |              |  |              | 7.2   |   |  |   |       |   |  |   | 7.2    |  
|Net transfers with parent                                        |  |                                              |       |              |  |               | 161.0  |              |  |              | (49.0 | ) |  |   | (112.0 | ) |  |   |       |  
|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|NET CASH PROVIDED BY (USED IN) FINANCING
    ACTIVITIES          |  |                                              | 154.4  |              |  |               | (198.5 | )            |  |              | (41.8 | ) |  |   | (112.0 | ) |  |   | (197.9 | )
|Effect of exchange rate changes on cash and cash
    equivalents |  |                                              |       |              |  |               | 12.3   |              |  |              | (2.8  | ) |  |   |       |   |  |   | 9.5    |  
|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                 |  |                                              | (0.1   | )            |  |               | (8.1   | )            |  |              | 7.3   |   |  |   |       |   |  |   | (0.9   | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                   |  |                                              | 0.3    |              |  |               | 11.0   |              |  |              | 20.8  |   |  |   |       |   |  |   | 32.1   |  
|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                         |  | $                                            | 0.2    |              |  | $             | 2.9    |              |  | $            | 28.1  |   |  | $ |       |   |  | $ | 31.2   |  
|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  

83



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                                                              
|--------- | -----------------------------------------------------------------------------
|Note 13  | Supplemental Joint Issuer and Guarantor
    Financial Information (Continued)

|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|---------------------------------------------------------------- |  | -------------------------------------------- | ------ | ------------ |  | ------------- | ------ | ------------ |  | ------------ | ----- | - |  | - | ------ | - |  | - | ------ | -
|                                                                 |  |                                             
|                                                                 |  | For the Fiscal Year Ended September 30, 2002
|                                                                 |  |                                             
|                                                                 |  |                                              |        | Combined     |  | Combined      |        |             
|                                                                 |  |                                              |        | Guarantor    |  | Non-Guarantor |        |             
|                                                                 |  | JBI                                          |        | Subsidiaries |  | Subsidiaries  |        | Eliminations |  | Consolidated
|                                                                 |  |                                              |        |              |  |               |        |              |  |             
|                                                                 |  |                                             
|                                                                 |  | (in millions)                               
|NET CASH (USED IN) PROVIDED BY OPERATING
    ACTIVITIES          |  | $                                            | (50.5  | )            |  | $             | 89.0   |              |  | $            | 33.6  |   |  | $ |       |   |  | $ | 72.1   |  
|INVESTING ACTIVITIES:                                            |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|Proceeds from sale of businesses                                 |  |                                              |       |              |  |               | 368.8  |              |  |              | 19.4  |   |  |   |       |   |  |   | 388.2  |  
|Proceeds from sale of Strategic notes                            |  |                                              | 105.9  |              |  |               |       |              |  |              |      |   |  |   |       |   |  |   | 105.9  |  
|Purchases of property, plant and equipment                       |  |                                              |       |              |  |               | (9.2   | )            |  |              | (5.8  | ) |  |   |       |   |  |   | (15.0  | )
|Proceeds from sale of property, plant and
    equipment          |  |                                              |       |              |  |               | 1.4    |              |  |              | 0.1   |   |  |   |       |   |  |   | 1.5    |  
|Proceeds from sale of excess real estate                         |  |                                              |       |              |  |               | 0.5    |              |  |              |      |   |  |   |       |   |  |   | 0.5    |  
|Other investing activities, net                                  |  |                                              |       |              |  |               | 1.3    |              |  |              |      |   |  |   |       |   |  |   | 1.3    |  
|Net transfers with subsidiaries                                  |  |                                              | 123.0  |              |  |               | 84.0   |              |  |              |      |   |  |   | (207.0 | ) |  |   |       |  
|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|NET CASH PROVIDED BY (USED IN) INVESTING
    ACTIVITIES          |  |                                              | 228.9  |              |  |               | 446.8  |              |  |              | 13.7  |   |  |   | (207.0 | ) |  |   | 482.4  |  
|FINANCING ACTIVITIES:                                            |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|Proceeds from long-term debt                                     |  |                                              | 67.2   |              |  |               | 5.3    |              |  |              |      |   |  |   |       |   |  |   | 72.5   |  
|Repayment of long-term debt                                      |  |                                              | (125.0 | )            |  |               | (373.3 | )            |  |              |      |   |  |   |       |   |  |   | (498.3 | )
|Deposits into restricted cash collateral accounts                |  |                                              | (108.3 | )            |  |               | (44.4  | )            |  |              |      |   |  |   |       |   |  |   | (152.7 | )
|Payment of debt issuance and other financing costs               |  |                                              | (12.2  | )            |  |               |       |              |  |              |      |   |  |   |       |   |  |   | (12.2  | )
|Proceeds from notes payable, net                                 |  |                                              |       |              |  |               |       |              |  |              | 2.6   |   |  |   |       |   |  |   | 2.6    |  
|Net transfers with parent                                        |  |                                              |       |              |  |               | (123.0 | )            |  |              | (84.0 | ) |  |   | 207.0  |   |  |   |       |  
|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|NET CASH (USED IN) PROVIDED BY FINANCING
    ACTIVITIES          |  |                                              | (178.3 | )            |  |               | (535.4 | )            |  |              | (81.4 | ) |  |   | 207.0  |   |  |   | (588.1 | )
|Effect of exchange rate changes on cash and cash
    equivalents |  |                                              | 0.5    |              |  |               |       |              |  |              |      |   |  |   |       |   |  |   | 0.5    |  
|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                 |  |                                              | 0.6    |              |  |               | 0.4    |              |  |              | (34.1 | ) |  |   |       |   |  |   | (33.1  | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                   |  |                                              | (0.3   | )            |  |               | 10.6   |              |  |              | 54.9  |   |  |   |       |   |  |   | 65.2   |  
|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                         |  | $                                            | 0.3    |              |  | $             | 11.0   |              |  | $            | 20.8  |   |  | $ |       |   |  | $ | 32.1   |  
|                                                                 |  |                                              |        |              |  |               |        |              |  |              |       |   |  |   |        |   |  |   |        |  

84



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##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

We carried out an evaluation under the
supervision and with the participation of our management,
including the Chief Executive Officer and the Chief Financial
Officer of the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this Annual
Report. Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure
controls and procedures are effective for recording, processing
and summarizing the information we are required to disclose in
the reports we file under the Securities Exchange Act of 1934,
within the time periods specified in the SECs rules and
forms. Our management necessarily applied its judgment in
assessing the costs and benefits of such controls and
procedures, which by their nature can provide only reasonable
assurance regarding managements control objectives. There
has been no change in our internal control over financial
reporting during our fourth quarter, identified in connection
with the evaluation referred to above, that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.






|         |                  
|-------- | -----------------
|Item 9B. | Other Information

None.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Information concerning our executive officers is
set forth in Item 1 of this Annual Report on
Form 10-K under the caption Executive Officers.

Information with respect to our directors is
incorporated herein by reference to the information
Election of Directors in our definitive proxy
statement to be filed with the Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in
connection with the 2005 Annual Meeting of Stockholders to be
held on February 10, 2005 (the Proxy Statement).

Information required by Item 401(h), 401(i)
and 401(j) of Regulation S-K is incorporated herein by
reference to the information under Corporate
Governance  Organization of the Board and its
Committees in the Proxy Statement.

Information required by Item 405 of
Regulation S-K is incorporated herein by reference to
Section 16(a) Beneficial Ownership Reporting
Compliance in the Proxy Statement.

Information required by Item 406 of
Regulation S-K is incorporated herein by reference to the
information under the caption Corporate Governance
in this Annual Report on Form 10-K and the Proxy Statement.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Information with respect to executive
compensation is incorporated herein by reference to the
information under the caption Executive Officer
Compensation in the Proxy Statement.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

Information with respect to security ownership of
certain beneficial owners and management is incorporated herein
by reference to the information under the caption
Ownership of Common Stock in the Proxy Statement.

85



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##### Table of Contents








|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

None.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

Information with respect to principal accounting
fees and services is incorporated herein by reference to the
information under the caption Independent Registered
Public Accounting Firm in the Proxy Statement.




PART IV






|         |                                               
|-------- | ----------------------------------------------
|Item 15. | Exhibits and Financial Statement
    Schedules

(a) The following documents are filed as
a part of this report:



| |                                                                   
| | ------------------------------------------------------------------
| | 1. The financial statements listed in
    Item 8.                 
|
| | 2. The financial statement schedule consists
    of the following:



| |                                      
| | -------------------------------------
| | II. Valuation and Qualifying Accounts



| |                                                       
| | ------------------------------------------------------
| | 3. The exhibits listed in the Index to
    Exhibits.

(b) Exhibits

86



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##### Table of Contents



INDEX TO EXHIBITS

|        |   |         |  |                                                                                                                                                                                                                                                                                                                                                           
|------- | - | ------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |        
|Number  |   | Exhibit
|        |   |        
|        | 2 | .1      |  | Amended and Restated Securities Purchase
    Agreement, dated as of March 24, 2000, by and among
    U.S. Industries, Inc., JUSI Holdings, Inc., Strategic
    Industries, LLC and Automotive Interior Products LLC (filed as
    Exhibit 10.1 to our Report on Form 8-K filed
    April 10, 2000)*                                                       
|        | 2 | .2      |  | Agreement and Plan of Merger, dated
    February 16, 1998, among U.S. Industries, Inc., USI
    Atlantic, Zurn Industries, Inc. and certain other parties named
    therein (included as Appendix A-1 to the Merger Proxy)*                                                                                                                               
|        | 2 | .3      |  | Stock and Asset Purchase Agreement dated as of
    March 19, 2002 among U.S. Industries, Inc., JUSI
    Holdings, Inc., USI Canada Inc. and Hubbell Incorporated (filed
    as Exhibit 2.1 of our Report on Form 8-K filed on
    May 10, 2002)*                                                                                                          
|        | 2 | .4      |  | Amendment No. 1 to Stock and Asset Purchase
    Agreement dated as of April 26, 2002 among JUSI Holdings,
    Inc. and Hubbell Incorporated (filed as Exhibit 2.2 of our
    Report on Form 8-K filed on May 10, 2002)*                                                                                                                                   
|        | 2 | .5      |  | Stock and Asset Purchase Agreement dated as of
    May 17, 2002 by and among U.S. Industries, Inc., Eljer
    Plumbingware, Inc., Selkirk, Inc., Selkirk Canada U.S.A., Inc.,
    Selkirk Canada, Inc., Selkirk Acquisition Partners, L.P. and
    Tinicum Capital Partners, L.P. (filed as Exhibit 10.4 to
    our 10-Q filed August 13, 2002)*          
|        | 2 | .6      |  | Share Purchase Agreement dated as of
    August 2, 2002 among JUSI Holdings, Inc.,
    U.S. Industries, Inc. and SiTeco Beteiligungs
    GmbH & Co KG (filed as Exhibit 2.1 to our Report
    on Form 8-K filed on October 24, 2002)*                                                                                                                     
|        | 2 | .7      |  | Amendment Agreement dated as of August 2,
    2002 among JUSI Holdings, Inc., U.S. Industries, Inc. and
    SiTeco Beteiligungs GmbH & Co KG (filed as
    Exhibit 2.2 to our Report on Form 8-K filed on
    October 24, 2002)*                                                                                                                          
|        | 2 | .8      |  | Stock Purchase Agreement dated as of
    August 23, 2002 among USI Mayfair Limited and MegaPro
    Tools, Inc. and S and J Acquisition Corp. (filed as
    Exhibit 10.47(a) to our Report on Form 10-K filed on
    December 24, 2002)*                                                                                                                   
|        | 3 | .1(a)   |  | Form of Amended and Restated Certificate of
    Incorporation (filed as part of our Registration Statement
    No. 333-47101 on Form S-4 (the 1998 S-4),
    as Appendix B-1 to the Joint Proxy Statement/ Prospectus
    (the Merger Proxy) included therein)*                                                                                       
|        | 3 | .1(b)   |  | Form of Certificate of Designations of
    Series A Junior Preferred Stock (filed as Exhibit (c)
    within the Rights Agreement filed as Exhibit (4) to
    our Report on Form 8-K filed October 16, 1998)*                                                                                                                                              
|        | 3 | .2      |  | Amended and Restated By-laws of our company
    (filed as Exhibit 3(ii) to the Form 10-Q filed
    Feb 16, 1999)*                                                                                                                                                                                                                                         
|        | 3 | .3      |  | Charters of subsidiary guarantors (filed as
    Exhibit 3.1 to the Form 10-Q filed February 12,
    2004)*                                                                                                                                                                                                                                                
|        | 3 | .4      |  | Bylaws of subsidiary guarantors (filed as
    Exhibit 3.1 to the Form  10-Q filed
    February 12, 2004)*                                                                                                                                                                                                                                                 
|        | 4 | .1      |  | Specimen form of certificate representing shares
    of Common Stock of U.S. Industries, Inc. (filed as
    Exhibit 4.1 to the Form 10 filed April 20, 1995
    (the Form 10))*                                                                                                                                                                         
|        | 4 | .2      |  | Indenture dated July 15, 2003, between the
    Company as Issuer and Wilmington Trust Company as Trustee
    (filed as Exhibit 4.1 to our Report on Form 8-K filed
    on August 12, 2003)*                                                                                                                                                               
|        | 4 | .3      |  | Loan and Security Agreement dated July 15,
    2003, among the Company and other subsidiaries of the Company as
    party thereto as Loan Parties, Fleet Capital Corporation, Fleet
    Securities, Inc., Credit Suisse First Boston, Bank One, NA and
    Silver Point Finance LLC (filed as Exhibit 10.2 to the
    Form 10-Q filed on August 12, 2003)*
|        | 4 | .4      |  | Guaranty Agreement, dated July 15, 2003,
    among the Company and other subsidiaries of the Company as party
    thereto as Guarantors, Fleet Capital Corporation and Various
    Banks named therein (filed as Exhibit 10.3 to the
    Form 10-Q filed on August 12, 2003)*                                                                             
|        | 4 | .5      |  | Pledge Agreement, dated July 15, 2003, among
    the Company and other subsidiaries of the Company as party
    thereto as Pledgors, Fleet Capital Corporation and Various Banks
    named therein (filed as Exhibit 10.4 to the Form 10-Q
    filed on August 12, 2003)*                                                                                 

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|        |    |         |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | -- | ------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |        
|Number  |    | Exhibit
|        |    |        
|        | 4  | .6      |  | Intercreditor Agreement, dated July 15,
    2003, by and among the Company and other subsidiaries of the
    Company as party thereto, Fleet Capital Corporation and Various
    Banks named therein and Wilmington Trust Company (filed as
    Exhibit 10.5 to the Form 10-Q filed on August 12,
    2003)*                                                                                       
|        | 4  | .7      |  | Class A Collateral Agreement, dated
    July 15, 2003, among the Company and other subsidiaries of
    the Company as party thereto as Grantors and Wilmington
    Trust Company as Collateral Agent (filed as
    Exhibit 10.6 to the Form 10-Q filed on August 12,
    2003)*                                                                                                                    
|        | 4  | .8      |  | Class B Collateral Agreement, dated
    July 15, 2003, among the Company and other subsidiaries of
    the Company as party thereto as Grantors and Wilmington
    Trust Company as Collateral Agent (filed as
    Exhibit 10.7 to the Form 10-Q filed on August 12,
    2003)*                                                                                                                    
|        | 4  | .9      |  | Class B Pledge Agreement, dated
    July 15, 2003, among the Company and other subsidiaries of
    the Company as party thereto as Pledgors and Wilmington
    Trust Company as Collateral Agent (filed as
    Exhibit 10.8 to the Form 10-Q filed on August 12,
    2003)*                                                                                                                        
|        | 4  | .10     |  | Collateral Agency Agreement, dated July 15,
    2003, among the Company and other subsidiaries of the Company as
    party thereto, the Representatives and Unrepresented Holders as
    party thereto and Wilmington Trust Company, as Trustee and
    as Collateral Agent (filed as Exhibit 10.9 to the
    Form 10-Q filed on August 12, 2003)*                                                 
|        | 4  | .11     |  | First Amendment to Loan and Security Agreement
    among Jacuzzi Brands, Inc., the other borrowers named on the
    signature page thereto, Fleet Capital Corporation, Silver Point
    Finance LLC, the Revolving Credit Lenders named therein, and the
    Term Loan B Lenders named therein dated October 10,
    2003 (filed as Exhibit 10.53 to the Form 10-K filed on
    December 19, 2004)*
|        | 4  | .12     |  | Supplement and First Amendment to Pledge
    Agreement among JBI Holdings Limited, the Pledgors party to the
    Pledge Agreement and Fleet Capital Corporation dated
    October 16, 2003 (filed as Exhibit 10.54 to the
    Form 10-K filed on December 19, 2004)*                                                                                                                               
|        | 4  | .13     |  | Supplement to Guaranty and Guarantor Security
    Agreement between JBI Holdings Limited and Fleet Capital
    Corporation dated October 16, 2003 (filed as
    Exhibit 10.55 to the Form 10-K filed on
    December 19, 2004)*                                                                                                                                                                    
|        | 4  | .14     |  | Supplement and First Amendment to Class B
    Pledge Agreement among JBI Holdings Limited, the Pledgors party
    to the Class B Pledge Agreement and Wilmington
    Trust Company dated October 16, 2003 (filed as
    Exhibit 10.56 to the Form 10-K filed on
    December 19, 2004)*                                                                                                            
|        | 4  | .15     |  | Supplement to Class B Collateral Agreement
    among JBI Holdings Limited, the Grantors party to the
    Class B Collateral Agreement and Wilmington
    Trust Company dated October 16, 2003 (filed as
    Exhibit 10.57 to the Form 10-K filed on
    December 19, 2004)*                                                                                                                        
|        | 4  | .16     |  | Supplement Indenture dated as of October 16,
    2003 among JBI Holdings Limited, the Subsidiary Guarantors and
    Wilmington Trust Company (filed as Exhibit 10.58 to
    the Form 10-K filed on December 19, 2004)*                                                                                                                                                                             
|        | 4  | .17     |  | Second Amendment to Loan and Security Agreement
    among Jacuzzi Brands, Inc., the other borrowers named on the
    signature pages thereto, Fleet Capital Corporation, Silver Point
    Finance LLC, the Revolving Credit Lenders named therein, and the
    Term Loan B Lenders named therein dated June 30, 2004
    (filed as Exhibit 10.1 to the Form 10-Q filed on
    August 12, 2004)*    
|        | 10 | .1      |  | Subscription Agreement, dated May 31, 1995,
    between Hanson PLC and USI Atlantic (filed as Exhibit 10.10
    to the 1995 10-K)*                                                                                                                                                                                                                                                                 
|        | 10 | .2      |  | Tax Sharing and Indemnification Agreement, dated
    May 30, 1995, among HM Anglo-American Ltd., HM Holdings,
    Inc., Endicott Johnson Corporation, Kidde Industries, Inc., HMB
    Holdings Inc., Kaiser Cement Corporation, Spartus Corporation,
    USI Atlantic and USIAH (Filed as Exhibit 10.14 to the 1995
    10-K)*                                                                     
|        | 10 | .3      |  | Tax Sharing and Indemnification Agreement, dated
    May 30, 1995, among HM Anglo-American Ltd., Quantum
    Chemical Corporation, Endicott Johnson Corporation, Spartus
    Corporation, USI Atlantic and USIAH (Filed as Exhibit 10.15
    to the 1995 10-K)*                                                                                                                                    
|        | 10 | .4      |  | Indemnification Agreement, dated as of
    March 24, 2000, by and among Strategic Industries, LLC,
    U.S. Industries, Inc. and JUSI Holdings, Inc. (filed as
    Exhibit 10.2 to our Report on Form 8-K filed
    April 10, 2000)*                                                                                                                                                               

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|        |    |         |  |                                                                                                                                                                                                                                                                                                                         
|------- | -- | ------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |        
|Number  |    | Exhibit
|        |    |        
|        | 10 | .5      |  | Amended and Restated Subscription Agreement,
    dated as of March 24, 2000, by and among
    U.S. Industries, Inc., JUSI Holdings, Inc., Strategic
    Industries, LLC, Strategic Industries, Inc. and Automotive
    Interior Products LLC (filed as Exhibit 10.3 to our Report
    on Form 8-K filed April 10, 2000)*
|        | 10 | .6      |  | Rexair Indemnification Agreement, dated as of
    March 24, 2000, by and among U.S. Industries, Inc.,
    JUSI Holdings, Inc., Strategic Industries, LLC and Strategic
    Industries, Inc. (filed as Exhibit 10.4 to our Report on
    Form 8-K filed April 10, 2000)*                                                 
|        | 10 | .7(a)   |  | Employment Agreement dated February 22, 1995
    between our company and David H. Clarke (filed as
    Exhibit 10.9 to the Form 10)*                                                                                                                                                                                    
|        | 10 | .7(b)   |  | First Amendment, dated June 12, 1995, to the
    Employment Agreement dated February 22, 1995 between our
    company and David H. Clarke (filed as Exhibit 10.19(b) to
    the 1995 10-K)*                                                                                                                             
|        | 10 | .8(a)   |  | Employment Agreement by and between our company
    and Francisco V. Puñal, dated as of December 15, 2001
    (filed as Exhibit 10.9 to our 10-Q filed May 15, 2001)*                                                                                                                                                   
|        | 10 | .8(b)   |  | Amendment dated May 1, 2001 to the
    Employment Agreement between our company and Francisco V.
    Puñal (filed as Exhibit 10.19 (b) to our
    Form 10-K filed on December 24, 2002)*                                                                                                                                
|        | 10 | .9      |  | Amended U.S. Industries, Inc. Stock Option
    Plan, as restated June 11, 1998 (filed as Exhibit 10.9
    to the 1998 10-K)*                                                                                                                                                                                            
|        | 10 | .10     |  | U.S. Industries, Inc. Supplemental
    Retirement Plan (filed as Exhibit 10.14 to the
    Form 10)*                                                                                                                                                                                                                     
|        | 10 | .11     |  | U.S. Industries, Inc. Restricted Stock Plan,
    as restated June 11, 1998 (filed as Exhibit 10.11 to
    the 1998 10-K)*                                                                                                                                                                                               
|        | 10 | .12     |  | U.S. Industries, Inc. Long-Term Incentive
    Plan (filed as Exhibit 10.15 to the Form 10)*                                                                                                                                                                                                                             
|        | 10 | .13     |  | Rights Agreement dated as of October 15,
    1998 between our company and the Chase Manhattan Bank, as Rights
    Agent (filed as Exhibit (4) to our Report on
    Form 8-K filed October 16, 1998)*                                                                                                                    
|        | 10 | .14     |  | Stock and Asset Purchase Agreement dated as of
    December 21, 2001, by and among JUSI Holdings, Inc.,
    Spear & Jackson plc, USI Global Corp., USI Canada Inc.,
    U.S. Industries, Inc. and ATT Acquisition Co. (filed as
    Exhibit 10.33 to the 2001 10-K)*                                                    
|        | 10 | .15(a)  |  | Employment Agreement, March 31, 2000, of
    Steven C. Barre (filed as Exhibit 10.12(a) to the 2000
    10-K)*                                                                                                                                                                                                          
|        | 10 | .15(b)  |  | Letter Agreement, dated November 3, 2000
    between our company and Steven C. Barre (filed as
    Exhibit 10.12(b) to the 2000 10-K)*                                                                                                                                                                                  
|        | 10 | .15(c)  |  | First Amendment, dated September 11, 2001,
    to the Employment Agreement dated March 31, 2001 between
    the Company and Steven C. Barre (filed as Exhibit 10.34(c)
    to the 2001 10-K)*                                                                                                                           
|        | 10 | .16     |  | Amendment No. 1 to the Stock and Asset
    Purchase Agreement dated as of January 14, 2002 among JUSI
    Holdings, Inc., Spear & Jackson plc, USI Global Corp.,
    USI Canada Inc., U.S. Industries, Inc. and ATT Acquisition
    Co. (filed as Exhibit 2.2 of our Report on Form 8-K
    filed on January 18, 2002)* 
|        | 10 | .17     |  | Escrow Agreement dated as of April 26, 2002
    among U.S. Industries, Inc., JUSI Holdings, Inc. and
    Hubbell Incorporated (filed as Exhibit 2.3 of our Report on
    Form 8-K filed on May 10, 2002)*                                                                                                               
|        | 10 | .18     |  | Tax Sharing and Indemnification Agreement
    effective as of March 19, 2002 among U.S. Industries,
    Inc., JUSI Holdings, Inc., USI Canada Inc. and Hubbell
    Incorporated (filed as Exhibit 2.4 of our Report on
    Form 8-K filed on May 10, 2002)*                                                             
|        | 10 | .19     |  | Stockholders Agreement dated as of
    September 6, 2002 among MegaPro Tools, Inc. and the
    stockholders party thereto (filed as Exhibit 10.47(b) to
    our Report on Form 10-K filed on December 24, 2002)*                                                                                                        
|        | 10 | .20     |  | Standstill Agreement dated as of December 5,
    2002 between U.S. Industries, Inc., and Southeastern Asset
    Management, Inc. Subsidiaries of U.S. Industries, Inc.
    (filed as Exhibit 10.48 to our Report on Form 10-K
    filed on December 24, 2002)*                                                          
|        | 10 | .21     |  | Standstill Agreement dated as of December 5,
    2002 between U.S. Industries, Inc. and Southeastern Asset
    Management, Inc. (filed as Exhibit 10.48 to the
    Form 10-K filed on December 24, 2002)*                                                                                                               
|        | 10 | .22     |  | Employment Agreement by and between the Company
    and Donald C. Devine dated April 21, 2003 (filed as
    Exhibit 10.10 to the Form  10-Q filed on
    August 12, 2003)*                                                                                                                                              

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|        |    |         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |        
|Number  |    | Exhibit
|        |    |        
|        | 10 | .23     |  | Employment Agreement by and between the Company
    and Jeffrey B. Park dated April 21, 2003 (filed as
    Exhibit 10.11 to the Form 10-Q filed on
    August 12, 2003)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .24     |  | Charge over Shares Agreement between Jacuzzi
    Brands, Inc. and Fleet Capital Corporation dated
    October 16, 2003 (filed as Exhibit 10.51 to the
    Form 10-K filed on December 19, 2004)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .25     |  | Charge over Shares Agreement between Jacuzzi
    Brands, Inc. and Wilmington Trust Company dated October 16.
    2003 (filed as Exhibit 10.52 to the Form 10-K filed on
    December 19, 2004)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .26     |  | Jacuzzi Brands, Inc. 2004 Stock Incentive Plan
    (filed as Appendix B to our Definitive Proxy Statement on
    Schedule 14A on January 6, 2004)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .27     |  | First Amendment to the Jacuzzi Brands, Inc. 2004
    Stock Incentive Plan (filed as Exhibit 10.2 to our Current
    Report on Form 8-K filed on October 7, 2004)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .28     |  | Amended and Restated Non-Employee Director
    Deferred Compensation Plan (filed as Exhibit 10.1 to our
    Current Report on Form 8-K filed on October 7, 2004)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .29     |  | Transition Agreement between the registrant and
    David H. Clarke, dated December 8, 2004 (filed as Exhibit
    10.1 to our Current Report on Form 8-K/A filed on
    December 9, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .30     |  | Employment Agreement between the registrant and
    Donald C. Devine, dated December 8, 2004 (filed as Exhibit
    10.2 to our Current Report on Form 8-K/A filed on
    December 9, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .31     |  | Change of Control Agreement between the
    registrant and Donald C. Devine, dated December 8, 2004
    (filed as Exhibit 10.3 to our Current Report on Form 8-K/A
    filed on December 9, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 14 | .1      |  | Amendment to Code of Business Conduct and Ethics
    dated October 12, 2004 (filed as Exhibit 99 to our
    Current Report on Form 8-K filed on October 18, 2004)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 21 | .1      |  | Subsidiaries of Jacuzzi Brands, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 23 | .1      |  | Consent of Ernst & Young LLP,
    Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 25 | .1      |  | Separate Company Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |    |         |  | As described elsewhere herein, certain of our
    existing and future domestic restricted subsidiaries guarantee
    the 9.625% senior notes, jointly and severally, on a senior
    basis. These notes are secured by a first-priority lien on and
    security interest in substantially all of our domestic real
    property, plant and equipment (referred to as
    Notes Collateral). They are also secured by a
    second-priority lien on and security interest in the Bank
    Collateral, which consists of existing and future domestic
    subsidiaries and 65% of the capital stock of, or other equity
    interest in, existing and future first-tier foreign subsidiaries
    and substantially all of the other assets (other than the assets
    that constitute the Notes Collateral), in each case that
    are held by Jacuzzi Brands, Inc. or any of our subsidiary
    guarantors. Our legal structure utilizes subsidiary holding
    companies at various levels to hold the shares of its operating
    subsidiaries. The consolidated financial statements of five of
    our subsidiary holding companies are presented separately, as
    each entity constitutes a substantial portion of the
    collateral (within the meaning of the Security and Exchange
    Commissions Regulation S-X Rule 3-16) for our
    9.625% senior notes. Accordingly, the consolidated
    financial statements of JBI Holdings Limited, USI American
    Holdings, Inc., USI Mayfair Limited, Rexair, Inc., Zurn
    Industries, Inc. and JUSI Holdings, Inc. are included herein.
|        | 31 | .1      |  | Certification of principal executive officer
    required by Rule 13a  14a of the Exchange Act                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 31 | .2      |  | Certification of principal financial officer
    required by Rule 13a  14a of the Exchange Act                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 32 | .1      |  | Certification of Chief Executive Officer and
    Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



---



|  |                          
|- | -------------------------
|* | Incorporated by reference

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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 on this 9th day of
December, 2004.



| |                     
| | --------------------
| | JACUZZI BRANDS, INC.



| |     |                    
| | --- | -------------------
| | By: | /s/ DAVID H. CLARKE

| |                          
| | -------------------------
| |                          
| | David H. Clarke          
| | Chairman of the Board and
| | Chief Executive Officer  

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities indicated, and on the date set forth above.

|                                           |  |                                                                                                |  | 
|------------------------------------------ |  | ---------------------------------------------------------------------------------------------- |  | 
|                                           |  |                                                                                               
|Signature                                  |  | Title                                                                                         
|                                           |  |                                                                                               
|                                          
|/s/ DAVID H. CLARKEDavid H. Clarke         |  | Chairman of the Board and Chief Executive Officer
    (Principal Executive Officer)           
|                                          
|/s/ JEFFREY B. PARKJeffrey B. Park         |  | Senior Vice President, Chief Financial Officer
    and Treasurer (Principal Financial Officer)
|                                          
|/s/ FRANCISCO V. PUÑALFrancisco V. Puñal   |  | Vice President and Controller (Principal
    Accounting Officer)                              
|                                          
|/s/ BRIAN C. BEAZERBrian C. Beazer         |  | Director                                                                                      
|                                          
|/s/ DONALD C. DEVINEDonald C. Devine       |  | Director, President and Chief Operating Officer                                               
|                                          
|/s/ VERONICA M. HAGENVeronica M. Hagen     |  | Director                                                                                      
|                                          
|/s/ JOHN J. MCATEE, JR.John J. McAtee, Jr. |  | Director                                                                                      
|                                          
|/s/ CLAUDIA E. MORFClaudia E. Morf         |  | Director                                                                                      
|                                          
|/s/ SIR HARRY SOLOMONSir Harry Solomon     |  | Director                                                                                      
|                                          
|/s/ ROYALL VICTOR IIIRoyall Victor III     |  | Director                                                                                      
|                                          
|/s/ THOMAS B. WALDINThomas B. Waldin       |  | Director                                                                                      
|                                          
|/s/ ROBERT R. WOMACKRobert R. Womack       |  | Director                                                                                      

91



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SCHEDULE II

JACUZZI BRANDS, INC



VALUATION AND QUALIFYING ACCOUNTS


|                                 |      |               |   |             |  |              |   |            |  |  |   |      |   |  |   |     | 
|-------------------------------- | ---- | ------------- | - | ----------- |  | ------------ | - | ---------- |  |  | - | ---- | - |  | - | --- | 
|Column A                         |      | Column B      |   | Column C    |  | Column D     |   | Column E  
|                                 |      |               |   |             |  |              |   |           
|                                 |      |               |   |             |  | Deductions  |   |           
|                                 |      | Balance at    |   | Additions  |  | Write-offs,  |   | Balance at
|                                 |      | Beginning     |   | Charged to  |  | Payments     |   | End of    
|Description                      |      | of Period     |   | Expense     |  | and Other    |   | Period    
|                                 |      |               |   |             |  |              |   |           
|                                 |      |              
|                                 |      | (In millions)
|Allowance for doubtful accounts: |      |               |   |             |  |              |   |            |  |  |   |      |   |  |   |    
|                                 | 2004 |               | $ | 9.0         |  |              | $ | 5.4        |  |  | $ | (5.4 | ) |  | $ | 9.0 | 
|                                 | 2003 |               |   | 8.4         |  |              |   | 5.8        |  |  |   | (5.2 | ) |  |   | 9.0 | 
|                                 | 2002 |               |   | 8.1         |  |              |   | 3.3        |  |  |   | (3.0 | ) |  |   | 8.4 | 

All other schedules have been omitted because
they are inapplicable, not required or the information is
included elsewhere herein.

92