<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

<TABLE>
<C>        <S>
   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                FOR THE FISCAL YEAR PERIOD ENDED OCTOBER 2, 1999
                                       OR

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                         COMMISSION FILE NUMBER 1-14557
                            ------------------------

                             U.S. INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
               DELAWARE                                     22-3568449
    (State or other jurisdiction of                      (I.R.S. employer
    incorporation or organization)                    identification number)

         101 WOOD AVENUE SOUTH                                08830
          ISELIN, NEW JERSEY                                (Zip Code)
    (Address of principal executive
               offices)
</TABLE>

                                 (732) 767-0700
              (Registrant's telephone number, including area code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<S>                                                 <C>
               TITLE OF EACH CLASS                      NAME OF EACH EXCHANGE ON WHICH REGISTERED
      Common Stock, par value $.01 per share                     New York Stock Exchange
</TABLE>

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
                            ------------------------

    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 ninety days: Yes /X/  No / /

    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. / /

    Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at December 10, 1999 (based on the last
reported sale price of such stock on the New York Stock Exchange on such date):
$1,112,745,695.

    On December 10, 1999, the registrant had outstanding 87,035,145 shares of
Common Stock.
                            ------------------------

                      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 3, 2000
are incorporated by reference into Part III of this Report.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM                                                                   PAGE
----                                                                 --------
<S>    <C>                                                           <C>
       Disclosure Concerning Forward-Looking Statements............         1

                              PART I
1.     Business....................................................         1
2.     Properties..................................................         9
3.     Legal Proceedings...........................................         9
4.     Submission of Matters to a Vote of Security Holders.........         9

                              PART II
       Market for Registrant's Common Equity and Related
5.     Stockholder Matters.........................................        10
6.     Selected Financial Data.....................................        11
       Management's Discussion and Analysis of Financial Condition
7.     and Results of Operations...................................        12
       Qualitative and Quantitative Disclosures About Market
7a.    Risk........................................................        26
8.     Financial Statements and Supplementary Data.................        27
       Changes in and Disagreements with Accountants on Accounting
9.     and Financial Disclosure....................................        74

                             PART III
10.    Directors and Executive Officers of the Registrant..........        74
11.    Executive Compensation......................................        74
       Security Ownership of Certain Beneficial Owners and
12.    Management..................................................        74
13.    Certain Relationships and Related Transactions..............        74

                              PART IV
       Exhibits, Financial Statement Schedules, and Reports on Form
14.    8-K.........................................................        74
15.    Signatures..................................................        78

                   FINANCIAL STATEMENT SCHEDULE
       Valuation and Qualifying Accounts...........................        79
</TABLE>
<PAGE>
                DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS

    All statements, other than statements of historical fact, included in the
Letter of the Chairman of the Board and Chief Executive Officer included in the
Annual Report to Stockholders and in this Form 10-K, including without
limitation the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business", are, or may be
deemed to be, forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 (the "Exchange Act"). Various economic and competitive factors could cause
actual results to differ materially from the expectations reflected in such
forward-looking statements, including factors which are outside the control of
the Company, such as interest rates, foreign currency exchange rates,
instability in domestic and foreign financial markets, consumer spending
patterns, availability of consumer and commercial credit, levels of residential
and commercial construction, levels of automotive production and changes in raw
material costs and Year 2000 issues along with the other factors noted in this
Report and in other documents filed by the Company or its predecessor with the
Securities and Exchange Commission. In addition, the Company's future results
are subject to uncertainties relating to the Company's ability to consummate its
business strategy, including realizing marketing synergies and cost savings from
the integration of its acquired businesses. All subsequent written and oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by the foregoing factors.

                                     PART I

ITEM 1. BUSINESS

GENERAL

    U.S. Industries, Inc. ("USI" and, together with its subsidiaries, the
"Company") manufactures and distributes a broad range of building and home
products, consumer products and industrial products through four operating
divisions: USI Bath and Plumbing Products, Lighting Corporation of America, USI
Hardware and Tools and USI Diversified. Many of the Company's businesses have
leading market share positions, well-known brand names and established
manufacturing, sourcing and distribution capabilities. The Company's strategy is
to focus on basic manufacturing businesses with long-term growth potential.

    In May 1995, USI Atlantic, Inc. ("USI Atlantic"), a Company predecessor then
known as U.S. Industries, Inc., was spun-off from Hanson PLC ("Hanson") with 34
diverse businesses, a substantial amount of surplus real estate and other assets
and significant indebtedness (the "Demerger"). The Company immediately commenced
a program to reduce leverage and focus its operations through dispositions of
non-strategic assets. By mid-1996, the Company had significantly reduced its
debt level, enabling it to pursue selective acquisitions to broaden and enhance
its core businesses.

    In June 1998, USI Atlantic merged with Zurn Industries, Inc. ("Zurn"),
creating one of the leading bath and plumbing products companies in North
America. To effect this transaction, USI was formed as a new holding company for
USI Atlantic and Zurn. The total consideration for the Zurn merger (the
"Merger") was valued at $784 million, consisting of 20.4 million shares of
Common Stock issued to the former Zurn shareholders and the assumption by the
Company of $220 million of debt. See "Management's Discussion and Analysis
Senior Notes and Credit Facilities". The transaction was accounted for as a
pooling of interests and the Company's historical consolidated financial
information presents the results of USI Atlantic and Zurn as a single entity.

    The Company is currently evaluating various alternatives for the diversified
business, including a spin-off. The diversified business includes Rexair, Inc.
("Rainbow" brand vacuum cleaners); Garden State Tanning, Inc. and Leon Plastics,
Inc. (automotive interiors); EJ Footwear Corp. (including Georgia Boot

                                       1
<PAGE>
Inc., and Lehigh Safety Shoe Company (industrial protective footwear)); Huron
Inc. and Bearing Inspection, Inc. (precision engineering products); BiltBest
Products, Inc.; Native Textiles Inc. and Jade Technologies Singapore Ltd. These
entities had combined year ended September 30, 1999 and 1998 revenues of $859
million and $889 million, respectively, and operating income for those periods
of $88 million and $32 million, respectively, (including goodwill impairment,
unusual and other related charges of $7 million and $71 million, respectively,
for those periods).

    The Company expects to utilize a majority of any proceeds to reduce its
outstanding debt and continue its share repurchase program.

    Mr. John Raos resigned from his position of President and Chief Operating
Officer of the Company in September 1999 in anticipation of becoming Chairman
and Chief Executive Officer of Strategic Industries, Inc., the new company that
would own and operate the diversified business upon the spin-off. A registration
statement on Form 10 about Strategic Industries, Inc. has been filed with the
Commission, providing additional details. The Form 10 is subject to completion
and amendment, and has not yet become effective.

    The Company made several strategic acquisitions during fiscal 1999. The
assets of Gatsby Spas, Inc. ("Gatsby Spas"), a manufacturer and distributor of
spas, and the stock of Spring Ram Corporation PLC ("Spring Ram"), a manufacturer
of chinaware, bathroom fixtures and composite kitchen sinks in the UK, were
acquired for USI Bath and Plumbing Products. The assets of True Temper
Corporation ("True Temper"), a manufacturer of wheelbarrows and non-powered lawn
and garden tools, were acquired for USI Hardware and Tools. The assets of
Dual-Lite, Inc. ("Dual-Lite"), a manufacturer of emergency and exit lighting,
were acquired for the Lighting Corporation of America.

    The Company sold certain assets of its water resource business, a unit of
USI Bath and Plumbing Products, in September 1999, certain assets of its ladder
business, a unit of USI Hardware and Tools, in October 1999 and its infant and
children shoe division, a unit of USI Diversified in December 1999.

    The Company received proceeds of $28 million from the sale of surplus real
estate in fiscal 1999.

    During fiscal 1999, the Company repurchased 11,171,600 million shares of
common stock of the Company, amounting to approximately $190 million.

    References to a fiscal year are to the applicable fiscal year ended on the
Saturday nearest September 30 and reflect a 52 or 53-week period.

    This Report references trademarks of the Company such as JACUZZI, ZURN,
ELJER, U.S. BRASS, AMES and RAINBOW, as well as other trade names and product
names. SIEMENS is a registered trademark of Siemens AG, of which the Company is
a licensee.

    The Company's principal executive offices are located at 101 Wood Avenue
South, Iselin, New Jersey 08830; its telephone number at that address is (732)
767-0700.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

    The Company is comprised of four segments: USI Bath and Plumbing Products,
Lighting Corporation of America, USI Hardware and Tools and USI Diversified. The
results of all operations sold or classified as discontinued operations are
discussed separately in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Discontinued Operations and Extraordinary
Loss". See Note 4 to the Consolidated Financial Statements.

USI BATH AND PLUMBING PRODUCTS

    USI Bath and Plumbing Products is one of the leading bath and plumbing
products businesses in North America. It manufactures and distributes a full
line of bath and plumbing products under the brand

                                       2
<PAGE>
names JACUZZI, ELJER and ZURN. During fiscal 1999, it acquired Spring Ram in
order to expand its presence in Europe. Spring Ram is a leading U.K.
manufacturer of acrylic baths, shower enclosures, shower trays, sanitary ware,
stainless steel sinks, molded kitchens sinks and other bathroom fixtures under
the brand names SANITAN and ASTRACAST.

    The Company's objective has been to combine acquired businesses to realize
marketing synergies and cost savings and capitalize on domestic and
international growth opportunities, including product extensions and expansion
into new markets. The division's bath and plumbing products are sold in North
America through wholesale distributors and home centers, and in certain
international markets, including Europe, South America, the Middle East and
Asia.

    Jacuzzi is a leading worldwide manufacturer and distributor of whirlpool
bath products, spas, shower systems, non-jetted baths, swimming pool equipment
and water systems products. In the past two years, Jacuzzi has acquired Sundance
Spas and Gatsby Spas to increase its market position in the spa market. Sales of
Jacuzzi products are seasonal as weather may affect outdoor installation.

    Eljer is a leading North American manufacturer of complementary vitreous
china and cast iron plumbing, faucets and flexible plumbing systems.

    Zurn's plumbing products include drains, flush valves, pressure-reducing and
regulating valves and other behind-the-wall plumbing products. Sales are
seasonal as weather may affect residential construction. Zurn, through its
Selkirk operations, is a leading manufacturer and distributor of commercial and
residential heating, ventilation and air conditioning systems.

LIGHTING CORPORATION OF AMERICA

    Lighting Corporation of America ("LCA"), through its subsidiaries,
manufactures and distributes indoor and outdoor lighting fixtures for markets in
North America and Europe. During fiscal 1999, sales of commercial/industrial and
residential products accounted for approximately 80% and 20%, respectively, of
LCA's revenues.

    LCA's size, broad range of quality products and strong distribution network
allow it to compete as a full-line supplier in the commercial/industrial market.
Its outdoor lighting products are sold under the KIM, SPAULDING, MOLDCAST,
ARCHITECTURAL AREA LIGHTING, SIEMENS and SITECO brand names. These products
include street, area, parking garage and landscape lighting. Outdoor lighting
products are sold to electrical distributors, national accounts and utility
companies. National customer accounts include service stations, automobile
dealerships and fast food restaurants. Indoor commercial/industrial lighting
products, which are sold under the COLUMBIA, PRESCOLITE, SIEMENS, DUAL LITE and
SITECO brand names through electrical distributors and national accounts,
include incandescent and compact fluorescent, down light fixtures, emergency and
exit lighting, and other fluorescent lighting fixtures.

    Management believes that LCA is the largest residential lighting
manufacturer in North America, principally selling under the PROGRESS and
LITEWAY brand names. Progress' products include chandeliers, hall and foyer
sconces, pendants, bath and vanity, ceiling, fluorescent, under-cabinet, track,
outdoor and landscape lighting. Residential lighting products are sold to home
centers, lighting showrooms and electrical distributors, who sell to builders,
electrical contractors and consumers.

    Sales of lighting products are seasonal to a degree, with weather affecting
construction and outdoor installation.

USI HARDWARE AND TOOLS

    USI Hardware and Tools manufactures and distributes hand tools, lawn and
garden tools, wheeled goods and industrial products through O. Ames ("Ames"),
True Temper, Spear & Jackson and other companies.

                                       3
<PAGE>
    Ames is a leading manufacturer of non-powered lawn and garden tools and
industrial hand and striking tools in North America. Ames primarily sells its
products under the brand names AMES, EAGLE, WOODINGS-VERONA and GARANT and, to a
lesser extent, under private labels. Ames' product lines include lawn, garden,
and agricultural tools, snow shovels and other winter tools, as well as wheeled
goods and garden hose reels.

    True Temper is a leading manufacturer of wheelbarrows and also manufactures
non-powered lawn and garden tools. True Temper primarily sells its products
under the brand names TRUE TEMPER and JACKSON and, to a lesser extent, under
private labels. True Temper's product lines include lawn, garden, and
agricultural tools, snow shovels and other winter tools as well as various types
of wheelbarrows.

    Sales of Ames and True Temper products are seasonal in nature, with
substantial quantities manufactured for sale in the spring and fall. Weather
conditions may impact results materially.

    Spear & Jackson is a leading U.K. manufacturer and distributor of a broad
line of hand tools, lawn and garden tools, industrial saws, industrial magnets
and metrology tools. Products sold under the brand names SPEAR & JACKSON, NEILL
TOOLS, ECLIPSE MAGNETICS and BOWERS include garden and agricultural tools,
contractor hand tools, industrial cutting tools, industrial magnets and
industrial calibration instruments.

    Ames, True Temper and Spear & Jackson distribute their products primarily
through independent wholesale distributors, home centers, mass merchants and
large buying groups including cooperatives. The sale of Ames and True Temper
products and, to a lesser extent, Spear & Jackson products, have become
increasingly concentrated among home centers and other mass merchants. The Home
Depot is the division's largest customer and accounted for 19%, 16% and 27% of
the total revenues of the USI Hardware and Tools division in fiscal 1999, 1998
and 1997, respectively.

USI DIVERSIFIED

    USI Diversified manufactures a wide range of consumer, precision engineered
and automotive interior products. Its businesses are described below. USI
Diversified's sales are concentrated in the automotive industry, with sales to
four customers totaling 33%, 35% and 35% of the division's sales in fiscal 1999,
1998 and 1997, respectively.

    REXAIR INC. is a leading manufacturer of premium vacuum cleaner systems. Its
RAINBOW vacuum cleaners collect dirt particles by means of a water filtration
and separator system. Rexair distributes the RAINBOW and its accessories through
a network of independent authorized distributors and subdistributors. Sales to
consumers are made through in-home demonstrations by sales representatives and
are typically arranged by referrals from other consumers. In fiscal 1999, sales
in the United States and Canada accounted for approximately 47% of Rexair's
total unit sales. The remaining sales were spread over a number of foreign
markets, with significant sales made in Portugal, Austria, Japan and Poland. In
the domestic market, the vacuum cleaner industry is mature and highly
competitive. Rexair also experiences competition in recruiting its distributors.
In addition, its distributors experience competition in recruiting and retaining
sales representatives. The Company estimates that over 60% of the purchases of
Rexair products in the United States are financed either by independent consumer
finance companies or, to a lesser extent, by the independent distributors. The
inability to maintain or increase its independent distribution network or the
unavailability of consumer credit could have a material adverse effect on
Rexair's business, financial condition and results of operations.

    EJ FOOTWEAR is a designer, manufacturer and marketer of work, hiking,
hunting and western boots and children's footwear. Its products are sold in
niche markets through five companies. GEORGIA BOOT produces boots in the
mid-range price segment of the industry and markets its products to sporting
goods stores, and farm and ranch stores. LEHIGH SAFETY SHOE is a leading direct
service provider of occupational safety footwear. Lehigh utilizes a nationwide
network of shoemobiles, shoe centers, independent distributors and on-site
commissary locations to sell directly to industrial and commercial facilities.
DURANGO BOOT markets a

                                       4
<PAGE>
diversified line of western and farm and ranch boots primarily to farm, ranch
and independent western stores. TRIMFOOT, the company's infant's and children's
footwear division was sold in December 1999. EMPIRE FOOTWEAR supplies domestic
department stores, catalog merchants and mass merchants with imported footwear
products, primarily on a private label basis as well as under the NORTHLAKE
brand name.

    NATIVE TEXTILES supplies warp knit fabrics to domestic manufacturers of
activewear and intimate apparel. It also commission-dyes lace and other
specialty fabrics for third parties.

    BILTBEST WINDOWS manufactures and distributes wood windows, aluminum-clad
windows and patio doors. BiltBest primarily sells its products to lumber yards,
building products dealers and manufactured housing companies in the mid-western
United States.

    SCF INDUSTRIES manufactures folding and stacking chairs as a licensee of the
SAMSONITE name. SCF has a strong position in selling folding chairs to the party
rental market, where it is the sole licensee of the SAMSONITE brand name.

    BEARING INSPECTION, INC. inspects and overhauls jet aircraft engine bearings
for customers located worldwide. In January 1999, the Company acquired Atech
Turbine Components, Inc., allowing Bearing Inspection to expand into the
business of refurbishing the "hot sections" of turbo-prop engines.

    FSM EUROPE, acquired from Philips Components B.V. in May 1998, manufactures
flat shadow masks, a component in color television picture tubes. A long-term
contract to supply Philips with a specified number of flat shadow masks annually
presently accounts for substantially all of FSM's sales.

    JADE TECHNOLOGIES SINGAPORE LTD. is a public company based in Singapore and
listed on the Stock Exchange of Singapore Dealing and Automated Quotation
system. The Company owns approximately 75% of Jade, with the remainder owned by
the public. Jade manufactures stamped and plated integrated circuit leadframes.

    HURON INC. manufactures value-added precision machined products for the
automotive industry. Products include screw machined parts, tubular assemblies,
dowels, fittings, shafts and air-conditioning and fuel manifolds.

    GARDEN STATE TANNING, INC. is a leading manufacturer of high quality leather
upholstery products, primarily for installation as automotive seating and trim.
Hides comprise approximately one-half of Garden State Tanning's costs of
production and Garden State Tanning procures approximately one-half of its hides
from the largest U.S. supplier of hides, with which it has a long standing
relationship.

    LEON PLASTICS, INC. manufactures molded plastic parts and assemblies for the
automotive industry. Its products range from plastic console and instrument
panel components to functional components such as complete rear door panels.

INVESTMENT

    The Company has an equity interest in United Pacific Industries Limited
("UPI"), a limited liability company incorporated in Bermuda and listed on the
Stock Exchange of Hong Kong. UPI manufactures voltage converters, other
electronic components and consumer products. At September 30, 1999, the Company
has a beneficial ownership of approximately 20% of UPI with a carrying value of
$11 million. The Company accounts for this investment using the equity method of
accounting.

COMPETITION

    The Company competes in mature and highly competitive industries on the
basis of brand identification, quality, price, marketing and distribution
approaches. In some industries, certain competitors have greater market share or
product breadth in a given market than the Company.

                                       5
<PAGE>
BACKLOG ORDERS

    The Company's backlogs believed to be firm as of September 30, 1999 and 1998
were as follows:

<TABLE>
<CAPTION>
                                                                       AS OF
                                                                   SEPTEMBER 30,
                                                              -----------------------
                                                                1999           1998
                                                              --------       --------
                                                                   (IN MILLIONS)
<S>                                                           <C>            <C>
Bath and Plumbing Products..................................    $101           $155
Lighting Corporation of America.............................      82             75
Hardware and Tools..........................................       9             13
Diversified.................................................      55             65
                                                                ----           ----
Total Backlogs..............................................    $247           $308
                                                                ====           ====
</TABLE>

    The fiscal 1998 backlog information for Bath and Plumbing Products and
Diversified includes $74 million and $6 million, respectively, relating to
businesses which were sold in fiscal 1999.

EXPORT AND INTERNATIONAL OPERATIONS

    Certain of the Company's domestic businesses generate revenue from export
sales and/or revenue from operations conducted outside the United States. Export
sales amounted to 9%, 9% and 12% of total revenues in fiscal 1999, 1998 and
1997, respectively, principally reflecting sales by Rexair to foreign
distributors of Rainbow products in numerous countries, and sales by Garden
State Tanning to Japanese automobile manufacturers. Revenue from foreign
operations amounted to 23%, 20% and 11% of total revenues in fiscal 1999, 1998
and 1997, respectively, principally reflecting certain Jacuzzi operations, Spear
& Jackson and SiTeco. Identifiable assets of foreign operations represented
approximately 31%, 23% and 6% of total identifiable assets at September 30,
1999, 1998 and 1997, respectively. Foreign identifiable assets principally
reflect certain assets of Jacuzzi, Spring Ram, SiTeco and Spear & Jackson.
Certain businesses obtain a significant amount of finished goods from
unaffiliated suppliers in East Asia.

    The Company's export sales and foreign 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. In particular, if China lost the "Most Favored Nation"
status currently accorded to it by the United States or if the United States
Trade Representative imposed retaliatory trade sanctions on China the cost of
imports from China could increase significantly.

EMPLOYEES

    As of September 30, 1999, the Company had approximately 26,000 employees
(excluding employees of companies in which the Company holds equity interests).
Approximately 38% of such employees were represented by unions. The Company
believes that the relations of its operating subsidiaries with employees and
unions are satisfactory.

GOVERNMENTAL REGULATION

    The Company's operating units are subject to numerous federal, state and
local laws and regulations concerning such matters as zoning, health and safety
and protection of the environment. The Company believes that its operating units
are currently operating in substantial compliance with, or under approved
variances from, various federal, state and local laws and regulations.

    Certain present and former operating sites, or portions thereof, currently
or previously owned and/or leased by current or former operating units of the
Company are the subject of investigations, monitoring or remediation under the
federal Comprehensive Environmental Response, Compensation and Liability Act

                                       6
<PAGE>
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 implementation of the clean-up or remediation
of sites. No information currently available reasonably suggests that projected
expenditures associated with these proceedings, whether for any single site or
for those in the aggregate, will have a material adverse effect on the Company's
financial condition, results of operations or cash flows.

    A number of present and former operating units of the Company have been
named as Potentially Responsible Parties ("PRPs") at 20 Superfund sites under
CERCLA or comparable state statutes in a number of federal and state
proceedings. In each of these matters the operating unit of the Company is
working with the governmental agencies involved and other PRPs to address
environmental claims in a responsible and appropriate manner. Under CERCLA and
other similar statutes, any generator of hazardous waste sent to a hazardous
waste disposal site is potentially responsible for the clean-up, remediation and
response costs required for such site in the event the site is not properly
closed by its owner or operator, irrespective of the amount of waste which the
generator sent to the site. No information currently available reasonably
suggests that projected expenditures associated with these proceedings, whether
for any single site or for those in the aggregate, will have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.

    From time to time, the Company may receive notices of violation or may be
denied its applications for certain licenses or permits on the basis that the
practices of the operating unit are not consistent with regulations or
ordinances. In some cases, the relevant operating unit may seek to meet with the
agency to determine mutually acceptable methods of modifying or eliminating the
practice in question. The Company believes that its operating units will comply
with the applicable regulations and ordinances in a manner which will not have a
material adverse effect on its financial condition, results of operations or
cash flows.

    The Company's subsidiaries have made capital and maintenance expenditures
over time to comply with zoning, water, air and solid and hazardous waste
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. Future costs for compliance cannot be predicted with precision and
there can be no certainty with respect to any costs the Company may be forced to
incur in connection with historical on-site or off-site waste disposal. No
information currently available reasonably suggests that these expenditures will
have a material adverse effect on the Company's financial condition, results of
operations or cash flows. 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.

    At September 30, 1999, the Company had accrued approximately $17 million for
various environmental related liabilities of which the Company is aware. The
Company believes that the range of liability which is reasonable for such
matters is between approximately $9 million and $26 million. The Company cannot
predict whether future developments in laws and regulations concerning
environmental protection or unanticipated enforcement actions, particularly with
respect to environmental standards, will require material capital expenditures
or otherwise affect its financial condition, results of operations or cash flows
in a materially adverse manner, or whether its operating units will be
successful in meeting future demands of regulatory agencies in a manner which
will not have a material adverse effect on the Company's financial condition,
results of operations or cash flows.

PATENTS AND TRADEMARKS

    The Company's subsidiaries have numerous United States and foreign patents,
patent applications, registered trademarks and trade names, and licenses, that
relate to various businesses. The Company believes that certain of the
trademarks and trade names are of material importance to the businesses to

                                       7
<PAGE>
which they relate and may be of material importance to the Company as a whole.
None of the material trademarks or trade names are of limited duration. Although
protection of the Company's patents and related technologies are important
components of its business strategy, none of the individual patents is material
to the Company.

EXECUTIVE OFFICERS

    The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME                                                                      POSITION
----                                                   ----------------------------------------------
<S>                                                    <C>
David H. Clarke......................................  Chairman of the Board and Chief Executive
                                                       Officer
James O'Leary........................................  Executive Vice President
George H. MacLean....................................  Senior Vice President, General Counsel and
                                                       Secretary
Dorothy E. Sander....................................  Senior Vice President--Administration
John W. Dean III.....................................  Vice President, Chief Financial Officer and
                                                       Treasurer
Diana E. Burton......................................  Vice President--Investor Relations
Robert P. Noonan.....................................  Corporate Controller
</TABLE>

    DAVID H. CLARKE, 58, has served as Chairman of the Board and Chief Executive
Officer of the Company since the Demerger. Mr. Clarke was Vice Chairman of
Hanson from 1993 until the Demerger, Deputy Chairman and Chief Executive Officer
of Hanson Industries, the U.S. arm of Hanson, from 1992 until the Demerger and a
Director of Hanson from 1989 until May 1996. Mr. Clarke is a director of
Fiduciary Trust International, a public company engaged in investment management
and administration of assets for individuals.

    JAMES O'LEARY, 36, has served as Executive Vice President since
September 1, 1999 and was Senior Vice President and Chief Financial Officer from
June 1998. He served as Corporate Controller of the Company from the Demerger
until June 1998 and was elected as a Vice President in January 1996.
Mr. O'Leary served as Group Controller for certain consumer and industrial
products businesses of Hanson Industries from September 1994 until the Demerger.

    GEORGE H. MACLEAN, 63, has served as Senior Vice President, General Counsel
and Secretary of the Company since the Demerger. For the balance of the previous
five years, Mr. MacLean served as Vice President and Associate General Counsel
of Hanson Industries.

    DOROTHY E. SANDER, 46, has served as Senior Vice President--Administration
since June 1998. Previously she had served as Vice President--Administration of
the Company since the Demerger. Ms. Sander served as Vice
President--Administration and Benefits of Hanson Industries from 1991 until the
Demerger and as an Associate Director of Hanson PLC from 1993 until the
Demerger. She is a member of the Advisory Board of the Bank of New York and the
Board of Editors of "HR-Law and Practice" magazine.

    JOHN W. DEAN III, 43, has served as Vice President, Chief Financial Officer
and Treasurer since October 4, 1999. Previously, Mr. Dean was with Rubbermaid
Incorporated from 1988 to 1999, where he served as Vice President and Treasurer
since 1991. His most recent assignment was Vice President, Chief Financial
Officer of Rubbermaid Europe.

    DIANA E. BURTON, 54, has served as Vice President--Investor Relations of the
Company since the Demerger. From January 1995 through the Demerger, Ms. Burton
served as an investor relations consultant to Hanson Industries. For the balance
of the past five years, she was a Vice President of Marine

                                       8
<PAGE>
Harvest International, Inc. ("Marine Harvest"), a company engaged in the farming
and distribution of seafood products, with principal responsibility for
administration and investor relations.

    ROBERT P. NOONAN, 37, has served as Corporate Controller of the Company
since June 1998. Mr. Noonan served as Assistant Corporate Controller of the
Company from February 1998 to June 1998 and was a Group Controller of the
Company from the Demerger to January 1998. For the balance of the past five
years, he was Corporate Controller of Marine Harvest.

ITEM 2. PROPERTIES

    The Company owns 132 and leases 191 properties, none of which has value that
is significant in relation to the Company's assets as a whole. The Company
develops, manages and disposes of its excess properties through its wholly-owned
subsidiary, USI Properties, Inc.

ITEM 3. LEGAL PROCEEDINGS

    The Company and its subsidiaries are parties to legal proceedings that are
considered to be either ordinary, routine litigation incidental to the business
of present and former operations or immaterial to the Company's financial
condition, results of operations or cash flows. For information concerning
environmental proceedings, see "Business--Governmental Regulation."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    The Company did not submit any matter to a vote of its security holders
during the fourth quarter of fiscal 1999.

                                       9
<PAGE>
                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTTERS

(a) MARKET INFORMATION.

    The Company's Common Stock is traded on the NYSE under the symbol USI. 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.

<TABLE>
<CAPTION>
                                                  FISCAL 1999           FISCAL 1998
                                              -------------------   -------------------
                                                HIGH       LOW        HIGH       LOW
                                              --------   --------   --------   --------
<S>                                           <C>        <C>        <C>        <C>
First Quarter...............................   $18.38     $11.81     $30.75     $25.13
Second Quarter..............................   $20.19     $16.00     $30.63     $26.38
Third Quarter...............................   $19.19     $16.31     $30.19     $17.88
Fourth Quarter..............................   $17.06     $15.50     $20.31     $13.56
</TABLE>

(b) HOLDERS.

    As of December 10, 1999, there were approximately 22,294 record holders of
Common Stock. The closing price per share of Common Stock as reported by the
NYSE on such date was $14.06.

(c) DIVIDENDS.

    The Board of Directors previously adopted a cash dividend policy under which
USI paid cash quarterly dividends of $0.05 per share of Common Stock as listed
below. The payment of dividends is subject to the Board of Directors' discretion
and will depend upon the Company's overall performance, general business
conditions, legal and contractual restrictions and other factors that the Board
may deem relevant.

<TABLE>
<CAPTION>
DIVIDEND RECORD DATE                                       DIVIDEND PAYMENT DATE
--------------------                                       ---------------------
<S>                                                        <C>
December 31, 1998........................................  January 21, 1999
March 31, 1999...........................................  April 21, 1999
June 30, 1999............................................  July 21, 1999
September 30, 1999.......................................  October 21, 1999
</TABLE>

                                       10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

    The following tables sets forth the consolidated (combined) historical
selected financial data of the Company.

<TABLE>
<CAPTION>
                                                            FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
                                                      ----------------------------------------------------
                                                      1999(1)    1998(2)      1997       1996     1995(6)
                                                      --------   --------   --------   --------   --------
                                                                 (IN MILLION, EXCEPT PER SHARE)
<S>                                                   <C>        <C>        <C>        <C>        <C>
Income Statement Data:
  Net Sales.........................................   $3,429     $3,135     $2,521     $2,169     $1,974
  Operating income(3)...............................      303        142        268        238         93
  Income (loss) from continuing operations..........      154          3        125        103        (50)
  Net income (loss).................................      141        (44)       252        138        (72)
  Income from continuing operations per share(4)
    Basic...........................................     1.67       0.03       1.35       1.08         --
    Diluted.........................................     1.64       0.03       1.31       1.06         --
  Net income (loss) per share(4)
    Basic...........................................     1.53      (0.46)      2.73       1.45         --
    Diluted.........................................     1.51      (0.45)      2.64       1.42         --
  Cash dividend declared per share(5)...............     0.20       0.20       0.05         --         --

Balance Sheet Data (at period end):
  Cash and cash equivalents.........................   $   58     $   44     $   67     $   57     $   67
  Working capital...................................      834        876        731        779        807
  Total assets......................................    3,028      2,776      2,499      2,477      2,203
  Total debt........................................    1,267        966        746        930      1,000
  Stockholders' equity..............................      920        960        950        758        643
</TABLE>

------------------------

(1) Fiscal 1999 includes $9 million after tax of unusual costs in conjunction
    with severance for certain senior executives, the closure of a manufacturing
    facility and the elimination of product lines. Fiscal 1999 also includes a
    $6 million tax benefit from the resolution of prior years tax issues.

(2) Fiscal 1998 includes non-recurring and unusual after-tax charges of $131
    million of merger, restructuring and other costs, $7 million to write-off
    interest rate protection agreements, $34 million to discontinue a business,
    and $5 million associated with the refinancing of Zurn's outstanding
    indebtedness, totaling $177 million.

(3) The operating income for fiscal 1999, 1998 and 1997 includes $(7), $(3) and
    $2 million, respectively, of equity (loss) earnings from the Company's
    investment in UPI. Fiscal 1999 and 1998 equity (loss) noted above, includes
    a charge associated with an impairment of UPI and its subsidiaries of $6 and
    $4 million, respectively.

(4) Fiscal 1995 earnings per share information is not presented as such
    information is not indicative of the Company's continuing capital structure.

(5) Cash dividends exclude dividends declared and paid by Zurn prior to the
    Merger.

(6) USI changed its accounting policy for evaluating goodwill impairment in
    fiscal 1995, resulting in a charge of $98 million. Fiscal 1995 operating
    income also includes charges of $2 million to close certain underutilized
    facilities of the lighting products operations.

                                       11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

RESULTS OF OPERATIONS

    On June 11, 1998, USI merged with Zurn by exchanging 20.4 million shares of
the Company's common stock for all of the common stock of Zurn. Each share of
Zurn common stock was exchanged for 1.6 shares of the Company's common stock.
Outstanding Zurn employee stock options were converted at the same exchange
ratio into options to purchase 2 million shares of the Company's common stock.

    The Merger has been accounted for as a pooling of interest under Accounting
Principles Board Opinion No. 16. All prior period consolidated financial
statements presented have been restated to include the results of operations,
financial position and cash flows of USI and Zurn as a single entity. There were
no transactions between USI and Zurn prior to the combination. Certain
reclassifications were made to the Zurn financial statements to conform to USI's
presentations.

    The Company's operations are grouped into four segments: USI Bath and
Plumbing Products, Lighting Corporation of America, USI Hardware and Tools and
USI Diversified. During fiscal 1999, certain businesses were reclassified from
USI Hardware and Tools to USI Diversified. This change reflects the Company's
internal management reporting structure. Accordingly, all prior periods
presented have been restated to conform to this presentation. The results of all
operations sold and classified as discontinued are excluded from the table and
discussion below. (See Note 4 to the Consolidated Financial Statements.) Prior
to the Merger, Zurn's fiscal year ended on March 31. In recording the business
combination, Zurn's results of operations, financial position and cash flows as
of and for the years ended September 30, 1998 and 1997 have been restated to
conform to USI's fiscal year end.

<TABLE>
<CAPTION>
                                                        FOR THE FISCAL YEARS ENDED
                                                              SEPTEMBER 30,
                                                      ------------------------------
                                                        1999       1998       1997
                                                      --------   --------   --------
                                                              (IN MILLIONS)
<S>                                                   <C>        <C>        <C>
NET SALES
  Bath and Plumbing Products........................   $1,303     $1,105     $  879
  Lighting Corporation of America...................      805        766        538
  Hardware and Tools................................      462        375        295
  Diversified.......................................      859        889        809
                                                       ------     ------     ------
      TOTAL NET SALES...............................   $3,429     $3,135     $2,521
                                                       ======     ======     ======
OPERATING INCOME (LOSS)(1) (2)
  Bath and Plumbing Products........................   $  150     $   93     $  101
  Lighting Corporation of America...................       46         52         42
  Hardware and Tools................................       37         (3)        33
  Diversified(3)....................................       88         32        119
                                                       ------     ------     ------
                                                          321        174        295
  Corporate expenses................................      (18)       (32)       (27)
                                                       ------     ------     ------
      TOTAL OPERATING INCOME........................   $  303     $  142     $  268
                                                       ======     ======     ======
</TABLE>

------------------------

(1) Operating income for fiscal 1999 includes restructuring costs of $1 million
    and unusual charges of $14 million. Accordingly, operating income for USI
    Bath and Plumbing Products, Lighting Corporation of America, and USI
    Diversified Operations includes charges of $5, $3 and $7 million,
    respectively.

(2) Operating income (loss) for fiscal 1998 includes merger, restructuring and
    other related costs of $142 million and product costs in connection with the
    restructuring of approximately $11 million. (See Note 5 to the Consolidated
    Financial Statements.) Accordingly, operating income (loss) for the USI Bath

                                       12
<PAGE>
    and Plumbing Products, Lighting Corporation of America, USI Hardware and
    Tools, USI Diversified Operations and Corporate expenses include merger,
    restructuring and other charges of $40, $3, $32, $71 and $7 million,
    respectively.

(3) Operating income for the USI Diversified Operations includes $(7), $(3) and
    $2 million, for fiscal 1999, 1998 and 1997, respectively of equity (loss)
    earnings from the Company's investment in UPI. Fiscal 1999 and 1998 equity
    (loss) noted above, includes a charge associated with an impairment of UPI
    and its subsidiaries of $6 and $4 million, respectively.

FISCAL 1999 COMPARED TO FISCAL 1998

    The Company had sales of $3,429 million in fiscal 1999, an increase of $294
million (9.4%). The operating income for fiscal 1999 was $303 million compared
to $142 million for fiscal 1998. The fiscal 1999 operating income includes
unusual charges of $15 million and the fiscal 1998 operating income includes
merger, restructuring and other charges of $153 million. Excluding these
charges, operating income would have been $318 million in fiscal 1999 compared
to $295 million in fiscal 1998, an increase of $23 million (7.8%).

USI BATH AND PLUMBING PRODUCTS

    USI Bath and Plumbing Products had sales of $1,303 million and operating
income of $150 million, which includes severance charges from the release of a
senior executive of $5 million. This compares to sales of $1,105 and operating
income of $93 million in the prior year, which includes merger, restructuring
and unusual charges of $40 million. The prior year charges of $40 million were
incurred in connection with (i) the Merger, including investment banking, legal
and accounting fees as well as change in control payments to certain Zurn
employees, (ii) the closure of a manufacturing facility, (iii) the consolidation
of several distribution centers between the Jacuzzi and Zurn operations and
(iv) the cost of eliminating duplicate administrative functions resulting from
the merger. Excluding these charges from both years, operating income would have
been $155 million in the current year and $133 million in the prior year, an
increase of 16.5%. The increases, before the above mentioned charges, were
attributable to significantly higher sales and operating income in the U.S. and
European bath and spa operations, higher sales and operating income in
behind-the-wall plumbing products particularly in Canada, the acquisitions of
Gatsby Spas in June 1999 and Spring Ram in July 1999 and the full year inclusion
of Sundance Spas, acquired in June 1998. These increases were partially offset
by shortfalls in the South American bath operations due to economic conditions
and in the European HVAC business. In September 1999, USI Bath & Plumbing sold
certain assets of its water resource construction business for approximately
book value.

LIGHTING CORPORATION OF AMERICA

    Lighting Corporation of America had fiscal 1999 sales of $805 million and
operating income of $46 million, which includes unusual charges of $3 million.
This compares to sales of $766 million and operating income of $52 million in
fiscal 1998 which includes restructuring charges of $3 million. The fiscal 1999
charges relate to inventory losses in connection with exiting certain commercial
product lines and executive severance costs while the fiscal 1998 charges
related to the closure of two manufacturing facilities. Excluding the
above-mentioned charges, operating income would have been $49 million in fiscal
1999 compared to $55 million in fiscal 1998. The increase in sales was primarily
due to the inclusion of the March 1999 Dual-Lite acquisition and the continued
strength in the residential and architectural outdoor lighting business. The
decrease in operating income is due to weakness in the commercial indoor and
European lighting businesses partially offset by increases in the residential
and architectural outdoor lighting business and the inclusion of Dual-Lite.

                                       13
<PAGE>
USI HARDWARE AND TOOLS

    USI Hardware and Tools had fiscal 1999 sales of $462 million and operating
income of $37 million. This compares to fiscal 1998 sales of $375 million and an
operating loss of $3 million, which includes charges of $32 million. The fiscal
1998 charges include impairments of goodwill and property, plant and equipment
in the Company's ladder operations and severance in connection with the
consolidation of administrative functions at the ladder operations with Ames.
Certain assets of the ladder operations were subsequently sold in October 1999
for approximately book value. Excluding the above-mentioned charges, USI
Hardware and Tools would have had operating income of $29 million in fiscal
1998. The increase in sales is primarily attributable to the March 1999 True
Temper acquisition. The increase in operating income is the result of the True
Temper acquisition and the elimination of prior year losses at the ladder
operation.

USI DIVERSIFIED

    USI Diversified had fiscal 1999 sales of $859 million and operating income
of $88 million, which includes unusual charges of $7 million. This compares to
fiscal 1998 sales of $889 million and operating income of $32 million, which
includes unusual charges of $71 million. The fiscal 1999 charges include
(i) losses, closure and inventory and other related costs from exiting an
unprofitable window operation and (ii) severance, impairment and obsolescence
charges from the closure of a manufacturing facility which produced infant's and
children's footwear. The fiscal 1999 charges are partially offset by favorable
adjustments to the charges established in fiscal 1998 at the Company's vacuum
cleaner and textile operations. The fiscal 1998 charges include (i) impairments
of goodwill at the automotive leather tanning business, (ii) obsolescence,
severance and impairment charges at the vacuum cleaner operations incurred in
connection with management changes and the changeover to a new model, (iii)
severance and impairment charges in the footwear operations incurred in
connection with the closure of a manufacturing facility, (iv) severance and
other charges in the Company's plastic automotive business incurred in
connection with the discontinuance of a business line, (v) severance, impairment
and obsolescence charges incurred in connection with the elimination of a
product line in the Company's textile operations and (vi) obsolescence and other
charges incurred in connection with the elimination of a product line at the
Company's window operation. Excluding these charges, operating income in fiscal
1999 would have been $95 million, a decrease of $8 million from the fiscal 1998
amount of $103 million. Sales were lower due to the elimination of the
unprofitable lace business in the fourth quarter of 1998, lower sales of
automotive leather, vacuum cleaners, and footwear, and the closure of the
unprofitable window operation. These decreases were partially offset by
increased sales of plastic and fabricated metal automotive parts, the full year
inclusion of the shadow mask operation acquired in May 1998, and higher revenues
at the aircraft overhaul operation. The decrease in operating income, excluding
unusual charges in both years, is mainly the result of lower profits at the
textile business due to severe competitive pressures, and lower profit in the
footwear and vacuum cleaner operation. The vacuum cleaner operation's results
reflected difficulties associated with the introduction of its new product line
and the recruitment of dealers by its distributors. Operating income in the
footwear operations decreased due to competitive conditions in the market for
safety shoes, and the loss of a key customer for certain lines of infants' and
children's footwear. The infant and children footwear division was sold in
December 1999 for approximately book value. These decreases were partially
offset by higher operating income from the plastic and fabricated metal
automotive parts operations, the favorable settlement of a warranty claim in the
fabricated metal automotive business, reduction of goodwill amortization and
higher cutting yields at the automotive leather business and the full year
inclusion of the shadow mask operation. In addition, the fiscal 1999 operating
income includes an impairment charge of the UPI equity investment and one of its
subsidiaries which amounted to $6 million while the fiscal 1998 operating income
includes a $4 million charge for an impairment of another UPI subsidiary. The
comparability of operating income was also affected by a $4 million favorable
settlement of environmental obligations at the footwear operation in fiscal
1998.

                                       14
<PAGE>
    CORPORATE EXPENSES

    Corporate expenses in the current year include $2 million of costs incurred
in conjunction with the Company's planned spin-off of its Diversified
operations. Corporate expenses in the prior year include $7 million of charges
for severance of certain executive staff and employment costs in connection with
the Company's realignment of its business units. The decrease in corporate
expenses, excluding the above mentioned charges, reflects the transfer of
certain corporate functions to the operating companies.

    MERGER, RESTRUCTURING AND OTHER RELATED COSTS

    During fiscal 1998 the Company reviewed its long-term strategy for the newly
combined entity resulting from the Merger and reviewed each operating company's
performance and future prospects. As a result, the Company adopted a plan to
improve efficiency and enhance competitiveness. The Company reorganized into
four business units:

    - Bath and Plumbing Products

    - Lighting

    - Hardware and Tools

    - Diversified Operations

    Each business unit has full operational and financial responsibility.

    In conjunction with the reorganization into four business units, due to
indications of impairment, the Company evaluated the recoverability of certain
long-lived assets, primarily goodwill at Garden State Tanning and Keller
Ladders. In arriving at the fair value of Garden State Tanning the Company
considered a number of factors including: (i) annual price concessions in the
automotive industry and Garden State Tanning's inability to reduce costs due to
antiquated facilities and equipment, (ii) a dramatic decline in scrap leather
prices attributable to the Asian economic crisis, (iii) capital investment that
would be required to make Garden State Tanning a lower cost manufacturer, (iv)
Garden State Tanning's long-term financial plan and (v) analysis of values for
similar companies. In arriving at the fair value of Keller Ladders the Company
considered (i) the impact from the loss of a major customer, (ii) the inability
to replace this business due to aggressive competition, (iii) continued pressure
for price concessions from mass merchants, (iv) Keller Ladder's long term
financial plan and (iv) analysis of values for similar companies. In determining
the amount of the impairment, the Company compared the net book values to the
estimated fair values of Garden State Tanning and Keller Ladders. Based on the
above, the Company determined that impairments to goodwill of $55 million and
$28 million were necessary at Garden State Tanning and Keller, respectively. The
reduced goodwill amortization at Garden State Tanning and Keller is $3 million
per annum. In October 1999, the Company sold certain assets of Keller Ladders
for approximately book value.

    The 1998 restructuring plan included the closing of certain manufacturing
and warehouse facilities in the bath and plumbing products, footwear and
lighting operations. The closure of these facilities occurred at various dates
through 1999. The production and distribution activities of these facilities
were either outsourced, relocated off-shore, or consolidated into existing
facilities. The restructuring plan included a reduction in the work force by
approximately 700 employees which included salaried and administrative employees
at the restructured facilities as well as administrative and executive
employees. As of September 30, 1999 all employees had been terminated with some
employees departing voluntarily prior to final termination. In certain cases
severance and related benefits have been or will be paid subsequent to the
termination date.

    During the third quarter of fiscal 1999, the Company's footwear operations
expanded its 1998 restructuring plan and closed a second domestic manufacturing
facility. The closure of the second facility was completed by June 1999, with
its production being outsourced to offshore vendors. The total charges

                                       15
<PAGE>
amounted to $2 million and were comprised of the costs of terminating 110
employees and the write-off of impaired fixed assets. In addition, the Company
incurred inventory obsolescence related costs of $1 million in connection with
the closure of the manufacturing facility.

    The restructuring at a number of facilities, which began during the third
quarter of fiscal 1998, was substantially completed during fiscal 1999. In
addition, during the third and fourth quarters of fiscal 1999, the Company
reduced certain severance reserves by $1 million, primarily due to voluntary
departures prior to final termination which resulted in lower severance costs.

    The restructuring did not have a significant impact on the ongoing
operations during the periods that manufacturing was transitioned from the
facilities to be closed. The expected benefits from the restructuring are
primarily reduced depreciation; reduced fixed costs associated with leased
facilities and reduced compensation costs. The final anticipated benefit will be
approximately $8 million per annum and realized subsequent to the completion of
all restructuring plans. The Company realized approximately 50% of the annual
benefit in fiscal 1999 and substantially all of the benefit will be realized in
fiscal 2000 and thereafter.

    The merger, integration and other costs also includes investment banking,
legal and accounting fees and other miscellaneous costs, as well as costs
related to change-in-control payments to certain Zurn employees.

    The principal components of the merger, restructuring and other related
costs are:

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
Impairment of goodwill......................................    $ --       $ 83
Lease obligations and impairment of equipment...............       1         11
Merger, integration and other costs.........................      --         26
Severance and related costs.................................      --         22
                                                                ----       ----
      Total.................................................    $  1       $142
                                                                ====       ====
Cash charges................................................    $  1       $ 52
Non-cash charges............................................      --         90
                                                                ----       ----
      Total.................................................    $  1       $142
                                                                ====       ====
</TABLE>

    At September 30, 1999, $8 million of cash related restructuring charges
remained in accrued liabilities, detailed as follows:

<TABLE>
<CAPTION>
                                         LEASE AND                  MERGER
                                         CONTRACT     SEVERANCE    AND OTHER
                                          RELATED    AND RELATED    RELATED     TOTAL
                                           COSTS        COSTS        COSTS      COSTS
                                         ---------   -----------   ---------   --------
                                                         (IN MILLIONS)
<S>                                      <C>         <C>           <C>         <C>
1998 activity:
  Initial Charges......................    $  4          $ 22        $ 26        $ 52
  Cash payments........................      --            (6)        (24)        (30)
                                           ----          ----        ----        ----
Balance at September 30, 1998..........       4            16           2          22
1999 activity:
  Cash payments........................      (2)          (11)         (2)        (15)
  Adjustments..........................      --            (1)         --          (1)
  Charges..............................       1             1           2
                                           ----          ----        ----        ----
Balance at September 30, 1999..........    $  3          $  5        $ --        $  8
                                           ====          ====        ====        ====
</TABLE>

                                       16
<PAGE>
    The Company expects the remaining cash charges to be paid by the respective
lease termination date and over the periods provided by severance agreements.

    In fiscal 1998, in addition to the $142 million of merger, restructuring and
other related costs, the Company incurred $11 million of costs related to the
elimination of product lines and the reduction of manufacturing and warehouse
facilities at its operations which were restructured. After an income tax
benefit of $22 million, these charges reduced income from continuing operations
for fiscal 1998 by $131 million.

    OTHER (INCOME) EXPENSE, NET

    Other (income) expense, net, in fiscal 1999 was income of $14 million
primarily reflecting gains on the sale of real estate. Other (income) expense,
net in fiscal 1998 was an expense of $3 million. During March and April 1998, in
anticipation of the offering of senior notes, the Company entered into certain
interest rate protection agreements. Due to subsequent market changes, the
principal amount and term of the notes sold in the offering, which occurred in
October 1998, varied from those originally anticipated. The portion of the costs
of the agreements, in the amount of $10 million, related to the notes sold are
amortized over the term of the notes. The Company recorded a pre-tax charge of
$12 million ($7 million after-tax) to write-off the remainder of the costs of
the agreements in other (income) expense, net. This charge was partially offset
by, among other things, gains on sales of real estate and the Company's
airplane.

    INTEREST AND TAXES

    Interest expense was $81 million for fiscal 1999, a $12 million (17.4%)
increase from the prior fiscal year. The increase reflects higher average debt
levels principally due to acquisitions and treasury share purchases during 1999.
Interest income was $5 million for fiscal 1999, a $3 million decrease from
fiscal 1998.

    The provision for income taxes was $87 million on pre-tax income of $241
million (a 36.1% effective rate) for fiscal 1999 compared to $75 million on
pre-tax income of $78 million (a 96.1% effective rate) for fiscal 1998. Fiscal
1999 includes a $6 million benefit relating to the settlement of certain prior
years tax issues. Excluding this benefit the effective rate would have been
approximately 39%. Fiscal 1998 includes the impact of goodwill impairment and
nondeductible non-recurring charges. Excluding these items the effective rate
would have been approximately 41%.

    DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS

    The Company adopted a formal plan to dispose of The Ertl Company Inc.
("Ertl") in the second quarter of fiscal 1999. Ertl was sold in April 1999 for
proceeds of approximately $95 million which resulted in a net-of-tax loss of $13
million. The Company has restated its financial statements to reflect this
business as a discontinued operation. During April 1999, the Company completed
the sale of its investment in Teardrop Golf which resulted in a $1 million
net-of-tax gain from the sale. In January 1999, the Company completed the sale
of its remaining interest in the Power Systems Segment for proceeds of
approximately $30 million. No gain or loss was realized upon the transaction. In
the prior year, the Company recorded a loss from discontinued operations of $42
million, net-of-tax, which primarily consisted of the loss for the Company's
outdoor furniture operations, SunLite Casual Furniture ("SunLite"), which was
sold in September 1998, and the income of Ertl, the Company's toy operations.
When the Company acquired SunLite, in March 1997 for $60 million, it anticipated
it would have to reorganize SunLite's manufacturing operation and improve
customer relations. SunLite was a seasonal business with a selling season
primarily in the second and third fiscal quarters. As the business entered the
1998 selling season, the operations were negatively impacted by manufacturing
problems arising from plant consolidations and customer reluctance to place
orders. The Company conducted an assessment of the business to determine the
future viability of SunLite during the third fiscal quarter. As a result of its
assessment, the Company adopted a plan to

                                       17
<PAGE>
dispose of SunLite. The Company sold SunLite for a nominal amount and recorded a
pre-tax loss in conjunction with impairments of assets and the sale of $41
million.

    In conjunction with the repayment of all outstanding indebtedness of Zurn
during the year ended September 30, 1998, a net-of-tax, non-cash, extraordinary
charge of $5 million was incurred to write off unamortized deferred financing
costs and for losses associated with interest rate swaps.

FISCAL 1998 COMPARED TO FISCAL 1997

    The Company had sales of $3,135 million in fiscal 1998, an increase of $614
million (24.4%). The operating income for the year was $142 million compared to
$268 million in fiscal 1997. Fiscal 1998 operating income includes merger,
restructuring and other charges of $153 million which are discussed below.
Excluding these non-recurring and unusual charges, operating income would have
been $295 million, an increase of $27 million (10.1%).

USI BATH AND PLUMBING PRODUCTS

    USI Bath and Plumbing Products operations had sales of $1,105 million and
operating income of $93 million, a sales increase of $226 million (25.7%) and a
decrease in operating income of $8 million. Operating income in fiscal 1998
includes non-recurring and unusual charges of $40 million incurred in connection
with (i) the Merger, including investment banking, legal, and accounting fees as
well as change in control payments to certain Zurn employees, (ii) the closure
of a manufacturing facility, (iii) the consolidation of several distribution
centers between the Jacuzzi and Zurn operations and (iv) the reduction of
duplicate administrative functions resulting from the Merger. Excluding these
charges, operating income would have been $133 million, an increase of $32
million (31.7%) over fiscal 1997. The increase in sales and operating profit,
excluding non-recurring and unusual charges, is primarily due to the full year
inclusion of Eljer (which was acquired in January 1997), the acquisition of
Sundance Spas in June 1998, continued strength in the European bath operations
and increased market penetration by Zurn Plumbing Products. These gains were
partially offset by shortfalls in South America and Asia attributable to
difficult local economic conditions.

LIGHTING CORPORATION OF AMERICA

    Lighting Corporation of America had sales of $766 million and operating
income of $52 million in fiscal 1998, increases of $228 million (42.4%) and $10
million (23.8%), respectively, over fiscal 1997. Operating income in the fiscal
1998 includes restructuring charges of $3 million incurred in connection with
plant shutdowns at two facilities. Excluding these charges, operating income in
fiscal 1998 would have been $55 million, an increase of $13 million (31.0%) over
fiscal 1997. The increase in sales and operating income, excluding these
charges, is due to the October 1997 acquisition of SiTeco, and strong sales of
outdoor and residential lighting. Sales of commercial indoor florescent fixtures
continue to be adversely affected by price competition.

USI HARDWARE AND TOOLS

    USI Hardware and Tools operations had sales of $375 million and an operating
loss of $3 million for fiscal 1998, a sales increase of $80 million (27.1%), and
a decrease of $36 million from fiscal 1997 operating income of $33 million. The
operating loss in fiscal 1998 includes charges of $32 million which consists of
(i) impairments of goodwill and property, plant and equipment in the Company's
ladder operations and (ii) severance incurred in connection with the
consolidation of certain administrative functions at the ladder operations with
Ames. Excluding these charges, the fiscal 1998 operating income would have been
$29 million, a decrease of $4 million (12.1%) from fiscal 1997. The increase in
sales is due to the first time inclusion of Spear & Jackson, acquired in
December 1997. The decrease in operating income, excluding these charges, is due
to the operating losses at the ladder operations, which lost a major customer in
1997, and reduced operating income at Ames, partially offset by operating income
from the first time inclusion

                                       18
<PAGE>
of Spear & Jackson. Ames operating income was negatively affected by price
pressure from the mass retailers, poor winter and spring tool sales due to a
lack of snowfall and unusually hot summer weather, partially offset by the
favorable impact of prior year acquisitions.

USI DIVERSIFIED OPERATIONS

    USI Diversified Operations had sales of $889 million and operating income of
$32 million, an increase of $80 million and a decrease of $87 million,
respectively, from fiscal 1997. Operating income in fiscal 1998 includes total
charges of $71 million consisting of (i) impairments of goodwill at the
automotive leather tanning business, (ii) obsolescence, severance and impairment
charges at the vacuum cleaner operations incurred in connection with management
changes and the changeover to a new model, (iii) severance and impairment
charges in the footwear operations incurred in connection with the closure of a
manufacturing facility, (iv) severance and other charges in the Company's
plastic automotive business incurred in connection with the discontinuance of a
business line, (v) severance, impairment and obsolescence charges incurred in
connection with the elimination of a product line in the Company's textile
operations and (vi) obsolescence and other charges incurred in connection with
the elimination of a product line at the Company's window operation. Excluding
these charges, operating income in fiscal 1998 would have been $103 million, a
decrease of $16 million from fiscal 1997. The increase in sales is primarily due
to higher sales at the automotive leather operations, the January 1998
acquisition of the Philips leadframe business and the May 1998 acquisition of
the shadow mask operations. These sales increases were partially offset by lower
sales of vacuum cleaners and plastic automotive components. The decrease in
operating income, excluding the $71 million in charges, mainly relates to
decreases in the vacuum cleaner business. Operating income in the vacuum cleaner
business declined due to lower sales, particularly in certain foreign markets,
which were affected by the strength of the dollar. Domestic vacuum cleaner sales
were adversely affected by dealers' difficulties in recruiting sales
representatives due to low unemployment rates. Operating income was also
negatively impacted by lower sales of western footwear and plastic automotive
components and increased price concessions and reduced scrap prices in the
automotive leather division. In addition, operating income was also negatively
impacted by a $4 million charge which represents the Company's equity share of
an impairment charge recorded by UPI. These decreases in operating income were
partially offset by increases from the refurbished aircraft bearing business,
the January 1998 acquisition of the Philips leadframe business, a favorable
settlement of certain environmental obligations in the footwear operations and
the May 1998 acquisition of the shadow mask operation.

    CORPORATE EXPENSES

    Corporate expenses include $7 million of charges for severance of certain
executive staff and employment costs in connection with the Company's
realignment of its business units.

    MERGER, RESTRUCTURING AND OTHER RELATED COSTS

    During fiscal 1998, in addition to the $142 million of merger, restructuring
and other related costs, the Company has incurred $11 million of costs related
to the elimination of product lines and the reduction of manufacturing and
warehouse facilities at its operations which have been restructured.

    After an income tax benefit of $22 million, the charges detailed above
impact the results from continuing operations for the period ended
September 30, 1998 by $131 million.

    OTHER (INCOME) EXPENSE, NET

    Other (income) expense, net, in fiscal 1998 was an expense of $3 million. In
anticipation of the offering of senior notes, the Company entered into certain
interest rate protection agreements in March and April 1998. Due to subsequent
market changes, the principal amount and term of the notes sold in the offering,
which occurred in October 1998, varied from those originally anticipated. The
portion of the costs of the agreements, in the amount of $10 million, related to
the notes sold are amortized over the term of

                                       19
<PAGE>
the notes. The Company recorded a pre-tax charge of $12 million ($7 million
after-tax) to write off the remainder of the costs of the agreements in other
(income) expense, net. This charge was partially offset by, among other things,
gains on sales of real estate and the Company's airplane.

    DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS

    For fiscal 1998, the Company recorded a loss from discontinued operations of
$42 million, net of tax, which primarily consisted of the loss for the Company's
outdoor furniture operations, which was sold in September 1998, and the income
of Ertl, the Company's toy operations. When the Company acquired SunLite, the
Company's outdoor casual furniture business, in March 1997 for $60 million, it
anticipated it would have to reorganize SunLite's manufacturing operation and
improve customer relations. SunLite was a seasonal business with a selling
season primarily in the second and third fiscal quarters. As the business
entered the 1998 selling season, the operations were negatively impacted by
manufacturing problems arising from plant consolidations and customer reluctance
to place orders. The Company conducted an assessment of the business to
determine the future viability of SunLite during the third fiscal quarter of
1998. As a result of its assessment, the Company adopted a plan to dispose of
SunLite. The Company sold SunLite for a nominal amount and recorded a pre-tax
loss in conjunction with impairments and the sale of $41 million. The Company
has restated its financial statements to reflect these businesses as a
discontinued operation.

    In fiscal 1997, the Company reported income from discontinued operations of
$129 million, net of tax, consisting of net gains on disposals of discontinued
operations of $113 million and income from operations of discontinued operations
of $16 million. The gains on dispositions resulted from the sales of Tubular
Textile Machinery, SCM Metal Products, Inc., the assets of QPF, Inc. and Odyssey
Golf, partially offset by losses on the sales of Lynx Golf, the Power
Transmission Segment and portions of the Power Systems Segment. The income from
operations of discontinued operations consisted of the results of the above
companies, the Armour Golf Operations (Tommy Armour Golf and Odyssey Golf),
SunLite Casual Furniture and Ertl.

    In conjunction with the repayment of all outstanding indebtedness of Zurn
during the year ended September 30, 1998, a net-of-tax, non-cash, extraordinary
charge of $5 million was incurred to write off unamortized deferred financing
costs and for losses associated with interest rate swaps. In conjunction with
the repayment of all outstanding indebtedness under a prior credit agreement,
during the first quarter of fiscal 1997, a net of tax, non-cash, extraordinary
charge of $2 million was incurred to write off unamortized deferred financing
costs and for losses associated with interest rate swaps.

    GAIN ON SALE OF SUBSIDIARY STOCK

    In January 1997, an initial public offering of 25% of the shares of Jade
Singapore, a manufacturer of lead frames for the electronics industry, was
completed. Jade sold 8 million shares at approximately $.53 per share,
generating cash proceeds of approximately $4 million. The Company recorded a
gain of approximately $1 million ($700,000 after provision for deferred income
taxes) in connection with the sale. Immediately after the transaction, the
Company owned approximately 75% of the outstanding shares of Jade.

    INTEREST AND TAXES

    Interest expense was $69 million for fiscal 1998, a $10 million (16.9%)
increase from fiscal 1997. The increase reflects higher levels of debt
outstanding, primarily related to acquisitions, partially offset by lower
effective interest rates. Interest income was $8 million for fiscal 1998, a $1
million increase from fiscal 1997.

    The provision for income taxes was $75 million on pre-tax income of $78
million (a 96.1% effective rate) for fiscal 1998 compared to $94 million on
pre-tax income of $219 million (42.9% effective rate) for

                                       20
<PAGE>
fiscal 1997. Fiscal 1998 includes the impact of goodwill impairment and
nondeductible non-recurring charges. Excluding these items the effective rate
would have been approximately 41%.

LIQUIDITY AND CAPITAL RESOURCES

    The Company's primary sources of liquidity and capital resources are cash
and cash equivalents, cash provided from operations and available borrowings
under the Company's revolving credit facility, commercial paper program and
uncommitted short-term lines of credit.

    Net cash provided by operating activities of continuing operations was $228
million and $106 million for fiscal 1999 and 1998, respectively. The increase in
net cash provided by operating activities was mainly due to increased
profitability and a reduction in working capital investment from the prior year.

    Cash provided by discontinued operations of $24 million for fiscal 1999 was
a result of reduced working capital requirements at Ertl. Cash used by
discontinued operations of $30 million for fiscal 1998 consisted of tax payments
related to the sale of certain discontinued operations and seasonal working
capital requirements of the outdoor furniture operations.

    Investing activities used net cash of $276 million and $228 million for
fiscal 1999 and 1998, respectively. The cash used in investing activities for
fiscal 1999 mainly related to seven acquisitions which utilized $335 million,
combined with capital expenditures of $108 million. These cash outflows were
partially offset by proceeds of $132 million from sales of Ertl, certain assets
of the Power System Segment and the water resources construction business and
$34 million in proceeds from the sale of excess real estate and property plant
and equipment. The cash used in investing activities for fiscal 1998 mainly
related to five acquisitions which utilized $173 million, combined with capital
expenditures of $99 million. These cash outflows were partially offset by
proceeds of $48 million from the sale of excess real estate and property plant
and equipment.

    Financing activities provided net cash of $56 million and $130 million for
fiscal 1999 and 1998, respectively. The fiscal 1999 amount included proceeds
from long-term debt in excess of repayments of $276 million, offset by dividend
payments of $19 million, treasury locks settlement payment of $22 million and
the purchase of $190 million of the Company's common stock for treasury. The
fiscal 1998 amount included proceeds from long-term debt in excess of repayments
of $161 million and $20 million in proceeds from the exercise of stock options,
offset by the purchase of $35 million of the Company's common stock for treasury
and dividend payments of $21 million.

    At September 30, 1999 the Company had current maturities of long-term debt
and short-term notes payable aggregating $48 million. At September 30, 1999,
subject to the financial covenants, the Company had $547 million of availability
both in committed and uncommitted lines of credit. The committed availability
amounted to $304 million and was comprised of $171 million of unused credit
available under the five year revolving credit agreement (as defined below) and
$133 million of unused availability under its 364-day day facility expiring
October 27, 2000. The availability under uncommitted short-term lines of credit
amounted to $243 million.

    The Company believes that cash provided by operations and availability under
unused credit facilities and commercial paper program will adequately support
cash needs for working capital, capital expenditures for existing businesses and
future principal payments on outstanding borrowings.

    Total stockholders' equity decreased by $40 million, principally due to
Company's repurchase of Common Stock for treasury which amounted to $190
million, partially offset by net income of $141 million. See the Consolidated
Statement of Changes in Stockholders' Equity.

    During February, April and September 1999, the Board of Directors authorized
share repurchase programs aggregating $300 million. As of September 30, 1999,
the Company has purchased $190 million of its common stock in accordance with
the total authorized share repurchase program of $300 million. Accordingly, as
of September 30, 1999, the Company has remaining authorization to purchase up to
$110

                                       21
<PAGE>
million of its common stock. Subsequent to September 30, 1999, the Company has
purchased an additional $15 million of its common stock. During October 1999,
the Company entered into equity instrument contracts that may be utilized to
purchase the Company's common stock. At the discretion of the Company, such
contracts can be settled in cash, shares or a combination of both, at anytime
prior to October 2000. In addition, the contracts are limited to approximately
$40 million. Share repurchases are made at prices deemed acceptable to
management. The funding for the repurchase program will be from cash provided
from operations and available borrowings under the Company's existing credit
facilities.

    During fiscal 1999, the Company paid approximately $15 million, principally
severance, related to its restructuring plan announced in fiscal 1998. There
have been no material changes in the nature or costs of the restructuring.

    Currently, the Company is evaluating various alternatives for the
diversified business, including a spin-off. The Company expects to utilize a
majority of any proceeds to reduce its outstanding debt and continue its share
repurchase program.

SENIOR NOTES AND CREDIT FACILITIES

    In October 1998, USI American Holdings, Inc. ("USIAH"), a wholly owned
subsidiary of USI Atlantic Corp., ("USI Atlantic") jointly issued $250 million
aggregate principal amount of Senior Notes due October 15, 2003, which bear
interest at 7.125%, payable semiannually (the "7.125% Notes"). The net cash
proceeds were $247 million after transaction fees and discounts. As discussed
below, $200 million of the proceeds were used to repay a short-term note and the
remainder was used to repay borrowings under uncommitted bank credit lines. On
July 9, 1999, the Company exchanged its 7.125% Notes which were not registered
under the Securities Act of 1933, for registered 7.125% Notes having
substantially the same terms.

    In fiscal 1997, USI and USIAH issued $125 million aggregate principal amount
of Senior Notes due December 1, 2006, which bear interest at 7.25%, payable
semiannually (the "7.25% Notes"). The net cash proceeds were $123 million after
transaction fees and discounts. In connection with the Merger, a supplemental
indenture was executed adding USI as a co-obligor with USIAH under the 7.25%
Notes.

    The 7.25% Notes and the 7.125% Notes (collectively, the "Notes") are fully
and unconditionally guaranteed by USI Atlantic. The Notes are redeemable at the
option of the Company, in whole or in part, at a redemption price equal to the
greater of (i) 100% of the principal amount to be redeemed, or (ii) the sum of
the present values of the remaining scheduled payments of principal and interest
on the Notes to be redeemed, discounted at a rate based on the yield to maturity
of the comparable U.S. Government securities plus a spread (10 basis points for
the 7.25% Notes and 50 basis points for the 7.125% Notes) plus, in each case,
accrued interest to the date of redemption. The Notes are unsecured but the
indentures place restrictions on, among other things, liens and subsidiary
indebtedness. Certain restrictions on dividends and the purchase of common stock
for treasury were eliminated pursuant to the indenture for the 7.25% Notes in
August 1998 when Moody's Investors Services, Inc. raised its rating on the notes
to Baa2. The 7.125% Notes were issued without such restrictions.

    The Company has a five year revolving line of credit providing for
borrowings of up to an aggregate amount of $750 million (the "Credit
Agreement"). The revolving credit commitment was permanently reduced by $100
million on December 12, 1999 and will be reduced by an additional $150 million
on December 12, 2000, and terminates on December 12, 2001. The Credit Agreement
includes committed advances and uncommitted bid option advances. The committed
advances bear interest based on, at the option of the Company, (i) specified
spreads over London Interbank Offer Rate ("LIBOR") or (ii) the higher of the
agent bank's reference rate or 50 basis points above federal funds rate in
effect on such date. The spreads on the LIBOR-based borrowings range between 15
and 62.5 basis points, based on the Company's senior unsecured debt rating for
the relevant period. At September 30, 1999 three-month LIBOR was 6.085% per
annum and the spread over LIBOR was 22.5 basis points. A facility fee,
regardless of the amount utilized, is payable on a quarterly basis in arrears on
the full amount of the Credit

                                       22
<PAGE>
Agreement. The facility fee ranges between 7.5 and 25 basis points per annum,
based upon the Company's senior unsecured debt ratings for the relevant period.
At September 30, 1999, the facility fee was 10.0 basis points per annum. The
Credit Agreement places restrictions on, among other things, liens, mergers,
consolidations and additional indebtedness. Its financial covenants require USI
to comply with maximum ratio of total funded debt to capital and a consolidated
leverage ratio. The maximum ratios are .60:1.00 and 3.5:1.0, respectively.

    During fiscal 1998, the Company amended the Credit Agreement to allow a
portion of the available facility to be used for borrowings in currencies other
than the U.S. dollar, to eliminate the previous restriction limiting certain
unsecured indebtedness to $200 million, to permit the Merger and to add USI as a
co-obligor. USIAH is the other co-obligor, and USI Atlantic is the guarantor of
the Credit Agreement.

    In April 1999, USIAH transferred substantially all of its assets and
liabilities to a new wholly owned subsidiary of USI named USI Global Corporation
("USI Global") in exchange for preferred stock in USI Global. In connection with
the asset transfer, USI Global assumed joint and several obligations under the
Notes and the Credit Facility, equally with the Company and USIAH. Neither the
Company, USIAH nor USI Atlantic as guarantor was released from its obligations
under the Notes or the Credit Agreement in connection with the transfer to
assets to USI Global. See Note 15 to the Consolidated Financial Statements.

    In April 1999, the Company commenced a $300 million commercial paper
program, of which $167 million was outstanding at September 30, 1999. The
commercial paper program is supported by a $300 million 364-day revolving line
of credit that the Company entered into on October 30, 1998. The facility
contains restrictive covenants consistent with the Credit Agreement. This
364-day revolving line of credit was recently renewed and extended another 364
days to October 27, 2000. Borrowings under the agreement bear interest at either
the agent bank's base rate or LIBOR, plus a margin. Spreads on LIBOR-based
borrowing range between 30 and 135 basis points, based on the Company's senior
unsecured debt rating for the relevant period. At October 29, 1999, when the new
364-day facility began, the spread over LIBOR was 50 basis points. A facility
fee, regardless of the amount utilized, is payable on a quarterly basis in
arrears on the full amount of the 364 day facility. The facility fee ranges
between 10 and 30 basis points per annum based on the Company's senior unsecured
debt ratings for the relevant period. At October 29, 1999, when the new 364-day
facility began, the facility fee was 15 basis points.

    In August 1999, the Company's shelf registration statement on Form S-3 filed
with the Commission in order to register $600 million in debt securities became
effective. The Company expects to issue debt securities covered by this
registration statement in future periods depending on market conditions.

    Zurn, prior to the Merger, was an obligor under a $250 million secured
credit facility. As a result of the Merger, the facility became due and was
repaid by the Company on June 11, 1998. The Company used $200 million of the
proceeds from a short-term note, advanced by one of its lenders, to repay the
borrowings under the facility. The note bore interest at a rate of approximately
6.1% per annum. The Company repaid this obligation in October 1998 using a
portion of the proceeds from the 7.125% Notes, and accordingly it has been
classified as long-term.

    RISK MANAGEMENT

    In anticipation of an offering of debt securities, the Company entered into
certain interest rate protection agreements in March and April 1998. Due to
subsequent market changes, the principal amount and term of the 7.125% Notes
that were ultimately sold in the offering varied from those originally
anticipated. These interest rate protection agreements were terminated in
September 1998 and settled with payments in October 1998 aggregating $22
million. The portion of the cost of the agreements deemed related to the 7.125%
Notes of $10 million will be amortized over the term of the 7.125% Notes
bringing the reported interest rate to 8.4%. The Company recorded a
non-recurring net of tax charge of $7 million to write-off the remainder of the
cost of the agreements in the fourth quarter of fiscal 1998, which is included
in other (income) expense, net.

                                       23
<PAGE>
    Prior to the Merger, Zurn had entered into certain interest rate protection
agreements. These agreements were settled via a cash payment of $6 million in
connection with the repayment of the Zurn Facility as discussed above. To manage
its interest rate exposure, the Company entered into interest rate swaps to
receive a floating rate based on three-month LIBOR and pay a weighted average
fixed rate. The fixed interest rates under the interest rate swaps currently
outstanding range from 5.59% to 6.08% per annum. Net payments under the
agreements amounted to approximately $4 million, $3 million and $5 million for
fiscal 1999, 1998 and 1997, respectively. The swaps are of notional amounts and
maturities that relate to specific portions of outstanding debt, and
accordingly, are accounted for as hedge transactions. The aggregate notional
amounts and periods covered by such agreements are as follows:

<TABLE>
<S>                                                           <C>
October 1, 1999 through September 30, 2001..................  $200 million
</TABLE>

The Company had issued standby letters of credit aggregating $44 million at
September 30, 1999.

    To protect the U.S. dollar value of its anticipated profits denominated in
foreign currencies, the Company may purchase foreign currency put option
contracts. The contracts are purchased and settled in U.S. dollars. The Company
had no exposure with respect to these foreign currency options contracts other
than the cost of such options. The cost of such foreign currency options was not
material. There are no such options outstanding at September 30, 1999. The
Company has also entered into foreign exchange forward contracts to manage
expected cash flows at foreign operations. Such contracts have not been
significant.

    The interest rate protection agreements, foreign exchange options and
foreign exchange forward contracts described above were the only derivative
instruments held or entered into by the Company at year end or during fiscal
1999 and 1998. See Note 2 to the Consolidated Financial Statements.

MARKET RISK EXPOSURES

    The Company, in the normal course of doing business, is exposed to the risks
associated with changes in interest rates and currency exchange rates. To limit
the risks from such fluctuations, the Company enters into various hedging
transactions that have been authorized pursuant to the Company's policies and
procedures. See Note 2 to the Consolidated Financial Statements. The Company
does not engage in such transactions for trading purposes.

    To manage exposure to interest rate movements the Company uses interest rate
protection agreements. Based on the Company's overall exposure to interest rate
changes, at September 30, 1999 and 1998 a hypothetical change of 100 basis
points across all maturities of the Company's floating rate debt obligations,
after considering interest rate protection agreements, would decrease the
Company's pre-tax earnings by $7 million in fiscal 1999 and $3 million in fiscal
1998.

    The Company utilizes foreign currency-denominated borrowings to selectively
hedge its net investments in subsidiaries in foreign countries. Such borrowings
at September 30, 1999 and 1998 are denominated in German marks, British pounds,
Dutch guilders and Hong Kong dollars. A 10% change in the relevant currency
exchange rates is estimated to have an impact on the fair value of such
borrowings amounting to $32 million at September 30, 1999 and $20 million at
September 30, 1998. This quantification of the Company's exposure to the market
risk of foreign exchange sensitive financial instruments is necessarily limited,
as it does not take into account the offsetting impact of the Company's
underlying investment exposures.

    The Company is also exposed to foreign currency exchange risk related to its
international operations as well as its U.S. businesses, which import or export
goods. The company has made limited use of financial instruments to manage this
risk.

                                       24
<PAGE>
FOREIGN CURRENCY MATTERS

    The functional currency of each of the Company's foreign operations at
September 30, 1999 is the local currency. The operations in Brazil operated in a
hyperinflationary economy until on or about October 1, 1997, when Brazil was no
longer considered hyperinflationary. During the hyperinflationary period, the
functional currency of the Company's operation in Brazil was the U.S. Dollar.
Assets and liabilities of foreign subsidiaries are translated at the exchange
rates in effect at the balance sheet dates, while revenue, expenses and cash
flows are translated at average exchange rates for the period. Except for
companies operating in hyperinflationary economies, translation gains and losses
are reported as a component of Stockholders' Equity. Losses resulting from the
translation of the financial statements of the Company's operations in Brazil of
$1 million are included in other (income) expense, net, for fiscal 1997.

EFFECT OF INFLATION

    Because of the relatively low level of inflation experienced in the
Company's principal markets, inflation did not have a material impact on its
results of operations in fiscal 1999, 1998 or 1997.

YEAR 2000 READINESS DISCLOSURE

    Many computer systems and other equipment with embedded technology use only
two digits to define the applicable year and may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in failures or
miscalculations causing disruptions of normal business activities and operations
(the "Year 2000 issue").

    The Company is actively addressing the Year 2000 issue. The compliance
program is led by information technology staff at each operating company, with
assistance from the finance and manufacturing staffs and outside technology
consultants where necessary. Progress is being monitored by each operating
company president and reported to USI management. The Company engaged outside
technology consultants at various operating locations to provide independent
reviews of Year 2000 readiness and to augment the efforts of the local Year 2000
teams or provide expertise in certain areas.

    The Company's Year 2000 efforts focus on three areas: information technology
("IT") related systems and processes, such as operating systems, applications
and programs; embedded logic ("non-IT") systems and processes, such as
manufacturing machinery, telecommunications equipment and security devices; and
compliance efforts of third parties (such as customers, suppliers and service
providers). Within each of the IT and non-IT areas, the project spans four
phases for both critical and non-critical systems: assessment of programs and
devices to identify those that are affected by the Year 2000 issue; development
of remediation strategies; testing such strategies; and implementing the
solutions. Critical systems are those systems (both IT and non-IT) that would
have a severe impact on the Company's business and revenue if not made Year 2000
ready.

    The Company evaluated each of its critical and principal customers,
supplier, service providers and other business associates to determine each of
such party's Year 2000-readiness status. These critical and principal third
parties have either material system interfaces or other material relationships
that an operating company is dependent upon. The evaluation of each third party
included a request for a Year 2000 readiness certification. Then, depending upon
each party's response, evaluation procedures were expanded to include obtaining
Year 2000 disclosures contained in SEC filings of those third parties, where
available; testing interfaced systems; holding face-to-face discussions with
third parties; and developing and refining contingency plans to address the
possibility of a third party failure to complete their year 2000 initiatives on
a timely basis.

    To date, 67% of all third parties and 84% of all critical and principal
third parties queried for information relating to Year 2000 compliance have
responded, of which 23% of all third parties and 23% of critical and principal
third parties indicated that they were not currently compliant. Each operating

                                       25
<PAGE>
company has developed contingency plans to address those third parties that
either indicated that they were not compliant, or who did not respond.

    The Company has completed an assessment of its critical IT and non-IT
systems and, as a result, the operating companies have decided to modify,
upgrade or replace portions of their systems. The development of these
remediation strategies is complete. All except for two of our operating
companies, which generate less than 2% of our sales, have tested and implemented
solutions and are at least 80% Year 2000 compliant. All of our operating
companies are expected to complete the testing and implementation phases and be
Year 2000 compliant by December 31, 1999.

    Year 2000 costs for computer equipment, software and outside consultants
incurred through September 30, 1999 were approximately $39 million, of which
$6 million was expensed and $33 million was capitalized. Estimated future costs
to complete the Year 2000 program are $3 million, of which $2 million are
expected to be expensed as incurred and the remaining $1 million is expected to
be capitalized. These costs have been, and will continue to be, funded from
operating cash flow and available credit facilities. Most of the costs are for
new systems and improved functionality. These costs include approximately
$7 million of internal payroll costs for employees who are involved in the Year
2000 program.

    The Company has developed contingency plans to address the possibility of
failure by the Company or third parties to complete their Year 2000 initiatives
on a timely basis. The Company will continue to make further refinements to the
contingency plans based on the Company's ongoing evaluation of its readiness as
well as the status of compliance by third parties. Such contingency plans
include, among other procedures, using alternative processes, such as manual
procedures to substitute for non-compliant systems; arranging for alternate
suppliers and service providers; increasing inventory levels; and developing
procedures internally and in conjunction with significant third parties to
address compliance issues as they arise.

    No amount of preparation and testing can guarantee Year 2000 compliance.
However, the Company believes it is taking appropriate preventive measures and
will be successful in avoiding any material adverse effect on the Company's
operations or financial condition. Nevertheless, the Company recognizes that
failing to resolve its Year 2000 issues on a timely basis would, in a worst case
scenario, significantly limit its ability to manufacture and distribute its
products and process its daily business transactions for a period of time,
especially if such failure is coupled with third party or infrastructure
failures. Similarly, the ability to conduct operations without interruption
after calendar 1999 may be significantly affected by the failure of one or more
significant suppliers, customers or components of the infrastructure to conduct
their respective operations without interruption after 1999. Because of the
difficulty of assessing the Year 2000 compliance of such third parties, the
Company considers the potential disruptions caused by such parties to present
the most reasonably likely worst-case scenarios. Adverse effects on the Company
could include business disruption, increased costs, loss of sales and other
similar ramifications.

    The costs of the Company's Year 2000 initiatives, the dates on which the
Company believes that it will complete such activities and the Company's
evaluation of third-party effects are estimates and subject to change. Actual
results could differ from those currently anticipated. Factors that could cause
such differences include, but are not limited to, the availability of key Year
2000 personnel, the Company's ability to respond to unforeseen Year 2000
complications, the readiness of third parties, the accuracy of third party
assurances regarding Year 2000 compliance and similar uncertainties.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

    See Item 7, "Managements Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Risk Management".

                                       26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
U.S. Industries, Inc.

    We have audited the consolidated balance sheets of U.S. Industries, Inc.
(the "Company") as of September 30, 1999 and 1998 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, 1999. Our audits also
included the financial statement schedule listed in the index at Item 14(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 did not audit the financial
statements of certain subsidiary companies (U.S. Industries' Automotive Group
and Jacuzzi Companies in 1997) which statements reflect 29% of consolidated
revenues for the year ended September 30, 1997. Those statements and Schedule II
information were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to data included for these companies
in 1997, is based solely on the report of the other auditors.

    We conducted our audits in accordance with generally accepted auditing
standards. 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 and the report of other auditors for 1997 provide a
reasonable basis for our opinion.

    In our opinion, based on our audits and the report of other auditors for
1997, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company at September 30,
1999 and 1998, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended September 30, 1999, in
conformity with generally accepted accounting principles. Also, in our opinion,
based on our audits and the report of other auditors for 1997, 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

New York, New York
November 8, 1999

                                       27
<PAGE>
                      REPORT OF PRICEWATERHOUSECOOPERS LLP

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
U.S. Industries, Inc.:

    We have audited the combined statement of operations and cash flows of the
U.S. Industries Automotive Group and Jacuzzi Companies for the year ended
September 30, 1997. Our audit also included Financial Statement Schedule II of
the U.S. Industries Automotive Group and Jacuzzi Companies for the year ended
September 30, 1997 (not presented separately herein). These financial statements
and schedule are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.

    We conducted our audit in accordance with auditing standards generally
accepted in the 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 audit provides a reasonable basis
for our opinion.

    In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
the U.S. Industries Automotive Group and Jacuzzi Companies for the year ended
September 30, 1997 in conformity with accounting principles generally accepted
in the United States. Also, the financial statement schedule referred to above,
when considered in relation to the basic combined financial statements taken as
a whole, present fairly in all material respects the information set forth
therein. We have not audited the combined financial statements of the U.S.
Industries Automotive Group and Jacuzzi Companies for any period subsequent to
September 30, 1997.

/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
November 14, 1997

                                       28
<PAGE>
                             U.S. INDUSTRIES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                         (IN MILLIONS EXCEPT PER SHARE)

<TABLE>
<CAPTION>
                                                                FOR THE FISCAL YEARS ENDED
                                                                      SEPTEMBER 30,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net Sales...................................................   $3,429     $3,135     $2,521
Operating costs and expenses:
  Cost of products sold.....................................    2,389      2,202      1,739
  Selling, general and administrative expenses..............      736        649        514
  Goodwill impairment and non-recurring charges.............        1        142         --
                                                               ------     ------     ------
Operating income............................................      303        142        268
Interest expense............................................       81         69         59
Interest income.............................................       (5)        (8)        (7)
Gain on sale of subsidiary shares...........................       --         --         (1)
Other (income) expense, net.................................      (14)         3         (2)
                                                               ------     ------     ------
Income before income taxes, discontinued operations and
  extraordinary loss........................................      241         78        219
Provision for income taxes..................................       87         75         94
                                                               ------     ------     ------
  Income from continuing operations.........................      154          3        125
Discontinued operations:
  Income (loss) from operations (net of income taxes of
    $(-), ($9) and $11).....................................       (1)       (35)        16
  Gain (loss) on disposals (net of income taxes of $(10),
    ($4) and $68)...........................................      (12)        (7)       113
                                                               ------     ------     ------
  Income (loss) from discontinued operations................      (13)       (42)       129
                                                               ------     ------     ------
Income (loss) before extraordinary loss.....................      141        (39)       254
Extraordinary loss, from early extinguishment of debt
  (net of income tax benefits of $3 and $1).................       --         (5)        (2)
                                                               ------     ------     ------
Net income (loss)...........................................   $  141     $  (44)    $  252
                                                               ======     ======     ======
Earnings (loss) per basic share:
  Income from continuing operations.........................   $ 1.67     $ 0.03     $ 1.35
  Income (loss) from discontinued operations................    (0.14)     (0.44)      1.40
  Extraordinary loss........................................       --      (0.05)     (0.02)
                                                               ------     ------     ------
  Net income (loss).........................................   $ 1.53     $(0.46)    $ 2.73
                                                               ======     ======     ======
Earnings (loss) per diluted share:
  Income from continuing operations.........................   $ 1.64     $ 0.03     $ 1.31
  Income (loss) from discontinued operations................    (0.13)     (0.43)      1.35
  Extraordinary loss........................................       --      (0.05)     (0.02)
                                                               ------     ------     ------
  Net income (loss).........................................   $ 1.51     $(0.45)    $ 2.64
                                                               ======     ======     ======
</TABLE>

                See notes to Consolidated Financial Statements.

                                       29
<PAGE>
                             U.S. INDUSTRIES, INC.

                          CONSOLIDATED BALANCE SHEETS

                        (IN MILLIONS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                               AT SEPTEMBER 30,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................   $   58     $   44
  Trade receivables, net....................................      667        609
  Inventories...............................................      631        539
  Deferred income taxes.....................................       68         75
  Net assets held for disposition...........................       --        143
  Other current assets......................................       67         73
                                                               ------     ------
    Total current assets....................................    1,491      1,483

Property, plant and equipment, net..........................      597        508
Deferred income taxes.......................................        6         16
Other assets................................................      185        220
Goodwill, net...............................................      749        549
                                                               ------     ------
                                                               $3,028     $2,776
                                                               ======     ======
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable.............................................   $   33     $   15
  Current maturities of long-term debt......................       15          4
  Trade accounts payable....................................      278        247
  Accrued expenses and other liabilities....................      302        301
  Income taxes payable......................................       29         40
                                                               ------     ------
    Total current liabilities...............................      657        607
Long-term debt..............................................    1,219        947
Other liabilities...........................................      232        262
                                                               ------     ------
    Total liabilities.......................................    2,108      1,816
                                                               ------     ------
Commitments and contingencies
Stockholders' equity
  Common stock (par value $.01) per share, authorized
    300,000,000 shares; issued 98,924,343 and 105,005,316
    respectively; outstanding 87,926,145 and 98,409,878
    respectively............................................        1          1
Paid in capital.............................................      702        724
Retained earnings...........................................      448        406
Unearned restricted stock...................................      (16)       (17)
Accumulated other comprehensive income......................      (27)       (24)
Treasury stock (10,998,198 and 6,595,438 shares,
  respectively) at cost.....................................     (188)      (130)
                                                               ------     ------
Total stockholders' equity..................................      920        960
                                                               ------     ------
                                                               $3,028     $2,776
                                                               ======     ======
</TABLE>

                See notes to Consolidated Financial Statements.

                                       30
<PAGE>
                             U.S. INDUSTRIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                                                   FOR THE FISCAL YEARS
                                                                          ENDED
                                                                      SEPTEMBER 30,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES:
  Income from continuing operations.........................   $  154     $    3     $  125
  Adjustments to reconcile income from continuing operations
    to net cash provided by operating activities of
    continuing operations:
      Depreciation and amortization.........................       98         83         62
      Provision for deferred income taxes...................        7         20         24
      Provision for doubtful accounts.......................        6          8          2
      Gain on sale of excess real estate....................      (14)        (4)        (3)
      Gain on sale of subsidiary stock......................       --         --         (1)
      Gain on sale of property, plant and equipment.........       --         (5)        --
      Goodwill impairment and other non-recurring and
       unusual charges......................................       --         90         --
  Changes in operating assets and liabilities, excluding the
    effects of acquisitions and dispositions:
      Decrease (Increase) in trade receivables..............        1        (91)       (23)
      Increase in inventories...............................      (30)       (24)        (1)
      (Increase) Decrease in other current assets...........       (5)         3          8
      Decrease (Increase) in other non-current assets.......        4        (12)       (53)
      Increase (Decrease) in trade accounts payable.........        3         36        (17)
      Increase (Decrease) in income taxes payable...........       13         11        (21)
      (Decrease) Increase in accrued expenses and other
       liabilities..........................................      (10)        (6)         6
      (Decrease) Increase in other non-current
       liabilities..........................................        1         (6)         4
      Other, net............................................       --         --         (2)
                                                               ------     ------     ------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING
  OPERATIONS................................................      228        106        110
                                                               ------     ------     ------
Income (loss) from discontinued operations..................      (13)       (42)       129
Adjustments to reconcile income from discontinued operations
  to net cash
  Provided by (used in) discontinued operations:
      Loss (Gain) on disposal of discontinued operations....       12          7       (113)
      Decrease (Increase) in net assets held for
       disposition..........................................       25          5        (86)
                                                               ------     ------     ------
      NET CASH PROVIDED BY (USED IN) DISCONTINUED
       OPERATIONS...........................................       24        (30)       (70)
                                                               ------     ------     ------
      NET CASH PROVIDED BY OPERATING ACTIVITIES.............      252         76         40
                                                               ------     ------     ------
      INVESTING ACTIVITIES:
        Proceeds from sale of businesses....................      132         11        390
        Acquisition of companies, net of cash acquired......     (335)      (173)      (260)
        Proceeds from sale of subsidiary stock..............       --         --          4
        Purchases of property, plant and equipment..........     (108)       (99)       (68)
        Proceeds from sale of property, plant and
        equipment...........................................        6         34          2
        Proceeds from sale of excess real estate............       28         14         28
        Purchase of investment..............................       --         (7)        (1)
        Proceeds from sale of marketable securities.........       --         --         24
        Collection of notes.................................        1          5         --
        Other investing activities..........................       --        (13)        (5)
                                                               ------     ------     ------
      NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES...     (276)      (228)       114
                                                               ------     ------     ------
      FINANCING ACTIVITIES:
        Proceeds from long-term debt........................    1,899      1,406      1,626
        Repayment of long-term debt.........................   (1,623)    (1,245)    (1,705)
        Proceeds from notes payable, net....................        7          5          4
        Payment to settle treasury locks....................      (22)        --         --
        Payment of dividends................................      (19)       (21)        (4)
        Proceeds from exercise of stock options.............        4         20          7
        Purchase of treasury stock..........................     (190)       (35)       (67)
                                                               ------     ------     ------

      NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES...       56        130       (139)
                                                               ------     ------     ------
      Effect of exchange rate changes on cash and cash
       equivalents..........................................      (18)        (1)        (5)
                                                               ------     ------     ------
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......       14        (23)        10
    Cash and Cash Equivalents at Beginning of Period........       44         67         57
                                                               ------     ------     ------
      CASH AND CASH EQUIVALENTS AT END OF PERIOD............   $   58     $   44     $   67
                                                               ======     ======     ======
</TABLE>

                See notes to Consolidated Financial Statements.

                                       31
<PAGE>
                             U.S. INDUSTRIES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
          FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
                        (IN MILLIONS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                             ACCUMULATED
                                                                UNEARNED        OTHER
                               COMMON    PAID IN    RETAINED   RESTRICTED   COMPREHENSIVE    TREASURY   COMPREHENSIVE
                               STOCK     CAPITAL    EARNINGS     STOCK          INCOME        STOCK         INCOME        TOTAL
                              --------   --------   --------   ----------   --------------   --------   --------------   --------
<S>                           <C>        <C>        <C>        <C>          <C>              <C>        <C>              <C>
Balance at September 30,
  1996......................    $ 1        $605       $226        $(19)          $ (5)        $ (50)                      $ 758
Net Income..................                           252                                                   $252           252
Less net income for Zurn for
  the six months ended March
  31, 1998..................                            (2)                                                                  (2)
Cash dividend declared
  ($0.05 per share).........                            (4)                                                                  (4)
Cash dividend declared
  ($0.12 per share) Zurn....                            (2)                                                                  (2)
Amortization of unearned
  restricted stock..........                                         7                                                        7
Purchase of 3,134,343 shares
  of common stock...........                                                                    (67)                        (67)
Common stock issued to
  employees and directors
  (11,360 shares)...........     --          --                                                                              --
Common stock issued (336,714
  shares) upon exercise of
  options...................     --           3                                                                               3
Common stock issued (46,576
  shares) to Zurn pension
  plans.....................     --           1                                                                               1
Treasury stock issued
  (550,307 shares) to
  employees, directors and
  upon exercise of
  options...................                  1                     (5)                           6                           2
Forfeiture of 166,065 shares
  of unearned restricted
  stock.....................                 (1)                     1                                                       --
Translation adjustment......                                                       (2)                         (2)           (2)
Minimum pension liability
  adjustment................                                                        1                           1             1
                                                                                                             ----
Other comprehensive
  income....................                                                                                   (1)
                                                                                                             ----
Total comprehensive
  income....................                                                                                 $251
                                                                                                             ====
Income tax benefit relating
  to stock plans............                  3                                                                               3
                                ---        ----       ----        ----           ----         -----                       -----
Balance at September 30,
  1997......................    $ 1        $612       $470        $(16)          $ (6)        $(111)                      $ 950
                                ---        ----       ----        ----           ----         -----                       -----
Net loss....................                           (44)                                                  $(44)          (44)
Cash dividend declared
  ($0.20 per share).........                           (20)                                                                 (20)
Amortization of unearned
  restricted stock..........                                         6                                                        6
Purchase of 1,260,900 shares
  of common stock...........                                                                    (35)                        (35)
Retirement of 348,603 shares
  of treasury stock.........                 (5)                                                  5                          --
Forfeiture of 373,709 shares
  of unearned restricted
  stock.....................                                         2                           (4)                         (2)
Treasury stock issued
  (1,303,118 shares) to
  employees, directors and
  upon exercise of
  options...................                  4                     (9)                          15                          10
Common stock issued (559,359
  shares) upon exercise of
  options and to Zurn
  pension plans.............     --          12                                                                              12
Common stock issued
  (3,685,520 shares) for
  acquisition...............     --          96                                                                              96
Translation adjustment......                                                       (9)                         (9)           (9)
Minimum pension liability
  adjustment................                                                       (9)                         (9)           (9)
                                                                                                             ----
Other comprehensive
  income....................                                                                                  (18)
                                                                                                             ----
Total comprehensive
  income....................                                                                                 $(62)
                                                                                                             ====
Income tax benefit relating
  to stock plans............                  5                                                                               5
                                ---        ----       ----        ----           ----         -----                       -----
Balance at September 30,
  1998......................    $ 1        $724       $406        $(17)          $(24)        $(130)                      $ 960
                                ---        ----       ----        ----           ----         -----                       -----
Net Income..................                           141                                                   $141           141
Cash dividend declared
  ($0.20 per share).........                           (19)                                                                 (19)
Amortization of unearned
  restricted stock..........                                         6                                                        6
Purchase of 11,171,600
  shares of common stock....                                                                   (190)                       (190)
Treasury stock issued to
  employees and directors
  (125,107 shares)..........     --                                 (2)                           2                          --
Common stock issued to
  employees (276,500
  shares)...................     --           5                     (5)
Forfeiture of 73,162 shares
  of unearned restricted
  stock.....................                                         2                           (2)                         --
Treasury stock issued
  (193,700 shares) upon
  exercise of options.......     --          --                                                   3                           3
Common stock issued (165,722
  shares) upon exercise of
  options...................     --           2                                                                               2
Cancellation of 6,523,195
  shares of treasury
  stock.....................     --         (49)       (80)                                     129                          --
Demerger tax adjustment.....                 16                                                                              16
Translation adjustment......                                                       (9)                         (9)           (9)
Minimum pension liability
  adjustment................                                                        6                           6             6
                                                                                                             ----
Other comprehensive
  income....................                                                                                   (3)
                                                                                                             ====
Total comprehensive
  income....................                                                                                 $138
                                                                                                             ====
Income tax benefit relating
  to stock plans............                  4                                                                               4
                                ---        ----       ----        ----           ----         -----                       -----
Balance at September 30,
  1999......................    $ 1        $702       $448        $(16)          $(27)        $(188)                      $ 920
                                ===        ====       ====        ====           ====         =====                       =====
</TABLE>

                                       32
<PAGE>
                             U.S. INDUSTRIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BASIS OF PRESENTATION

    The Company manufactures and distributes a broad range of consumer and
industrial products grouped into four segments: USI Bath and Plumbing Products,
Lighting Corporation of America, USI Hardware and Tools and USI Diversified.

    On June 11, 1998, U.S. Industries, Inc. ("USI") merged with Zurn Industries,
Inc. ("Zurn") (the "Merger"), hereafter collectively referred to as the Company,
by exchanging 20.4 million shares of its common stock for all of the common
stock of Zurn. Each share of Zurn common stock was exchanged for 1.6 shares of
USI common stock. Outstanding Zurn employee stock options were converted at the
same exchange ratio into options to purchase 2 million shares of USI common
stock.

    The consolidated financial statements give retroactive effect to the Merger
in a transaction accounted for as a pooling of interests. The pooling of
interests method of accounting requires the restatement of all periods presented
as if USI and Zurn had always been combined. The consolidated statement of
changes in stockholders' equity reflects the accounts of the Company as if the
common stock to complete the Merger had been issued prior to the periods
presented.

    There were no transactions between USI and Zurn prior to the combination.
Certain reclassifications have been made to the Zurn financial statements to
conform to USI's presentations.

    The Company is currently evaluating various alternatives for the diversified
business, including a spin-off. Further financial information with respect to
the diversified business is included in the Segment Data note to the financial
statements (See Note 12 to the Consolidated Financial Statements). The Company
expects to utilize a majority of any proceeds to reduce its outstanding debt and
continue its share repurchase program.

    In January 1997, an initial public offering of 25% of the shares of the
Company's wholly-owned subsidiary Jade Technologies Singapore Ltd ("Jade"), a
manufacturer of leadframes for the electronics industry, was completed. Jade
sold 8 million shares at approximately $0.53 per share, generating cash proceeds
of approximately $4 million. The Company recorded a gain of $1 million ($700,000
after provision for deferred income taxes) in connection with the sale. After
the transaction, the Company owned 75% of the outstanding shares of Jade.

NOTE 2--ACCOUNTING POLICIES

    FISCAL YEAR: Fiscal year ends on the Saturday nearest to September 30. All
fiscal year data contained herein reflect results of operations for the 52, 53
and 52 week periods ended October 2, 1999, October 3, 1998 and September 27,
1997, respectively, but are presented as of September 30 for convenience.

    PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its subsidiaries. Intercompany accounts and
transactions are eliminated. Companies which are 20% to 50% owned are accounted
for using the equity method.

    USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

    CASH EQUIVALENTS: Cash equivalents represent short-term investments which
have maturities of ninety days or less when purchased.

                                       33
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--ACCOUNTING POLICIES (CONTINUED)

    TRADE RECEIVABLES AND CONCENTRATIONS OF CREDIT RISK:

<TABLE>
<CAPTION>
                                                                      AT
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
Trade receivables...........................................   $ 708      $ 647
Allowance for doubtful accounts.............................     (41)       (38)
                                                               -----      -----
                                                               $ 667      $ 609
                                                               =====      =====
</TABLE>

    The Company operates in the United States and, to a lesser extent, in
Europe, South America, Canada and Asia. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Credit losses have been within management's expectations.

    INVENTORIES:

<TABLE>
<CAPTION>
                                                                      AT
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
Finished products...........................................   $ 301      $ 250
In-process products.........................................     115        109
Raw materials...............................................     215        180
                                                               -----      -----
                                                               $ 631      $ 539
                                                               =====      =====
</TABLE>

    Inventories are valued at the lower of cost, determined under both the
first-in, first-out and last-in, first-out methods, or market. The percentage of
inventory under each method follows:

<TABLE>
<CAPTION>
                                                                      AT
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
First-in, first-out (FIFO) method...........................      84%        83%
Last-in, first-out (LIFO) method............................      16%        17%
</TABLE>

    The increase in the carrying value of the inventory if only the FIFO method,
which approximates replacement costs, had been used, would be $2 million and $4
million at September 30, 1999 and 1998, respectively.

                                       34
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--ACCOUNTING POLICIES (CONTINUED)

    PROPERTY, PLANT AND EQUIPMENT:

<TABLE>
<CAPTION>
                                                                      AT
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
Land and buildings..........................................   $ 310      $ 282
Machinery, equipment and furniture..........................     726        628
Accumulated depreciation....................................    (439)      (402)
                                                               -----      -----
                                                               $ 597      $ 508
                                                               =====      =====
</TABLE>

    Property, plant and equipment is stated on the basis of cost less
accumulated depreciation.

    DEPRECIATION AND AMORTIZATION:

<TABLE>
<CAPTION>
                                                                  FOR THE FISCAL YEARS
                                                                         ENDED
                                                                     SEPTEMBER 30,
                                                             ------------------------------
                                                               1999       1998       1997
                                                             --------   --------   --------
                                                                     (IN MILLIONS)
<S>                                                          <C>        <C>        <C>
Depreciation...............................................    $72        $59        $41
Amortization of goodwill...................................     18         19         15
Amortization of deferred financing costs...................      4          1          1
Amortization of unearned restricted stock..................      6          6          7
Amortization of deferred income............................     (2)        (2)        (2)
                                                               ---        ---        ---
                                                               $98        $83        $62
                                                               ===        ===        ===
</TABLE>

    Depreciation is provided on the straight-line basis over the estimated
useful lives of the assets. Buildings are depreciated based on lives varying
from twenty to fifty years, and machinery, equipment and furniture based on
lives varying from three to ten years.

    On October 1, 1999, the Company adopted statement of position ("SOP 98-1")
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED FOR OR OBTAINED FOR
INTERNAL USE. SOP 98-1 requires the capitalization of certain costs incurred
after the date of adoption in connection with developing or obtaining software
for internal use. The impact of adopting SOP 98-1 did not have a material impact
on the Company's financial position or results of operations.

    OTHER ASSETS: Excess properties held for sale primarily consist of land and
buildings no longer used in operations which are included in other assets and
carried at the lower of cost or fair value less costs to sell. The carrying
value of such properties was $20 million and $43 million as of September 30,
1999 and 1998, respectively. The income from excess properties of $13 million,
$3 million and $1 million in fiscal 1999, 1998 and 1997, respectively, is
included in other (income) expense, net and includes net gains on the sale of
these properties, adjustments to net realizable value and the carrying costs
incurred in the period.

    EQUITY INVESTMENT: The Company has an equity interest in United Pacific
Industries Limited ("UPI"), a limited liability company incorporated in Bermuda
and listed on the Stock Exchange of Hong Kong. UPI manufactures voltage
converters, other electronic components and consumer products. At September 30,
1999 and 1998 the Company had beneficial ownership of approximately 20% of UPI
with a carrying value

                                       35
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--ACCOUNTING POLICIES (CONTINUED)

of approximately $11 million and $18 million, respectively. This investment,
included in Other assets, is accounted for under the equity method. Its results
are included in the USI Diversified segment. At September 30, 1999 and 1998, the
market value of the Company's equity investment in UPI was approximately $7
million and $14 million, respectively.

    GOODWILL: Goodwill represents the excess of the purchase price over the fair
value of net assets acquired. The Company reviews operating results and other
relevant facts every fiscal quarter for each of its businesses to determine if
there are indications that the carrying value of an enterprise may be impaired.
The fair value methodology is used by the Company to ascertain the
recoverability of the carrying value of an enterprise, when there are
indications of impairment. In the event that such fair value is below the
carrying value of an enterprise, for those companies with goodwill, the Company
first reduces goodwill and then other long-lived assets to the extent such
differential exists.

    The fair value methodology is applied to determine the recoverable value for
each business on a stand alone basis using ranges of fair values obtained from
independent appraisers. In developing these ranges, the independent appraisers
consider (a) publicly available information, (b) financial projections of each
business based on management's best estimates, (c) the future prospects of each
business as discussed with senior operating and financial management,
(d) publicly available information regarding comparable publicly traded
companies in each industry, (e) market prices, capitalizations and trading
multiples of comparable public companies and (f) other information deemed
relevant. In reviewing these valuations and considering the need to record a
charge for impairment of enterprise value and goodwill to the extent it is part
of the enterprise value, the Company also evaluates solicited and unsolicited
bids for the businesses of the Company.

    Goodwill is amortized on a straight-line basis over the estimated future
periods to be benefited (ranging from 20 to 40 years, primarily forty years).
Accumulated amortization aggregated $292 million and $274 million, at
September 30, 1999 and 1998, respectively. Amortization and adjustments to the
carrying value of goodwill amounted to $22 million, $102 million and $15 million
for fiscal 1999, 1998 and 1997, respectively.

    ACCRUED EXPENSES AND OTHER LIABILITIES: Accrued expenses and other
liabilities (current) consist of the following:

<TABLE>
<CAPTION>
                                                                      AT
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
Compensation related........................................   $  81      $  70
Other.......................................................     221        231
                                                               -----      -----
                                                               $ 302      $ 301
                                                               =====      =====
</TABLE>

    FOREIGN CURRENCY TRANSLATION: The functional currency of each of the
Company's foreign operations at September 30, 1999 is the local currency. The
operations in Brazil operated in a hyperinflationary economy until on or about
October 1, 1997, when Brazil was no longer considered hyperinflationary. During
the hyperinflationary period, the functional currency of the Company's operation
in Brazil was the U.S. Dollar. Assets and liabilities of foreign subsidiaries
are translated at the exchange rates in effect at the balance sheet dates, while
revenue, expenses and cash flows are translated at average exchange rates for
the period.

                                       36
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--ACCOUNTING POLICIES (CONTINUED)

Except for companies operating in hyperinflationary economies, translation gains
and losses are reported as a component of Stockholders' Equity. Losses resulting
from the translation of the Company's operations in Brazil of $1 million is
included in other (income) expense, net, in fiscal 1997.

    INCOME TAXES: Deferred tax assets and liabilities are computed based on the
difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws. Deferred income tax expense or
benefit is based on the changes in the asset or liability from period to period.

    REVENUE RECOGNITION: Revenue is recognized upon shipment of product to the
customer. Provisions are made for warranty and return costs at the time of sale.
Such provisions have not been material.

    ADVERTISING COSTS: Advertising costs are expensed as incurred. Such amounts
totaled $51 million, $46 million and $36 million for fiscal 1999, 1998 and 1997,
respectively.

    RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed
as incurred. Such amounts totaled $13 million, $14 million and $10 million for
fiscal 1999, 1998 and 1997, respectively.

    FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of the Company's senior
notes are as follows:

<TABLE>
<CAPTION>
                                                       1999                  1998
                                                -------------------   -------------------
                                                CARRYING     FAIR     CARRYING     FAIR
                                                 AMOUNT     VALUE      AMOUNT     VALUE
                                                --------   --------   --------   --------
                                                              (IN MILLIONS)
<S>                                             <C>        <C>        <C>        <C>
7.125% Senior Notes...........................    $248       $245       $ --       $ --
7.25% Senior Notes............................     123        119        123        125
                                                  ----       ----       ----       ----
                                                  $371       $364       $123       $125
                                                  ====       ====       ====       ====
</TABLE>

    The fair value of the Company's other debt and other financial instruments
approximate their carrying value due to their floating rate and short maturity.
The Company also has several interest rate swap agreements covering various
periods. The notional amount of these agreements were $200 as of September 30,
1999 and $300 million as of September 30, 1998. Based upon the fair value of the
interest rate swap agreements, if all outstanding agreements had to be settled
the Company would have received approximately $1 million as of September 30,
1999 and would have paid approximately $10 million as of September 30, 1998. The
fair values are based upon estimates received from financial institutions.

    DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses interest rate swap and
treasury lock agreements and foreign exchange option and forward contracts to
manage exposure to fluctuating interest rates and foreign currencies.

    Interest rate differentials to be paid or received as a result of interest
rate swap agreements are accrued and recognized as an adjustment of interest
expense related to the designated debt. The fair values of interest rate swap
agreements are not recognized in the financial statements as they qualify as
hedge transactions. The value of treasury lock agreements are not recorded in
the financial statements until such time as the agreements are terminated or the
related anticipated transaction is no longer expected to occur. The foreign
currency options and forward contracts are marked to market at the end of each
period and any resulting gain or loss is recognized immediately in income.

    Realized and unrealized gains or losses at the time of maturity,
termination, sale or repayment of a derivative contract are recorded in a manner
consistent with the original designation of the derivative in

                                       37
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--ACCOUNTING POLICIES (CONTINUED)

view of the nature of the termination, sale or repayment transaction. Amounts
arising at the settlement of interest rate swaps and treasury locks are deferred
and amortized as an adjustment to interest expense over the period of interest
rate exposure, provided the designated liability continues to exist or is
probable of occurring. Realized and unrealized changes in fair value of
derivatives designated with items that no longer exist or are no longer probable
of occurring are recorded as a component of the gain or loss arising from the
disposition of the designated item.

    In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES,("SFAS 133") which is required to be adopted beginning in fiscal
2001. SFAS 133 will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. Management does not anticipate that
the adoption of SFAS 133 will have a significant effect on earnings or the
financial position of the Company.

    ACCUMULATED OTHER COMPREHENSIVE INCOME: In June 1997, the FASB issued
Statement No. 130, REPORTING COMPREHENSIVE INCOME, ("SFAS 130"), This statement
requires that all components of comprehensive income be reported prominently in
the financial statements. The Company has other comprehensive income relating to
foreign currency translation adjustment and minimum pension liability
adjustment. Effective March 1, 1998 the Company adopted SFAS No. 130.

    Components of Accumulated other comprehensive income (loss) consist of the
following:

<TABLE>
<CAPTION>
                                                           MINIMUM      ACCUMULATED
                                              FOREIGN      PENSION         OTHER
                                             CURRENCY     LIABILITY    COMPREHENSIVE
                                            TRANSLATION   ADJUSTMENT   INCOME/(LOSS)
                                            -----------   ----------   -------------
                                                         (IN MILLIONS)
<S>                                         <C>           <C>          <C>
September 30, 1996........................     $ (3)         $ (2)          $ (5)
Fiscal 1997 change........................       (2)            1             (1)
                                               ----          ----           ----
September 30, 1997........................       (5)           (1)            (6)
Fiscal 1998 change........................       (9)           (9)           (18)
                                               ----          ----           ----
September 30, 1998........................      (14)          (10)           (24)
Fiscal 1999 change........................       (9)            6             (3)
                                               ----          ----           ----
September 30, 1999........................     $(23)         $ (4)          $(27)
                                               ====          ====           ====
</TABLE>

    The minimum pension liability adjustment at September 30, 1999 and 1998 is
recorded net of a tax benefit of $2 million and $5 million, respectively.

    STOCK BASED COMPENSATION: In October 1995, the FASB issued Statement No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, ("SFAS 123") which establishes a
fair value method of accounting for stock-based compensation plans. SFAS 123
encourages, but does not require, adoption of a fair value method; it allows for
a company to continue to report under Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees". The Company continues to
account for its stock-based compensation under APB 25. (See Note 10).

                                       38
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--ACCOUNTING POLICIES (CONTINUED)

    EARNINGS PER SHARE: The following is a reconciliation of the numerators and
denominators of the basic and diluted earnings from Continuing Operations per
share calculation:

<TABLE>
<CAPTION>
                                                     FOR THE FISCAL YEAR ENDED
                                                         SEPTEMBER 30, 1999
                                                 ----------------------------------
                                                 INCOME FROM
                                                 CONTINUING               PER SHARE
                                                 OPERATIONS     SHARES     AMOUNT
                                                 -----------   --------   ---------
                                                   (IN MILLIONS EXCEPT PER SHARE)
<S>                                              <C>           <C>        <C>
Earnings per basic share.......................     $154         92.2       $1.67
Effect of dilutive securities
Stock options..................................                   0.7
Nonvested stock................................                   1.1
                                                    ----         ----       -----
Earnings per diluted share.....................     $154         94.0       $1.64
                                                    ====         ====       =====
</TABLE>

<TABLE>
<CAPTION>
                                                     FOR THE FISCAL YEAR ENDED
                                                         SEPTEMBER 30, 1998
                                                 ----------------------------------
                                                 INCOME FROM
                                                 CONTINUING               PER SHARE
                                                 OPERATIONS     SHARES     AMOUNT
                                                 -----------   --------   ---------
                                                   (IN MILLIONS EXCEPT PER SHARE)
<S>                                              <C>           <C>        <C>
Earnings per basic share.......................     $  3         95.4       $0.03
Effect of dilutive securities
Stock options..................................                   1.5
Nonvested stock................................                   1.3
                                                    ----         ----       -----
Earnings per diluted share.....................     $  3         98.2       $0.03
                                                    ====         ====       =====
</TABLE>

<TABLE>
<CAPTION>
                                                     FOR THE FISCAL YEAR ENDED
                                                         SEPTEMBER 30, 1997
                                                 ----------------------------------
                                                 INCOME FROM
                                                 CONTINUING               PER SHARE
                                                 OPERATIONS     SHARES     AMOUNT
                                                 -----------   --------   ---------
                                                   (IN MILLIONS EXCEPT PER SHARE)
<S>                                              <C>           <C>        <C>
Earnings per basic share.......................     $125         92.5       $1.35
Effect of dilutive securities
Stock options..................................                   1.5
Nonvested stock................................                   1.5
                                                    ----         ----       -----
Earnings per diluted share.....................     $125         95.5       $1.31
                                                    ====         ====       =====
</TABLE>

    Diluted common shares include shares that would be outstanding assuming the
fulfillment of conditions that would remove the restriction on nonvested shares
and the exercise of stock options. Options to purchase 1.8 million, 0.3 million
and 1.6 million shares in the years ended September 30, 1999, 1998 and 1997,
respectively, were not included in the computation of earnings per share because
the option's exercise price was greater than the average market price of the
common shares.

                                       39
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--ACQUISITIONS

    The proforma effect of the acquisitions and the aggregate assets acquired
and liabilities assumed detailed below is not material. These acquisitions have
been accounted for as purchases and their results of operations are included in
the financial statements from the date of acquisition.

    In June 1999, the Company made a tender offer to acquire Spring Ram
Corporation PLC ("Spring Ram") for approximately $131 million in cash, plus the
assumption of $21 million in debt, resulting in goodwill of approximately $110
million. Spring Ram, located in Leeds, England, is a manufacturer of bathroom
and kitchen products. On July 19, 1999 the Company's cash offer to purchase the
shares of Spring Ram was declared wholly unconditional and accordingly, the
operating results of Spring Ram from such date are included in USI Bath and
Plumbing Products.

    In June 1999, the Company purchased the assets of Gatsby Spas, Inc.
("Gatsby") for approximately $17 million in cash, resulting in goodwill of $10
million. Gatsby manufactures and distributes spas. The results of Gatsby are
included in USI Bath and Plumbing Products.

    In April 1999, the Company purchased the assets of the Factory Built Chimney
Division of GSW Inc., ("Supervent") in Canada and the assets of the DEC Group
("DEC") in the Netherlands for approximately $16 million in cash, resulting in
goodwill of $11 million. Supervent and DEC manufacture factory built chimneys,
chimney liners and flexible duct and related products. The results of Supervent
and DEC are included in USI Bath and Plumbing Products.

    In March 1999, the Company purchased the assets of True Temper Hardware
Company ("True Temper") for approximately $99 million in cash, resulting in
goodwill of $27 million. True Temper manufactures lawn and garden tools and
wheelbarrows. The results of True Temper are included in USI Hardware and Tools.

    In March 1999, the Company purchased the assets of the Dual-Lite business
("Dual-Lite") for approximately $46 million in cash, resulting in goodwill of
$36 million. Dual-Lite manufactures emergency lights, and central inverter
systems. The results of Dual-Lite are included in Lighting Corporation of
America.

    In January 1999, the Company purchased the Bowers Group PLC ("Bowers") for
approximately $16 million in cash, resulting in goodwill of $10 million. Bowers
manufactures metrology instruments. The results of Bowers are included in USI
Hardware and Tools.

    In January 1999, the Company purchased Atech Turbine Components, Inc.
("Atech") for approximately $7 million in cash, resulting in goodwill of $6
million. Atech repairs and overhauls small aviation engines. The results of
Atech are included in USI Diversified.

    In June 1998, the Company acquired Sundance Spas for approximately $32
million in cash, resulting in goodwill of $20 million. Sundance Spas, based in
Chino, California, is a manufacturer of high quality self-contained spas. The
results of Sundance Spas are included in the USI Bath and Plumbing Products
operations.

    In May 1998, the Company purchased certain metal components assets from
Philips Components B.V. ("Philips") for $31 million, resulting in goodwill of
$12 million. The Company and Philips have entered into a multi-year supply
agreement. The acquired operations are located in the Netherlands. The results
of Philips are included in USI Diversified operations.

                                       40
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--ACQUISITIONS (CONTINUED)

    In January 1998, the Company acquired certain semiconductor leadframe assets
from Philips Electronics for $16 million in cash. The acquired operations
facilities are located in the Netherlands. The results of Philips Electronics
are included in the USI Diversified operations.

    In December 1997, the Company purchased Spear & Jackson plc ("Spear &
Jackson") for $11 million in cash and $96 million in the Company's Common Stock,
resulting in goodwill of approximately $63 million. Spear & Jackson,
manufactures and distributes hand tools, lawn and garden tools, saws, cutting
and industrial tools. The purchase price is subject to a cash contingency,
payable on or before June 2000. The cash contingency is based upon certain
performance criteria and the market value of the Company's stock and, at
present, approximates the maximum payout of L47 million. The results of Spear &
Jackson are included in the USI Hardware and Tools operations.

    In October 1997, the Company purchased the assets of Siemens AG's European
commercial lighting operations, for $67 million. The acquired business is a
leading European manufacturer and marketer of standard and customized indoor and
outdoor lighting products for commercial and industrial use. The business,
renamed SiTeco, operates manufacturing facilities in Germany, Austria and
Slovenia. The results of SiTeco are included in the Lighting Corporation of
America operations.

    In July 1997, the Company purchased IXL Manufacturing Company, Inc. ("IXL")
for $12 million and the assumption of $1.3 million of debt, resulting in
goodwill of approximately $6 million. IXL manufactures fiberglass and wood
handles for striking tools and lawn and garden tools. The results of IXL are
included in the USI Hardware and Tools operations.

    In January 1997, the Company purchased the stock of Eljer Industries, Inc.
("Eljer") for $176 million in cash plus the assumption of debt. Eljer
manufactures and distributes china and cast iron plumbing fixtures, flexible
plumbing systems, and heating, ventilation and air conditioning products. The
transaction has been accounted for as a purchase, resulting in goodwill of $193
million. The results of Eljer are included in the USI Bath and Plumbing Products
operations.

    In January 1997, the Company purchased the assets of Woodings-Verona Tool
Works, Inc. ("Woodings-Verona") for $5 million in cash plus the assumption of $1
million of debt. Woodings-Verona manufactures hot-forged heavy striking tools
including sledge hammers, axes, bars, picks and railroad tools. The results of
Woodings-Verona are included in the USI Hardware and Tools operations.

NOTE 4--DISCONTINUED OPERATIONS AND DISPOSITIONS OF BUSINESSES

    In January 1999, the Company completed the sale of its remaining interest in
the Power Systems Segment for gross proceeds of approximately $30 million. No
gain or loss was realized upon the transaction.

    In the second quarter of fiscal 1999, the Company adopted a formal plan to
dispose of The Ertl Company Inc. ("Ertl"), which was sold in April 1999 for
proceeds of approximately $95 million, which resulted in a net-of-tax loss of
$13 million. The Company has restated its financial statements to reflect this
business as a discontinued operation. Included in the sale of Ertl was Britains
Petite Limited, a manufacturer of military soldier collectibles, metal and
plastic models of agricultural vehicles, figures, animals, buildings and
accessories and preschool plastic toys, which the Company acquired in May 1997
for $9 million in cash.

                                       41
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--DISCONTINUED OPERATIONS AND DISPOSITIONS OF BUSINESSES (CONTINUED)

    In September 1999, the Company sold the assets of the water resource
construction business for approximately $11 million, which approximated book
value. The results of the water resource businesses were included in USI Bath
and Plumbing segment until date of disposal.

    In fiscal 1998, the Company sold the assets of Tommy Armour Golf for $10
million in cash and certain common stock of the purchaser. In April 1999, the
Company completed the sale of this common stock which resulted in a realized $1
million net of tax gain from the sale.

    During the third quarter of fiscal 1998, the Company adopted a plan to
dispose of SunLite Casual Furniture, Inc. ("SunLite"), its outdoor furniture
operation and has reflected this business as a discontinued operation. In
connection with this plan, the Company recorded an impairment charge of $38
million for the difference between the estimated net realizable value and the
carrying value of long lived assets and an estimated loss of $3 million, for the
disposal of other assets of this business. Sunlite was acquired by the Company
in April 1997 for $60 million in cash and had goodwill of approximately $14
million.

    In fiscal 1997, the Company, in separate transactions, sold Tube-Tex, SCM
Metals, certain assets of QPF, Inc., Odyssey, SunLite resin furniture business,
Lynx Golf, Zurn's Power Transmissions segment and portions of the Power Systems
segment and the equity interest in Ground Round for an aggregate of $390 million
in cash and notes of $3 million and recorded gains of $113 million, net of tax.
The Company has commitments and receivables relating to certain projects
previously disposed. The carrying value of these projects of approximately $2
million and $20 million at September 30, 1999 and 1998, respectively, is
included in other assets. Management continues to evaluate its commitments and
exposure to contingencies related to these projects. Management believes that
the resolution of the discontinued operations are not expected to have a
material impact on the future operations and liquidity of the Company.

    Net assets held for disposition consists of the following:

<TABLE>
<CAPTION>
                                                                      AT
                                                              SEPTEMBER 30, 1998
                                                              ------------------
                                                                (IN MILLIONS)
<S>                                                           <C>
Net current assets..........................................         $ 68
Property, plant and equipment...............................           30
Other non-current assets and liabilities, net...............           45
                                                                     ----
Net assets held for disposition.............................         $143
                                                                     ====
</TABLE>

    Amounts classified as net assets held for disposition as of September 30,
1998 relate to the businesses referred to as discontinued operations and
primarily consist of the net assets of Ertl which were subsequently disposed.

    The following summarizes the operating results of the businesses classified
as discontinued operations:

<TABLE>
<CAPTION>
                                                                ENDED SEPTEMBER 30,
                                                           ------------------------------
                                                             1999       1998       1997
                                                           --------   --------   --------
                                                                   (IN MILLIONS)
<S>                                                        <C>        <C>        <C>
Net sales................................................    $77        $227       $392
Pre-tax income (loss)....................................     (1)        (44)        27
</TABLE>

                                       42
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--DISCONTINUED OPERATIONS AND DISPOSITIONS OF BUSINESSES (CONTINUED)

    In October 1999, the Company sold certain assets of its ladder business for
approximately book value. Certain liabilities of the ladder business were
retained by the Company. The results of the ladder business are included in USI
Hardware and Tools.

NOTE 5--MERGER, RESTRUCTURING AND OTHER RELATED COSTS

    During fiscal 1998 the Company reviewed its long-term strategy for the newly
combined entity resulting from the Merger and reviewed each operating company's
performance and future prospects. As a result, the Company adopted a plan to
improve efficiency and enhance competitiveness. The Company reorganized into
four business units:

    - Bath and Plumbing Products

    - Lighting

    - Hardware and Tools

    - Diversified Operations

    Each business unit has full operational and financial responsibility.

    In conjunction with the reorganization into four business units, due to
indications of impairment, the Company evaluated the recoverability of certain
long-lived assets, primarily goodwill at Garden State Tanning and Keller
Ladders. In arriving at the fair value of Garden State Tanning the Company
considered a number of factors including: (i) annual price concessions in the
automotive industry and Garden State Tanning's inability to reduce costs due to
antiquated facilities and equipment, (ii) a dramatic decline in scrap leather
prices attributable to the Asian economic crisis, (iii) capital investment that
would be required to make Garden State Tanning a lower cost manufacturer, (iv)
Garden State Tanning's long-term financial plan and (v) analysis of values for
similar companies. In arriving at the fair value of Keller Ladders the Company
considered (i) the impact from the loss of a major customer, (ii) the inability
to replace this business due to aggressive competition, (iii) continued pressure
for price concessions from mass merchants, (iv) Keller Ladder's long term
financial plan and (iv) analysis of values for similar companies. In determining
the amount of the impairment, the Company compared the net book values to the
estimated fair values of Garden State Tanning and Keller Ladders. Based on the
above, the Company determined that impairments to goodwill of $55 million and
$28 million were necessary at Garden State Tanning and Keller, respectively. The
reduced goodwill amortization at Garden State Tanning and Keller is $3 million
per annum. In October 1999, the Company sold certain assets of Keller for
approximately book value. See Note 4 to the Consolidated Financial Statements.

    The 1998 restructuring plan included the closing of certain manufacturing
and warehouse facilities in the bath and plumbing products, shoe and lighting
operations. The closure of these facilities occurred at various dates through
1999. The production and distribution activities of these facilities were either
outsourced, relocated off-shore, or consolidated into existing facilities. The
restructuring plan included a reduction in the work force by approximately 700
employees which included salaried and administrative employees at the
restructured facilities as well as administrative and executive employees. As of
September 30, 1999 all employees had been terminated with some employees
departing voluntarily prior to final termination. In certain cases severance and
related benefits have been or will be paid subsequent to the termination date.

                                       43
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--MERGER, RESTRUCTURING AND OTHER RELATED COSTS (CONTINUED)

    During the third quarter of fiscal 1999, the Company's footwear operations
expanded its 1998 restructuring plan and closed a second domestic manufacturing
facility. The closure of the second facility was completed by June 1999, with
its production being outsourced to offshore vendors. The total charges amounted
to $2 million and were comprised of the costs of terminating of 110 employees
and the write-off of impaired fixed assets. In addition, the Company incurred
inventory obsolescence related costs of $1 million in connection with the
closure of a manufacturing facility.

    The restructuring at a number of facilities, which began during the third
quarter of fiscal 1998, was substantially completed during fiscal 1999. In
addition, during the third and fourth quarters of fiscal 1999, the Company
reduced certain severance reserves by $1 million, primarily due to voluntary
departures prior to final termination which resulted in lower severance costs.

    The restructuring did not have a significant impact on the ongoing
operations during the periods that manufacturing was transitioned from the
facilities to be closed. The expected benefits from the restructuring are
primarily reduced depreciation; reduced fixed costs associated with leased
facilities and reduced compensation costs. The final anticipated benefit will be
approximately $8 million per annum and realized subsequent to the completion of
all restructuring plans. The Company realized approximately 50% of the annual
benefit in fiscal 1999 and expects that substantially all of the benefit will be
realized in fiscal 2000 and thereafter.

    The merger, integration and other costs also includes investment banking,
legal and accounting fees and other miscellaneous costs, as well as costs
related to change-in-control payments to certain Zurn employees.

    The principal components of the merger, restructuring and other related
costs are:

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
Impairment of goodwill......................................    $ --       $ 83
Lease obligations and impairment of equipment...............       1         11
Merger, integration and other costs.........................      --         26
Severance and related costs.................................      --         22
                                                                ----       ----
      Total.................................................    $  1       $142
                                                                ====       ====
Cash charges................................................    $  1       $ 52
Non-cash charges............................................      --         90
                                                                ----       ----
      Total.................................................    $  1       $142
                                                                ====       ====
</TABLE>

                                       44
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--MERGER, RESTRUCTURING AND OTHER RELATED COSTS (CONTINUED)

    At September 30, 1999, $8 million of cash related restructuring charges
remained in accrued liabilities, detailed as follows:

<TABLE>
<CAPTION>
                                         LEASE AND                  MERGER
                                         CONTRACT     SEVERANCE    AND OTHER
                                          RELATED    AND RELATED    RELATED     TOTAL
                                           COSTS        COSTS        COSTS      COSTS
                                         ---------   -----------   ---------   --------
                                                         (IN MILLIONS)
<S>                                      <C>         <C>           <C>         <C>
1998 activity:
  Initial Charges......................    $  4          $ 22        $ 26        $ 52
  Cash payments........................      --            (6)        (24)        (30)
                                           ----          ----        ----        ----
Balance at September 30, 1998..........       4            16           2          22

1999 activity:
  Cash payments........................      (2)          (11)         (2)        (15)
  Adjustments..........................      --            (1)         --          (1)
  Charges..............................       1             1                       2
                                           ----          ----        ----        ----
Balance at September 30, 1999..........    $  3          $  5        $ --        $  8
                                           ====          ====        ====        ====
</TABLE>

    The Company expects the remaining cash charges to be paid by the respective
lease termination date and over the periods provided by severance agreements.

    In fiscal 1998, in addition to the $142 million of merger, restructuring and
other related costs, the Company incurred $11 million of costs related to the
elimination of product lines and the reduction of manufacturing and warehouse
facilities at its operations which were restructured. After an income tax
benefit of $22 million, these charges reduced income from continuing operations
for fiscal 1998 by $131 million.

                                       45
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--LONG-TERM DEBT

    Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                      AT
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
7.125% Senior Notes, net....................................   $  248      $ --
7.25% Senior Notes, net.....................................      123       123
Revolving credit facility, US dollar........................      300       300
Revolving credit facility, foreign currencies...............      279       156
Commercial paper............................................      167        --
Other short-term borrowings.................................       55       200
Other long-term debt........................................       62       172
                                                               ------      ----
                                                                1,234       951
Less current maturities.....................................      (15)       (4)
                                                               ------      ----
Long-term debt..............................................   $1,219      $947
                                                               ======      ====
</TABLE>

    Principal payments on long-term debt for the next five years ended
September 30 are as follows:

<TABLE>
<CAPTION>
                                                              (IN MILLIONS)
                                                              -------------
<S>                                                           <C>
2000........................................................       $ 15
2001........................................................       $330
2002........................................................       $507
2003........................................................       $  2
2004........................................................       $249
</TABLE>

    In October 1998, USI and USI American Holdings, Inc. ("USIAH"), a wholly
owned subsidiary of USI Atlantic Corp. ("USI Atlantic") jointly issued $250
million of Senior Notes due October 15, 2003, which bear interest at 7.125%,
payable semiannually (the "7.125% Notes"). The net proceeds were $247 million
after transaction fees and discounts. As discussed below, $200 million of the
proceeds were used to repay a short-term note and the remainder was used to
repay borrowings under uncommitted bank credit lines. On July 9, 1999, the
Company exchanged its 7.125% Notes which were not registered under the
Securities Act of 1933, for registered 7.125% Notes having substantially the
same terms.

    In fiscal 1997, USIAH issued $125 million of Senior Notes due December 1,
2006, which bear interest at 7.25%, payable semiannually (the "7.25% Notes").
The net cash proceeds were $123 million after transaction fees and discounts. In
connection with the Merger, a supplemental indenture was executed adding USI as
a co-obligor with USIAH under the 7.25% Notes.

    The 7.25% Notes and the 7.125% Notes (collectively, the "Notes") are fully
and unconditionally guaranteed by USI Atlantic. The Notes are redeemable at the
option of the Company, in whole or in part, at a redemption price equal to the
greater of (i) 100% of the principal amount to be redeemed, or (ii) the sum of
the present values of the remaining scheduled payments of principal and interest
on the Notes to be redeemed, discounted at a rate based on the yield to maturity
of the comparable U.S. Government securities plus a spread (10 basis points for
the 7.25% Notes and 50 basis points for the 7.125% Notes) plus, in each case,
accrued interest to the date of redemption. The Notes are unsecured but the
indentures place restrictions on liens and subsidiary indebtedness. Certain
restrictions on dividends and the purchase

                                       46
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--LONG-TERM DEBT (CONTINUED)

of common stock for treasury were eliminated pursuant to the indenture for the
7.25% Notes in August 1998 when Moody's Investors Services, Inc. raised its
rating on the notes to Baa2. The 7.125% Notes were issued without such
restriction.

    The Company has a five year revolving line of credit for $750 million (the
"Credit Agreement"). The revolving credit commitment was permanently reduced by
$100 million on December 12, 1999, and will be reduced by an additional $150
million on December 12, 2000, and terminates on December 12, 2001. The Credit
Agreement includes committed advances and uncommitted bid option advances. The
committed advances bear interest based on, at the option of the Company,
(i) specified spreads over London Interbank Offer Rate ("LIBOR") or (ii) the
higher of the agent bank's reference rate or 50 basis points above the federal
funds rate in effect on such date. The spreads on the LIBOR-based borrowings
range between 15 and 62.5 basis points, based on the Company's senior unsecured
debt rating for the relevant period. At September 30, 1999 three-month LIBOR was
6.0850% per annum and the spread over LIBOR was 22.5 basis points. A facility
fee, regardless of the amount utilized, is payable on a quarterly basis in
arrears on the full amount of the Credit Agreement. The facility fee ranges
between 7.5 and 25 basis points per annum, based upon the Company's senior
unsecured debt ratings for the relevant period. At September 30, 1999, the
facility fee was 10.0 basis points per annum. The Credit Agreement places
restrictions on, among other things, liens, mergers, consolidations and
additional indebtedness. Its financial covenants require USI to comply with
maximum ratio of total funded debt to capital and a consolidated leverage ratio.
The maximum ratios are .60:1.00 and 3.5:1.0, respectively.

    At September 30, 1999 the Company had current maturities of long-term debt
and short-term notes payable aggregating $48 million. At September 30, 1999,
subject to the financial covenants, the Company had $547 million of availability
both in committed and uncommitted lines of credit. The committed availability
amounted to $304 million and was comprised of $171 million of unused credit
available under the five year revolving credit agreement (as defined below) and
$133 million of unused availability under its 364-day day facility expiring
October 27, 2000. The availability under uncommitted short-term lines of credit
amounted to $243 million.

    During fiscal 1998, the Company amended the Credit Agreement to allow a
portion of the available facility to be used for borrowings in currencies other
than the U.S. dollar, to eliminate the previous restriction limiting certain
unsecured indebtedness to $200 million, to permit the Merger and to add USI as a
co-obligor. USIAH is the co-obligor, and USI Atlantic is the guarantor of the
Credit Agreement.

    In April 1999, USIAH transferred substantially all of its assets and
liabilities to a new wholly owned subsidiary of USI named USI Global Corporation
("USI Global") in exchange for preferred stock in USI Global. In connection with
the asset transfer, USI Global assumed joint and several obligations under the
Notes and the Credit Facility, equally with the Company and USIAH. Neither the
Company, USIAH nor USI Atlantic as guarantor was released from its obligations
under the Notes or the Credit Agreement in connection with the transfer to
assets to USI Global. See Note 14 to the Consolidated Financial Statements.

    In April 1999, the Company commenced a $300 million commercial paper
program, of which $167 million was outstanding at September 30, 1999. The
commercial paper is supported by a $300 million 364-day revolving line of credit
that the Company entered into on October 30, 1998. This line of credit was
renewed and the new termination date is October 27, 2000. Accordingly, the
Company has classified this borrowing as long term.

                                       47
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--LONG-TERM DEBT (CONTINUED)

    In August 1999, the Company's shelf registration statement on Form S-3 filed
with the Commission in order to register $600 million in debt securities became
effective. The Company expects to issue debt securities covered by this
registration statement in future periods depending on market conditions.

    Zurn, prior to the Merger, was an obligor under a $250 million secured
credit facility. Upon the Merger, the facility became due and was repaid on June
11, 1998. The Company used $200 million of the proceeds from a short-term note,
advanced by one of its lenders, to repay the borrowings under the facility. The
note bore interest at a rate of approximately 6.1% per annum. The Company repaid
this obligation in October 1998 using a portion of the proceeds from the 7.125%
Notes, and accordingly it has been classified as long-term.

    At September 30, 1999, the Company had long-term indebtedness of $64
million, $203 million, $12 million and $17 million denominated in German marks,
British pounds, Dutch guilders and Hong Kong dollars, respectively. These
borrowings hedge the Company's net investments in several operating companies
and an equity investment. The total foreign denominated debt of $296 million was
comprised of $279 million borrowed through the Company's credit agreement and
$17 million through other long-term debt.

    Interest paid during fiscal 1999, 1998 and 1997, including amounts under
swap agreements of $4 million, $3 million and $5 million, was $73 million, $71
million, and $63 million, respectively.

    Other short-term borrowings at September 30, 1999 primarily consist of notes
payable, which bear interest at a weighted average interest rate of 5.56%, with
maturities due within one year. The Company intends to refinance these
borrowings under the Credit Agreement and accordingly, the Company has
classified these as long term. Uncommitted short-term lines of credit at
September 30, 1999, used and unused, total $310 million.

    In connection with the fiscal 1998 repayment of borrowings under the Zurn
Facility, the Company recorded a net-of-tax extraordinary charge of $5 million
to write-off unamortized deferred financing costs and to settle outstanding
interest rate protection agreements.

    In anticipation of an offering of debt securities, the Company entered into
certain interest rate protection agreements in March and April 1998. Due to
subsequent market changes, the principal amount and term of the 7.125% Notes
that were ultimately sold varied from those originally anticipated. These
interest rate protection agreements were settled in September 1998 for $22
million. The portion of the costs of the agreements deemed related to the 7.125%
Notes of $10 million will be amortized over the term of the 7.125% Notes
bringing the effective interest rate to approximately 8.4%. The Company has
recorded a non-recurring, net-of-tax charge of $7 million, to write-off the
remainder of the costs of the agreements in the fourth quarter of fiscal 1998,
which is included in other (income) expense, net.

    The Company entered into interest rate protection agreements to receive a
floating rate based on three-month LIBOR and pay a weighted average fixed rate.
The fixed interest rates under the interest rate swaps currently outstanding
range from 5.59% to 6.08% per annum. All interest rate swaps are of notional
amounts and maturities that hedge specific portions of outstanding debt, and
accordingly, are accounted for as hedge transactions. The aggregate notional
amounts and periods covered by such agreements are as follows:

<TABLE>
<S>                                                           <C>
October 1, 1999 through September 30, 2001..................  $200 million
</TABLE>

    The Company had issued standby letters of credit aggregating $44 million at
September 30, 1999.

                                       48
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--PENSION AND RETIREMENT PLANS

DOMESTIC BENEFIT ARRANGEMENTS

    The Company and its subsidiaries sponsor a number of noncontributory defined
benefit pension plans covering substantially all of its United States employees.
The benefits under these plans are based primarily on years of credited service
and compensation as defined under the respective plan provisions. The Company's
funding policy is to contribute amounts to the plans sufficient to meet the
minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974, plus such additional amounts as the Company may determine
to be appropriate from time to time.

    The Company and certain of its subsidiaries also sponsor defined
contribution plans and in the United States also participate in multi-employer
plans, which provide defined benefits to union employees of the Company's
subsidiaries. Contributions relating to defined contribution plans are made
based upon the respective plans' provisions. Contributions relating to
multi-employer plans are based on negotiated collective bargaining agreements.

    The Company also provides health care and life insurance benefits to certain
groups of retirees.

    During fiscal 1999, the Company adopted SFAS No. 132, "Employers' Disclosure
about Pension and Postretirement Benefits" ("SFAS 132"). SFAS 132 standardizes
the disclosure requirements for pension and other postretirement benefits. This
Statement addresses disclosure only. It does not address expense recognition or
liability measurement. Accordingly, there was no effect on financial position or
net income as a result of adopting SFAS 132.

    The assumptions used and the net periodic pension cost for the Company's
defined benefit plans, as well as the total contributions charged to pension
expense for the defined contribution and multi-employer plans covering employees
in the United States are presented below:

<TABLE>
<CAPTION>
                                              PENSION BENEFITS                        OTHER BENEFITS
                                 ------------------------------------------   ------------------------------
                                   1999          1998             1997          1999       1998       1997
                                 --------   --------------   --------------   --------   --------   --------
<S>                              <C>        <C>              <C>              <C>        <C>        <C>
WEIGHTED AVERAGE ASSUMPTIONS AS
  OF SEPTEMBER 30
Discount rate..................    7.5%              6.75%   7.00% to 7.50%     7.5%      6.75%       7.5%
Rate of compensation
  increase.....................    4.5%     4.50% to 5.75%   4.10% to 4.50%       --         --         --
Expected long-term rate of
  return on assets.............    9.5%      9.0% to 11.0%             9.0%       --         --         --
</TABLE>

                                       49
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--PENSION AND RETIREMENT PLANS (CONTINUED)

<TABLE>
<CAPTION>
                                                              PENSION BENEFITS                  OTHER BENEFITS
                                                       ------------------------------   ------------------------------
                                                         1999       1998       1997       1999       1998       1997
                                                       --------   --------   --------   --------   --------   --------
                                                                                (IN MILLIONS)
<S>                                                    <C>        <C>        <C>        <C>        <C>        <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Defined benefit plans:
Service cost.........................................    $ 17       $ 14       $ 12       $  1       $  1       $  1
Interest cost........................................      32         30         26          4          4          4
Expected return on plan assets.......................     (54)       (50)       (41)        --         --         --
Prior service cost...................................       1          2         --         --         --         --
Amortization of unrecognized transition asset........      (2)        (3)        --         --         --         --
Net actuarial gain...................................      (1)        --         --         --         --         --
Curtailments.........................................      (1)        --         --         (1)        --         --
                                                         ----       ----       ----       ----       ----       ----
Net periodic benefit (income) cost for defined
  benefit plans......................................      (8)        (7)        (3)         4          5          5
Defined contribution plans...........................       4          7          4         --         --         --
Multi-employer expense...............................       1          2          2         --         --         --
                                                         ----       ----       ----       ----       ----       ----
Net periodic (income) cost...........................    $ (3)      $  2       $  3       $  4       $  5       $  5
                                                         ====       ====       ====       ====       ====       ====
</TABLE>

    The following table provides a reconciliation of changes in the projected
benefit obligation, fair value of plan assets and the funded status of the
Company's defined benefit pension and postretirement benefit plans with the
amounts recognized in the Company's balance sheet at September 30:

<TABLE>
<CAPTION>
                                                                 PENSION BENEFITS           OTHER BENEFITS
                                                              -----------------------   -----------------------
                                                                1999           1998       1999           1998
                                                              --------       --------   --------       --------
                                                                                (IN MILLIONS)
<S>                                                           <C>            <C>        <C>            <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION:
Benefit obligation at beginning of year.....................   $ 476           $404       $ 59           $ 64
Service cost................................................      17             14          1              1
Interest cost...............................................      32             30          4              4
Plan amendments.............................................       1              5          1             (1)
Actuarial (gain) loss.......................................     (47)            63         (3)            (6)
Curtailments................................................      (2)            (1)        (1)            --
Settlements.................................................      --              1         --             --
Benefits paid...............................................     (32)           (32)        (5)            (3)
Acquisitions (divestitures).................................      16             (8)         1             --
                                                               -----           ----       ----           ----
Benefit obligation at end of year...........................   $ 461           $476       $ 57           $ 59
                                                               =====           ====       ====           ====
CHANGE IN FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of year..............   $ 603           $636       $ --           $ --
Actual return on plan assets................................      86             (8)        --             --
Employer contributions......................................       4             13          5              3
Benefits paid...............................................     (32)           (32)        (5)            (3)
Acquisitions (divestitures).................................      15             (6)        --             --
                                                               -----           ----       ----           ----
Fair value of plan assets at end of year....................   $ 676           $603       $ --           $ --
                                                               =====           ====       ====           ====
</TABLE>

                                       50
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--PENSION AND RETIREMENT PLANS (CONTINUED)

<TABLE>
<CAPTION>
                                                                 PENSION BENEFITS           OTHER BENEFITS
                                                              -----------------------   -----------------------
                                                                1999           1998       1999           1998
                                                              --------       --------   --------       --------
                                                                                (IN MILLIONS)
<S>                                                           <C>            <C>        <C>            <C>
FUNDED STATUS OF PLANS:
Plan assets in excess of (less than) projected benefit
  obligation................................................   $ 215           $127       $(57)          $(59)
Unrecognized net actuarial gains............................    (119)           (40)        (7)            (5)
Unrecognized prior service cost.............................      14             14         (2)            (2)
Unrecognized net transition asset...........................      (3)            (5)        --             --
                                                               -----           ----       ----           ----
Total recognized in the consolidated balance sheet..........   $ 107           $ 96       $(66)          $(66)
                                                               =====           ====       ====           ====
AMOUNTS RECOGNIZED IN THE BALANCE SHEET CONSIST OF:
Prepaid benefits............................................   $ 124           $108       $ --           $ --
Accrued benefits............................................     (27)           (33)       (66)           (66)
Intangible assets...........................................       4              6         --             --
Accumulated other comprehensive income......................       6             15         --             --
                                                               -----           ----       ----           ----
Total recognized in the consolidated balance sheet..........   $ 107           $ 96       $(66)          $(66)
                                                               =====           ====       ====           ====
</TABLE>

    The aggregate projected benefit obligation and the aggregate fair value of
plan assets, for the plans that have a projected benefit obligation in excess of
plan assets, are $162 million and $136 million, respectively, in 1999 and $155
million and $114 million, respectively, in 1998.

    The aggregate accumulated benefit obligation and the aggregate fair value of
plan assets, for the plans that have an accumulated benefit obligation in excess
of plan assets, are $91 million and $74 million, respectively, in 1999 and $90
million and $64 million, respectively, in 1998.

    The assets for the Company's U.S. plans are included in a master trust which
principally invests in listed stocks and bonds, including common stock of the
Company. The Company's Common Stock included in plan assets was 983,100 and
783,100 shares at September 30, 1999 and 1998, respectively, representing $16
million and $12 million of the master trust's assets for the same respective
periods. At September 30, 1999, approximately $8 million of the Company's plan
assets were held by a master trust sponsored by Huffy Corp., the former owners
of True Temper. These plan assets will be transferred to the USI master trust by
December 1999.

    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
postretirement benefit plans was 9.0% for 1999 and is assumed to decrease 0.5% a
year to 5.5%. A one-percentage-point change in the assumed health care cost
trend rate would have the following effects at and for the year ended September
30, 1999 (in millions):

    Effect of a 1% increase in the health care cost trend rate on:

<TABLE>
<S>                                                           <C>
Service cost plus interest cost.............................  $ 1
Accumulated post-retirement benefit obligation..............    4
</TABLE>

                                       51
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--PENSION AND RETIREMENT PLANS (CONTINUED)

    Effect of a 1% decrease in the health care cost trend rate on:

<TABLE>
<S>                                                           <C>
Service cost plus interest cost.............................   --
Accumulated post-retirement benefit obligation..............   (4)
</TABLE>

    The tables above set for the historical components of net periodic pension
cost and a reconciliation of the funded status of the pension and other
postretirement benefit plans for the employees associated with the Company and
is not necessarily indicative of the amounts to be recognized by the Company on
a prospective basis.

FOREIGN BENEFIT ARRANGEMENTS

    The assumptions used and net periodic pension cost for the Company's foreign
defined benefit plans primarily covering SiTeco's employees in Germany and
Austria are presented below.

<TABLE>
<CAPTION>
                                                      PENSION BENEFITS
                                                ----------------------------
                                                    1999            1998
                                                -------------   ------------
<S>                                             <C>             <C>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF SEPTEMBER
  30
Discount rate.................................  5.75% to 6.0%          6.00%
Rate of compensation increase.................   2.5% to 4.0%   2.5% to 4.5%
</TABLE>

<TABLE>
<CAPTION>
                                                                      PENSION
                                                                     BENEFITS
                                                              -----------------------
                                                                1999           1998
                                                              --------       --------
                                                                   (IN MILLIONS)
<S>                                                           <C>            <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
  Service cost..............................................     $1             $1
  Interest cost.............................................      1              2
                                                                 --             --
Total periodic cost.........................................     $2             $3
                                                                 ==             ==
</TABLE>

                                       52
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--PENSION AND RETIREMENT PLANS (CONTINUED)

    The following table provides a reconciliation of changes in the projected
benefit obligation and the funded status of the Company's foreign defined
benefit pension plans with the amounts recognized in the Company's balance sheet
as of September 30:

<TABLE>
<CAPTION>
                                                                      PENSION
                                                                     BENEFITS
                                                              -----------------------
                                                                1999           1998
                                                              --------       --------
                                                                   (IN MILLIONS)
<S>                                                           <C>            <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year.....................    $24            $--
Service cost................................................      1              1
Interest cost...............................................      1              2
Foreign currency exchange rate changes......................     (2)             2
Benefits paid...............................................     (1)            --
Acquisition.................................................     --             19
                                                                ---            ---
Benefit obligation at end of year...........................    $23            $24
                                                                ===            ===
</TABLE>

<TABLE>
<CAPTION>
                                                                 PENSION BENEFITS
                                                              -----------------------
                                                                1999           1998
                                                              --------       --------
<S>                                                           <C>            <C>
FUNDED STATUS OF PLANS:
Projected benefit obligation................................    $(23)          $(24)
                                                                ----           ----
Total recognized in the consolidated balance sheet..........    $(23)          $(24)
                                                                ====           ====
AMOUNTS RECOGNIZED IN THE BALANCE SHEET CONSIST OF:
Accrued benefits............................................    $(23)          $(24)
                                                                ----           ----
Total recognized in the consolidated balance sheet..........    $(23)          $(24)
                                                                ====           ====
</TABLE>

NOTE 8--LEASES

    Rental expense for operating leases is:

<TABLE>
<CAPTION>
                                                                  FOR THE FISCAL YEARS
                                                                         ENDED
                                                                     SEPTEMBER 30,
                                                             ------------------------------
                                                               1999       1998       1997
                                                             --------   --------   --------
                                                                     (IN MILLIONS)
<S>                                                          <C>        <C>        <C>
Minimum rentals............................................    $32        $26        $19
Contingent rentals.........................................      3          3          1
                                                               ---        ---        ---
                                                               $35        $29        $20
                                                               ===        ===        ===
</TABLE>

                                       53
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--LEASES (CONTINUED)

    Future minimum rental commitments under noncancellable operating leases as
of September 30, 1999 are:

<TABLE>
<CAPTION>
                                                              (IN MILLIONS)
                                                              -------------
<S>                                                           <C>
2000........................................................       $ 34
2001........................................................         27
2002........................................................         23
2003........................................................         15
2004........................................................         12
Thereafter..................................................         30
                                                                   ----
Total minimum lease payments................................       $141
                                                                   ====
</TABLE>

NOTE 9--INCOME TAXES

    Income before income taxes, discontinued operations and extraordinary loss
consists of:

<TABLE>
<CAPTION>
                                                                FOR THE FISCAL YEARS
                                                                       ENDED
                                                                   SEPTEMBER 30,
                                                           ------------------------------
                                                             1999       1998       1997
                                                           --------   --------   --------
                                                                   (IN MILLIONS)
<S>                                                        <C>        <C>        <C>
United States............................................    $175       $10        $173
Foreign..................................................      66        68          46
                                                             ----       ---        ----
                                                             $241       $78        $219
                                                             ====       ===        ====
</TABLE>

    The provisions for federal, foreign, and state income taxes attributable to
income from continuing operations consist of:

<TABLE>
<CAPTION>
                                                                  FOR THE FISCAL YEARS
                                                                         ENDED
                                                                     SEPTEMBER 30,
                                                             ------------------------------
                                                               1999       1998       1997
                                                             --------   --------   --------
                                                                     (IN MILLIONS)
<S>                                                          <C>        <C>        <C>
Current:
Federal....................................................    $49        $28        $45
Foreign....................................................     24         23         17
State......................................................      7          4          8
                                                               ---        ---        ---
                                                                80         55         70
Deferred...................................................      7         20         24
                                                               ---        ---        ---
                                                               $87        $75        $94
                                                               ===        ===        ===
</TABLE>

                                       54
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--INCOME TAXES (CONTINUED)

    The Company's effective income tax provision attributable to continuing
operations differs from the statutory federal income tax provision as follows:

<TABLE>
<CAPTION>
                                                                  FOR THE FISCAL YEARS
                                                                         ENDED
                                                                     SEPTEMBER 30,
                                                             ------------------------------
                                                               1999       1998       1997
                                                             --------   --------   --------
                                                                     (IN MILLIONS)
<S>                                                          <C>        <C>        <C>
Statutory federal income tax provision.....................    $84        $27        $77
Foreign income tax differential............................     (3)         2          3
State income taxes (net of federal benefit)................      5          3          6
Goodwill amortization......................................      5          6          5
Goodwill impairment........................................     --         29         --
Non-deductible non-recurring and unusual charges...........     --          8         --
Miscellaneous..............................................     (4)        --          3
                                                               ---        ---        ---
                                                               $87        $75        $94
                                                               ===        ===        ===
</TABLE>

<TABLE>
<CAPTION>
                                                                        AT
                                                                   SEPTEMBER 30,
                                                              -----------------------
                                                                1999           1998
                                                              --------       --------
                                                                   (IN MILLIONS)
<S>                                                           <C>            <C>
Deferred tax liabilities:
  Property, plant and equipment.............................    $ 33           $ 28
  Inventory.................................................       3              5
  Net pension assets........................................      19             15
  Other.....................................................       3              3
                                                                ----           ----
  Total deferred tax liabilities............................      58             51
                                                                ----           ----
Deferred tax assets:
  Accruals and allowances...................................      93            101
  Postretirement benefits...................................      16             20
  Deductible goodwill.......................................      20             21
  Other.....................................................       3             --
                                                                ----           ----
  Total deferred tax assets.................................     132            142
                                                                ----           ----
  Net deferred tax asset....................................    $ 74           $ 91
                                                                ====           ====
</TABLE>

                                       55
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--INCOME TAXES (CONTINUED)

    The classification of the deferred tax balances is:

<TABLE>
<CAPTION>
                                                                        AT
                                                                   SEPTEMBER 30,
                                                              -----------------------
                                                                1999           1998
                                                              --------       --------
                                                                   (IN MILLIONS)
<S>                                                           <C>            <C>
Current asset...............................................    $ 71           $ 80
Current liabilities.........................................      (3)            (5)
                                                                ----           ----
                                                                  68             75
                                                                ----           ----
Noncurrent asset............................................      61             62
Noncurrent liability........................................     (55)           (46)
                                                                ----           ----
                                                                   6             16
                                                                ----           ----
Net deferred tax asset......................................    $ 74           $ 91
                                                                ====           ====
</TABLE>

    The current year tax provision was reduced by approximately $6 million as a
result of the resolution of certain foreign tax matters and other miscellaneous
items.

    The Company entered into a tax sharing and indemnification agreement in
which its former parent generally agreed to indemnify the Company for all
federal and state income tax liabilities in respect to periods prior to May 31,
1995.

    Certain tax liabilities with respect to undistributed earnings of foreign
subsidiaries, which arose as a result of the demerger from Hanson PLC (the
"Demerger") in 1995, were resolved during fiscal 1999. These liabilities were
originally recorded as a direct charge to paid in capital at the time of the
Demerger. Accordingly, approximately $16 million of such tax reserves no longer
required have been credited directly to paid in capital.

    Income taxes paid during fiscal 1999, 1998 and 1997 were $55 million, $72
million, and $93 million, respectively.

NOTE 10--STOCKHOLDER'S EQUITY AND STOCK COMPENSATION PLANS

    The Company's stock-based compensation plans consist of USI's and Zurn's
respective plans that were in effect prior to the merger, as amended and as
adjusted to give effect to the exchange ratio in the merger.

    USI maintains stock incentive plans (the "Stock Plans") that provides for
awards of restricted stock and options to purchase common stock to key employees
at prices equal to the fair market value of the shares at the date of grant, and
for formula grants of Common Stock to non-employee directors of USI.

    In fiscal 1995, 2,764,995 restricted shares of Common Stock were awarded to
certain key employees and a total of 9,000 shares of common stock were issued to
non-employee directors. As holders of restricted stock have all the rights of
other stockholders, subject to certain restrictions and forfeiture provisions,
such restricted stock is considered to be issued and outstanding. Restrictions
on the shares will expire when vested (vesting occurs in thirds, on the third,
fifth and seventh anniversaries) and the cost of such plans are amortized over
seven years in accordance with the vesting schedule. Unearned restricted

                                       56
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--STOCKHOLDER'S EQUITY AND STOCK COMPENSATION PLANS (CONTINUED)

stock of $26 million was recorded at June 8, 1995 based on the market value of
the shares on the date of issuance and is included as a separate component of
stockholders' equity.

    In fiscal 1996, 108,260 incentive shares were awarded to certain key
employees and 20,733 shares of common stock were issued to non-employee
directors. The incentive shares are substantially identical in terms of issuance
and restrictions to restricted stock issued in fiscal 1995. Based on the market
value of the shares on the dates of issuance, $2 million of unearned restricted
stock was recorded during fiscal 1996.

    In fiscal 1997, 195,750 restricted shares of Common Stock, were awarded to
certain key employees. The restrictions on the shares will expire after seven
years. The expiration of the restrictions can be accelerated under certain
circumstances. Based on the market value of the shares on the various dates of
issuance, $5 million of additional unearned restricted stock was recorded during
fiscal 1997.

    In fiscal 1998, 345,602 restricted shares of Common Stock, were awarded to
certain key employees of which 252,796 shares will have restrictions expire in
thirds, on the third, fifth and seventh anniversaries of the grant, and 92,806
shares which restrictions shall expire at the end of seven years, subject to
earlier vesting based on performance goals. Based on the market value of the
shares on the dates of issuance, $9 million of additional unearned restricted
stock was recorded during fiscal 1998.

    In fiscal 1999, 389,000 restricted shares of Common Stock, were awarded to
certain key employees of which 296,500 shares will vest in thirds, on the third,
fifth and seventh anniversaries; and 92,500 shares which restrictions will lapse
after the end of seven years. Based on the market value of the shares on the
various dates of issuance, $7 million of additional unearned restricted stock
was recorded during fiscal 1999. Additionally 107,500 of share equivalent units
were issued to certain key employees, which are substantially identical to the
restricted shares issued, with restrictions that expire at the end of seven
years.

    Finally of the restricted stock previously issued, a total of 638,396 shares
have been forfeited, 73,162 in fiscal 1999; 373,709 in fiscal 1998; 166,065 in
fiscal 1997; and 25,460 in fiscal 1996.

    Under the Company's stock compensation plans, the independent directors,
officers and employees may be granted options to purchase the Company's stock at
no less than the fair market value of the date of the option grant. The Company
has adopted the disclosure-only provisions of SFAS 123. Accordingly, no
compensation cost has been recognized for the stock option plans. Had
compensation cost for the Company's stock option plan been determined based on
the fair market value at the grant date for awards in fiscal 1999, 1998 and
1997, consistent with the provision of SFAS 123, the Company's net income and
income per share would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                          FOR THE FISCAL YEARS ENDED
                                                        ------------------------------
                                                          1999       1998       1997
                                                        --------   --------   --------
                                                           (IN MILLIONS, EXCEPT PER
                                                                    SHARE)
<S>                                                     <C>        <C>        <C>
Net income (loss)--as reported........................   $ 141      $  (44)    $ 252
Net income (loss)--pro forma..........................     138         (46)      250
Net income (loss)--per share-as reported basic........   $1.53      $(0.46)    $2.73
Net income (loss)--per share-as reported diluted......    1.51       (0.45)     2.64
Net income (loss)--per share-pro forma basic..........    1.50       (0.48)     2.70
Net income (loss)--per share-pro forma diluted........    1.48       (0.47)     2.61
</TABLE>

                                       57
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--STOCKHOLDER'S EQUITY AND STOCK COMPENSATION PLANS (CONTINUED)

    These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. The fair
value for these options was estimated at the date of grant using the Black-
Scholes model with the following assumptions:

<TABLE>
<S>                                                           <C>
Expected dividend yield at date of grant:
  1999 and 1998.............................................  1%
  1997......................................................  0%
Expected stock price volatility:
  1999......................................................  37%
  1998......................................................  40%
  1997......................................................  36%
Risk-free interest rate:
  1999......................................................  5.06%
  1998......................................................  5.42%
  1997......................................................  5.85%
Expected life of options....................................  4 years
</TABLE>

    The assumptions used for the Zurn plan prior to the merger was as follows:
expected dividend yield 1998--1%, 1997--2%; expected stock price volatility of
26%; risk-free interest rate 1998--5.80%, 1997--6.84%; and expected life options
of 7 years.

    The weighted-average fair value of options, calculated using the
Black-Scholes option pricing model, granted during 1999, 1998 and 1997 is $5.51,
$9.14 and $6.87, respectively.

    A summary of the Company's stock option activity and related information for
the years ended September 30 follows:

<TABLE>
<CAPTION>
                                                   1999                   1998                    1997
                                           --------------------   ---------------------   --------------------
                                                       WEIGHTED                WEIGHTED               WEIGHTED
                                                       AVERAGE                 AVERAGE                AVERAGE
                                           NUMBER OF   EXERCISE   NUMBER OF    EXERCISE   NUMBER OF   EXERCISE
                                            OPTIONS     PRICE      OPTIONS      PRICE      OPTIONS     PRICE
                                           ---------   --------   ----------   --------   ---------   --------
<S>                                        <C>         <C>        <C>          <C>        <C>         <C>
Outstanding-beginning of year............  4,836,897    $14.07     6,377,677    $13.45    6,419,176    $11.94
Granted..................................  1,656,850     16.75       280,353     25.02    1,019,312     18.82
Exercised................................   (359,422)    11.33    (1,401,231)    13.19     (681,523)     9.76
Cancelled/expired........................   (213,061)    20.28      (419,902)    14.95     (379,288)    11.48
                                           ---------    ------    ----------    ------    ---------    ------
Outstanding-end of year..................  5,921,264    $14.75     4,836,897    $14.07    6,377,677    $13.45
                                           =========    ======    ==========    ======    =========    ======
Exercisable-end of year..................  3,976,611    $13.32     3,488,907    $13.73    2,713,998    $14.70
                                           =========    ======    ==========    ======    =========    ======
</TABLE>

                                       58
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--STOCKHOLDER'S EQUITY AND STOCK COMPENSATION PLANS (CONTINUED)

    The following table summarizes the status of the stock options outstanding
and exercisable at September 30, 1999:

<TABLE>
<CAPTION>
                                                                                     STOCK OPTIONS
                                                 STOCK OPTIONS OUTSTANDING            EXERCISABLE
                                             ----------------------------------   --------------------
                                                          WEIGHTED     WEIGHTED               WEIGHTED
                                                          REMAINING    AVERAGE                AVERAGE
                                             NUMBER OF   CONTRACTUAL   EXERCISE   NUMBER OF   EXERCISE
RANGE OF EXERCISE PRICES                      OPTIONS       LIFE        PRICE      OPTIONS     PRICE
------------------------                     ---------   -----------   --------   ---------   --------
<S>                                          <C>         <C>           <C>        <C>         <C>
$8.75 to $12.97...........................   2,752,912   5.63 years     $10.33    2,735,125    $10.33
$13.20 to $19.41..........................   2,146,774   8.82 years     $16.46      518,456    $15.57
$20.47 to $28.88..........................   1,021,578   5.03 years     $23.10      723,030    $23.04
                                             ---------   ----------     ------    ---------    ------
Total.....................................   5,921,264   6.68 years     $14.75    3,976,611    $13.32
                                             =========   ==========     ======    =========    ======
</TABLE>

    Options granted under the Stock Option Plan vest annually in four equal
installments from the date of grant. The Company had authorization under the
Stock Option Plan to grant 166,454 and 2,059,115 additional options at September
30, 1999 and 1998, respectively.

    The Company adopted a Stockholder Rights Plan (the "Plan") effective
October 15, 1998, and declared a dividend of one Right on each outstanding share
of Common Stock held by stockholders of record on October 29, 1998. The Company
had approximately 98 million shares outstanding on October 29, 1998. The Plan
was designed to protect the Company's stockholders during a time when the
Company's share price has been under pressure due to the external factors.

    Initially, the Rights will trade with the common stock of the Company and
will not be exercisable. The Rights will separate from the common stock and
become exercisable upon the occurrence of events typical for stockholder rights
plans. In general, such separation will occur when any person or group of
affiliated persons acquires or makes an offer to acquire 15% or more of the
Company's Common Stock. Thereafter, separate Right certificates will be
distributed and each Right will entitle its holder to purchase one one-
hundredth of a share of the Company's Series A Junior preferred Stock for an
exercise price of $65.00. Each one one-hundredth of a share of Preferred Stock
has economic and voting terms equivalent to those of one share of the Company's
Common Stock.

    If not redeemed earlier, the Rights will expire on October 15, 2008, or at
the close of business on the 90th day following the date any person or group of
affiliated persons acquires or makes an offer to acquire 15% or more of the
Company's Common Stock.

    During February, April and September 1999, the Board of Directors authorized
share repurchase programs aggregating $300 million. As of September 30, 1999,
the Company has purchased $190 million of its common stock in accordance with
the total authorized share repurchase program of $300 million. Accordingly, as
of September 30, 1999, the Company has authorization to purchase up to $110
million of its common stock. Subsequent to September 30, 1999, the Company has
purchased an additional $15 million of its common stock for treasury. During
October 1999, the Company entered into equity instrument contracts that may be
utilized to purchase the Company's common stock. At the discretion of the
Company, such contracts can be settled in cash, shares or a combination of both,
at anytime prior to October 2000. In addition, the contracts are limited to
approximately $40 million. Share repurchases are made at prices deemed
acceptable to management. The funding for the repurchase program will be from
cash provided from operations and available borrowings under the Company's
existing credit facilities.

                                       59
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--COMMITMENTS AND CONTINGENCIES

    The Company is subject to a wide range of environmental protection laws. The
Company has remedial and investigatory activities underway at approximately 46
sites. In addition, the Company has been named as a Potentially Responsible
Party ("PRP") at 20 "superfund" sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or comparable
statutes.

    It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. The Company accrues for losses
associated with environmental remediation obligations when such losses are
probable and reasonably estimable. This practice is followed whether the claims
are asserted or unasserted. Reserves for estimated losses from environmental
remediation are, depending on the site, based primarily upon internal or third
party environmental studies, and estimates as to the number, participation level
and financial viability of any other PRP's, the extent of contamination and the
nature of required remedial actions. Such accruals are adjusted as further
information develops or circumstances change. Costs of future expenditures for
environmental remediation obligations are not discounted to their present fair
value. Recoveries of environmental remediation costs from other parties are
recognized as assets when their receipt is deemed probable. Management expects
that the amount reserved will be paid out over the periods of remediation for
the applicable sites which range up to 30 years and that such reserves are
adequate based on all current data. Each of the sites in question is at various
stages of investigation or remediation; however, no information currently
available reasonably suggests that projected expenditures associated with
remedial action or compliance with environmental laws for any single site or for
all sites in the aggregate, will have a material adverse affect on the Company's
financial condition, results of operations or cash flows.

    At September 30, 1999, the Company had accrued approximately $17 million ($4
million accrued as current liabilities; $13 million as non-current liabilities)
for various environmental related liabilities of which the Company is aware. The
Company believes that the range of liability for such matters is between
approximately $9 million and $26 million.

    U.S. Brass Corporation, an Eljer indirect wholly-owned subsidiary ("US
Brass"), filed in 1994 a voluntary petition for reorganization under Chapter 11
of the United States Bankruptcy Code for the purpose of systemically resolving
issues resulting from sales of polybutylene plumbing systems and related
litigation. On January 29, 1998, the United States Bankruptcy Court for the
Eastern District of Texas confirmed the Chapter 11 Bankruptcy Plan of
Reorganization filed by US Brass. On March 19, 1998 the plan became effective
and the US Brass Trust was funded with approximately $50 million in cash and a
$20 million noninterest bearing note, payable over ten years to pay claims
resulting from US Brass polybutylene plumbing systems. As a result, US Brass
emerged from bankruptcy and future US Brass polybutylene plumbing systems claims
were enjoined and will be channeled to the Trust and a national class action
settlement fund.

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

                                       60
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SEGMENT DATA

    In June 1997, the FASB issued Statement No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION, ("SFAS 131"), which is effective for
the Company in fiscal 1999. This statement establishes standards for the manner
in which public business enterprises report information relating to operating
segments in annual financial statements and requires those enterprises report
selected information about operating segments in interim financial reports. The
Company has previously adopted certain provisions of this standard.

    The Company's operations are classified into four business segments: Bath
and Plumbing Products, Lighting Corporation of America, Hardware and Tools and
Diversified. During fiscal 1999, certain businesses were reclassified from USI
Hardware and Tools to USI Diversified. This change reflects the Company's
internal management reporting structure. Accordingly, all prior periods
presented have been restated to conform to this presentation.

    BATH AND PLUMBING PRODUCTS--whirlpools, spas, faucets, chinaware, bathtubs,
shower tub enclosures, bath accessories plumbing fittings, other behind the wall
plumbing products and HVAC products.

    LIGHTING CORPORATION OF AMERICA--commercial, industrial lighting fixtures
such as street, area, parking garage landscape, emergency and exits lights.
Residential lighting products such as chandeliers, hall foyers, track lighting.

    HARDWARE AND TOOLS--non-powered hand tools, long handled tools, lawn and
garden tools, and wheeled goods.

    DIVERSIFIED--automotive interiors, consumer products and precision
engineered products for automotive, jet aviation and electronics industry.

    Products are primarily sold to the home improvement and home construction
markets through mass merchandisers, hardware stores, home centers, distributors,
wholesalers and other outlets. The diversified segment products are sold to mass
merchandisers, wholesalers, distributors and original equipment manufacturers.

    The Company's operations are principally located in North America and Europe
and to a lesser extent, in other regions of the world. The Company's country of
domicile is the United States. Export sales represented 9%, 9% and 12% of the
Company's total net sales for fiscal years 1999, 1998 and 1997, respectively.
Principal international markets served include Europe, South America, Canada and
Asia. Corporate assets consist primarily of real property, cash and cash
investments and other investments.

    The Company's segments are based on similarities in products and services
and represent the aggregation of similar operating units for which financial
information is regularly evaluated by the corporate operating executives in
determining resource allocation and assessing performance and is periodically
reviewed by the Board of Directors. Accounting policies for the segments are the
same as those for the Company. The Company evaluates performance based on
operating profit or loss and, other than general corporate expense, allocates
specific corporate overhead to each segment.

                                       61
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SEGMENT DATA (CONTINUED)

    The following table presents information about the Company by segment and
geographic area:

<TABLE>
<CAPTION>
                                                                FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
                                                     ---------------------------------------------------------------
                                                       1999       1998       1997     1999(1)    1998(2)      1997
                                                     --------   --------   --------   --------   --------   --------
                                                               NET SALES                 OPERATING INCOME (LOSS)
                                                     ------------------------------   ------------------------------
                                                                              (IN MILLIONS)
<S>                                                  <C>        <C>        <C>        <C>        <C>        <C>
BUSINESS SEGMENTS:
  Bath and Plumbing Products.......................   $1,303     $1,105     $  879      $150       $93        $101
  Lighting Corporation of America..................      805        766        538        46        52          42
  Hardware and Tools...............................      462        375        295        37        (3)         33
  Diversified(3)...................................      859        889        809        88        32         119
                                                      ------     ------     ------      ----       ---        ----
      TOTALS.......................................   $3,429     $3,135     $2,521       321       174         295
                                                      ======     ======     ======
Corporate expenses.................................                                      (18)      (32)        (27)
                                                                                        ----       ---        ----
      TOTAL OPERATING INCOME.......................                                      303       142         268
Interest expense...................................                                       81        69          59
Interest income....................................                                       (5)       (8)         (7)
Gain on sale of subsidiary shares..................                                       --        --          (1)
Other income, net..................................                                      (14)        3          (2)
                                                                                        ----       ---        ----
Income before income taxes, discontinued operations
  and extraordinary loss...........................                                      241        78         219
Provision for income taxes(4)......................                                       87        75          94
                                                                                        ----       ---        ----
Income from continuing operations..................                                     $154       $ 3        $125
                                                                                        ====       ===        ====
</TABLE>

------------------------

(1) Operating income for the year ended September 30, 1999 includes
    restructuring costs of $1 million and unusual charges of $14 million.
    Accordingly, operating income for USI Bath and Plumbing Products, Lighting
    Corporation of America, and USI Diversified Operations includes charges of
    $5, $3 and $7 million, respectively.

(2) Operating income (loss) for the year ended September 30, 1998 includes
    merger, restructuring and other related costs of $142 million and product
    change costs in connection with the restructuring of approximately $11
    million. (See Note 5 to the Consolidated Financial Statements.) Accordingly,
    operating income (loss) for the USI Bath and Plumbing Products, Lighting
    Corporation of America, USI Hardware and Tools, USI Diversified Operations
    and Corporate expenses include merger, restructuring and other charges of
    $40, $3, $32, $71 and $7 million, respectively.

(3) Operating income for the USI Diversified Operations includes $(7), $(3) and
    $2 million, for 1999, 1998 and 1997, respectively of equity (loss) earnings
    from the Company's investment in UPI. Fiscal 1999 and 1998 equity (loss)
    includes a charge associated with an impairment of UPI and its subsidiaries
    of $6 and $4 million.

                                       62
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SEGMENT DATA (CONTINUED)

(4) Provision for income taxes for the year ended September 30, 1999 includes a
    $6 million tax benefit from the resolution of prior years tax issues.

<TABLE>
<CAPTION>
                                                                   FOR THE FISCAL YEARS
                                                                   ENDED SEPTEMBER 30,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN MILLIONS)
<S>                                                           <C>        <C>        <C>
TOTAL ASSETS
Bath and Plumbing Products..................................   $1,357     $1,092     $1,064
Lighting Corporation of America.............................      518        463        282
Hardware and Tools..........................................      448        338        220
Diversified.................................................      621        640        579
                                                               ------     ------     ------
                                                                2,944      2,533      2,145
Corporate...................................................       84        100        126
                                                               ------     ------     ------
Total for continuing operations.............................    3,028      2,633      2,271
Net assets held for disposition.............................       --        143        228
                                                               ------     ------     ------
TOTAL ASSETS................................................   $3,028     $2,776     $2,499
                                                               ======     ======     ======
DEPRECIATION AND GOODWILL AMORTIZATION
Bath and Plumbing Products..................................   $   32     $   28     $   22
Lighting Corporation of America.............................       19         18         10
Hardware and Tools..........................................       14         10          6
Diversified.................................................       25         22         18
                                                               ------     ------     ------
TOTAL DEPRECIATION AND GOODWILL AMORTIZATION................   $   90     $   78     $   56
                                                               ======     ======     ======
CAPITAL EXPENDITURES
Bath and Plumbing Products..................................       35         35         18
Lighting Corporation of America.............................       27         19         13
Hardware and Tools..........................................       21         17          8
Diversified.................................................       25         28         18
                                                               ------     ------     ------
                                                                  108         99         57
Corporate...................................................       --         --         11
                                                               ------     ------     ------
TOTAL CAPITAL EXPENDITURES..................................   $  108     $   99     $   68
                                                               ======     ======     ======
</TABLE>

                                       63
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SEGMENT DATA (CONTINUED)

    The following table presents certain data by geographic areas:

<TABLE>
<CAPTION>
                                                                FOR THE FISCAL YEARS ENDED
                                                                      SEPTEMBER 30,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN MILLIONS)
<S>                                                           <C>        <C>        <C>
NET SALES
United States...............................................   $2,650     $2,490     $2,243
Foreign.....................................................      779        645        278
                                                               ------     ------     ------
Total Net Sales.............................................   $3,429     $3,135     $2,521
                                                               ======     ======     ======
OPERATING INCOME(1)
United States...............................................   $  237     $   75     $  223
Foreign.....................................................       66         67         45
                                                               ------     ------     ------
Total Operating Income......................................   $  303     $  142     $  268
                                                               ======     ======     ======
LONG-LIVED ASSETS
United States...............................................   $  934     $  813     $  882
Foreign.....................................................      412        244         55
                                                               ------     ------     ------
Total long-lived assets.....................................   $1,346     $1,057     $  937
                                                               ======     ======     ======
</TABLE>

------------------------

(1) Operating income for the year ended September 30, 1998 included merger,
    restructuring and other related costs of $142 million and product change
    costs in connection with the restructuring of approximately $11 million;
    $149 million and $4 million of these costs and charges relate to operating
    income of the United States and foreign locations, respectively.

                                       64
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED)

    Summarized quarterly financial information for the fiscal years ended
September 30, 1999 and 1998 is as follows (in millions, except per share):

<TABLE>
<CAPTION>
                                                        1999                                        1998
                                      -----------------------------------------   -----------------------------------------
           QUARTER ENDED              DEC. 31    MARCH 31   JUNE 30    SEPT. 30   DEC. 31    MARCH 31   JUNE 30    SEPT. 30
           -------------              --------   --------   --------   --------   --------   --------   --------   --------
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Net sales...........................   $ 750      $ 848      $ 915      $ 916      $ 695      $ 790      $  825     $ 825
Gross profit........................     224        254        273        289        212        234         247       240
Income (loss) from continuing
  operations........................      22         32         45         55         29         36         (81)       19
Income (loss) before extraordinary
  loss..............................      23         18         45         55         31         33        (125)       22
Net Income (loss)...................      23         18         45         55         31         33        (130)       22
Basic per share:
Income (loss) from continuing
  operations........................   $0.23      $0.33      $0.50      $0.64      $0.31      $0.38      $(0.84)    $0.20
Income (loss) before extraordinary
  loss..............................   $0.24      $0.19      $0.50      $0.64      $0.33      $0.35      $(1.30)    $0.23
Net Income (loss)...................   $0.24      $0.19      $0.50      $0.64      $0.33      $0.35      $(1.35)    $0.23
Diluted per share:
Income (loss) from continuing
  operations........................   $0.22      $0.33      $0.49      $0.62      $0.30      $0.37      $(0.84)    $0.19
Income (loss) before extraordinary
  loss..............................   $0.23      $0.19      $0.49      $0.62      $0.32      $0.34      $(1.30)    $0.22
Net Income (loss)...................   $0.23      $0.19      $0.49      $0.62      $0.32      $0.34      $(1.35)    $0.22
</TABLE>

    The results for the quarters ended June 30 and September 30, 1998 include
$128 million and $14 million of merger, restructuring and other related costs,
respectively, and product costs of $2 million and $9 million, respectively.

                                       65
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--SUPPLEMENTAL FINANCIAL INFORMATION

    The following represents the supplemental consolidating condensed financial
statements of USI, USI Global, and USIAH, which are the jointly obligated
issuers of the Notes, and USI Atlantic, which is the guarantor of the Notes, and
their non-guarantor subsidiaries, as of September 30, 1999 and 1998 and for each
of the three years in the period ended September 30, 1999. Separate consolidated
financial statements for USI, USI Global, USI Atlantic and USIAH are not
presented, as management has determined that they would not be material to
investors.

    In April of 1999, USIAH transferred substantially all of its assets and
liabilities to a new wholly owned subsidiary of USI named USI Global in exchange
for preferred stock in USI Global. In connection with the asset transfer,
USI Global assumed joint and several obligations under the 7.25% Notes, the
7.125% Notes and the Credit Facility, equally with USI and USIAH. Neither USI
nor USIAH, nor USI Atlantic as guarantor, was released from its obligations
under the 7.25% Notes, the 7.125% Notes or the Credit Agreement in connection
with the transfer of assets to USI Global.

<TABLE>
<CAPTION>
                                                                 FOR THE YEAR ENDED SEPTEMBER 30, 1999
                                      -------------------------------------------------------------------------------------------
                                                     USI          USI                 NONGUARANTOR
                                        USI         GLOBAL      ATLANTIC    USIAH     SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                      --------   ------------   --------   --------   -------------   ------------   ------------
                                                                             (IN MILLIONS)
<S>                                   <C>        <C>            <C>        <C>        <C>             <C>            <C>
Net Sales...........................   $  --     $        --      $ --       $ --        $3,429          $  --          $3,429
Operating costs and expenses:
  Cost of products sold.............      --              --        --         --         2,389             --           2,389
  Selling, general and
    administrative expenses.........      23              --        --         --           713             --             736

  Goodwill impairment and
    non-recurring charges...........      --              --        --         --             1             --               1
                                       -----     ------------     ----       ----        ------          -----          ------
Operating income (loss).............     (23)             --        --         --           326             --             303

Interest expense....................      32              16        --         21            12             --              81

Interest income.....................      --              --        --         --            (5)            --              (5)

Management fee (income) expense.....     (38)              8        --         11            19             --              --

Intercompany interest, net..........     (12)            (25)       --        (33)           70             --              --

Other intercompany credits
  (charges).........................      --              26        --        (26)           --             --              --

Other (income) expense, net.........      --              --        --         --           (14)            --             (14)

Equity in earnings of investees,
  net...............................    (144)            (58)      (46)       (30)           --            278              --
                                       -----     ------------     ----       ----        ------          -----          ------

Income before income taxes and
  discontinued operations...........     139              33        46         57           244           (278)            241
Provision (benefit) for income
  taxes.............................      (2)            (10)       --         11            88             --              87
                                       -----     ------------     ----       ----        ------          -----          ------
Income from continuing operations...     141              43        46         46           156           (278)            154
Discontinued operations, net of
  tax...............................      --              --        --         --           (13)            --             (13)
                                       -----     ------------     ----       ----        ------          -----          ------
Net income (loss)...................   $ 141     $        43      $ 46       $ 46        $  143          $(278)         $  141
                                       =====     ============     ====       ====        ======          =====          ======
</TABLE>

                                       66
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED SEPTEMBER 30, 1998
                                               ----------------------------------------------------------------------------
                                                            USI                 NONGUARANTOR
                                                 USI      ATLANTIC    USIAH     SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                               --------   --------   --------   -------------   ------------   ------------
                                                                              (IN MILLIONS)
<S>                                            <C>        <C>        <C>        <C>             <C>            <C>
Net Sales....................................    $ --       $ --       $ --        $3,135          $  --          $3,135
Operating costs and expenses:
  Cost of products sold......................      --         --         --         2,202             --           2,202
  Selling, general and administrative
    expenses.................................       4          4         17           624             --             649
  Goodwill impairment and non-recurring
    charges..................................      --         --          7           135             --             142
                                                 ----       ----       ----        ------          -----          ------
Operating loss...............................      (4)        (4)       (24)          174             --             142
Interest expense.............................      --          6         44            19             --              69
Interest income..............................      --         --         --            (8)            --              (8)
Management fee (income) expense..............      --        (27)       (28)           55             --              --
Intercompany interest, net...................      --         (4)       (63)           67             --              --
Other intercompany credits (charges).........      --         --         --            --             --              --
Gain on the sale of subsidiary shares........      --         --         --            --             --              --
Other (income) expense, net..................      --         12         (3)           (6)            --               3
Equity in earnings of investees, net.........      41         42         58            --           (141)             --
                                                 ----       ----       ----        ------          -----          ------
Income before income taxes, discontinued
  operations and extraordinary loss..........     (45)       (33)       (32)           47            141              78
Provision for income taxes...................      (1)         4         10            62             --              75
                                                 ----       ----       ----        ------          -----          ------
Income from continuing operations............     (44)       (37)       (42)          (15)           141               3
Discontinued operations and extraordinary
  loss, net of tax...........................      --         --         --           (42)            --             (42)
                                                 ----       ----       ----        ------          -----          ------
Income before extraordinary loss.............     (44)       (37)       (42)          (57)           141             (39)
Extraordinary loss, net of tax...............      --         --         --            (5)            --              (5)
                                                 ----       ----       ----        ------          -----          ------

Net income (loss)............................    $(44)      $(37)      $(42)       $  (62)         $ 141          $  (44)
                                                 ====       ====       ====        ======          =====          ======
</TABLE>

                                       67
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                         FOR THE YEAR ENDED SEPTEMBER 30, 1997
                                            ----------------------------------------------------------------
                                                                  NONGUARANTOR
                                              USI       USIAH     SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                            --------   --------   ------------   ------------   ------------
                                                                     (IN MILLIONS)
<S>                                         <C>        <C>        <C>            <C>            <C>
Net Sales.................................   $  --      $  --        $2,521         $  --          $2,521
Operating costs and expenses:
  Cost of products sold...................      --         --         1,739            --           1,739
  Selling, general and administrative
    expenses..............................       6         25           483            --             514
  Goodwill impairment and non-recurring
    charges...............................      --         --            --            --              --
                                             -----      -----        ------         -----          ------
Operating loss............................      (6)       (25)          299            --             268
Interest expense..........................      --         35            24            --              59
Interest income...........................      --         --            (7)           --              (7)
Management fee (income) expense...........      (1)       (15)           16            --              --
Intercompany interest, net................      --        (68)           68            --              --
Other intercompany credits (charges)......      --         --            --            --              --
Gain on the sale of subsidiary shares.....      --         --            (1)           --              (1)
Other (income) expense, net...............      --          1            (3)           --              (2)
Equity in earnings of investees, net......    (255)      (227)           --           482              --
                                             -----      -----        ------         -----          ------
Income before income taxes, discontinued
  operations and extraordinary loss.......     250        249           202          (482)            219
Provision for income taxes................      (2)         9            87            --              94
                                             -----      -----        ------         -----          ------
Income from continuing operations.........     252        240           115          (482)            125
Discontinued operations and extraordinary
  loss, net of tax........................      --         --           129            --             129
                                             -----      -----        ------         -----          ------
Income before extraordinary loss..........     252        240           244          (482)            254
Extraordinary loss, net of tax............      --         (1)           (1)           --              (2)
                                             -----      -----        ------         -----          ------

Net income (loss).........................   $ 252      $ 239        $  243         $(482)         $  252
                                             =====      =====        ======         =====          ======
</TABLE>

                                       68
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                                     AT SEPTEMBER 30, 1999
                                     -------------------------------------------------------------------------------------
                                                  USI        USI                 NONGUARANTOR
                                       USI       GLOBAL    ATLANTIC    USIAH     SUBSIDIARIES   ELIMINATION   CONSOLIDATED
                                     --------   --------   --------   --------   ------------   -----------   ------------
                                                                         (IN MILLIONS)
<S>                                  <C>        <C>        <C>        <C>        <C>            <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents........   $   --     $   --      $ --       $ --        $   58        $    --        $   58
  Trade receivables, net...........       --         --        --         --           667             --           667
  Inventories......................       --         --        --         --           631             --           631
  Deferred income taxes............       31         --        --         --            37             --            68
  Other current assets.............        6         --        --         --            61             --            67
                                      ------     ------      ----       ----        ------        -------        ------
      Total current assets.........       37         --        --         --         1,454             --         1,491

Property, plant and equipment,
  net..............................       --          1        --         --           596             --           597
Deferred income taxes..............       (2)        --        --         --             8             --             6
Other assets.......................        7          6        --        908           172           (908)          185
Goodwill, net......................       --         --        --         --           749             --           749
Investments in subsidiaries........    1,372      1,341       923         --            --         (3,636)           --
Intercompany receivable (payable),
  net..............................       24        444        33         15          (516)            --            --
                                      ------     ------      ----       ----        ------        -------        ------
      Total assets.................   $1,438     $1,792      $956       $923        $2,463        $(4,544)       $3,028
                                      ======     ======      ====       ====        ======        =======        ======

LIABILITIES AND STOCKHOLDERS'
  EQUITY
Current liabilities:
  Notes payable....................   $   --     $   --      $ --       $ --        $   33        $    --        $   33
  Current maturities of long-term
    debt...........................       --         --        --         --            15             --            15
  Trade accounts payable...........        2         --        --         --           276             --           278
  Accrued expenses and other
    liabilities....................       10         38        --         --           254             --           302
  Income taxes payable.............       29         --        --         --            --             --            29
                                      ------     ------      ----       ----        ------        -------        ------
      Total current liabilities....       41         38        --         --           578             --           657

Long-term debt.....................      477        695        --         --            47             --         1,219
Other liabilities..................       --         51        --         --           181             --           232
                                      ------     ------      ----       ----        ------        -------        ------
      Total liabilities............      518        784        --         --           806             --         2,108
Total stockholders' equity.........      920      1,008       956        923         1,657         (4,544)          920
                                      ------     ------      ----       ----        ------        -------        ------
      Total liabilities and
        stockholders' equity.......   $1,438     $1,792      $956       $923        $2,463        $(4,544)       $3,028
                                      ======     ======      ====       ====        ======        =======        ======
</TABLE>

                                       69
<PAGE>
                             U.S. INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                                     AT SEPTEMBER 30, 1998
                                           --------------------------------------------------------------------------
                                                        USI                 NONGUARANTOR
                                             USI      ATLANTIC    USIAH     SUBSIDIARIES   ELIMINATION   CONSOLIDATED
                                           --------   --------   --------   ------------   -----------   ------------
                                                                         (IN MILLIONS)
<S>                                        <C>        <C>        <C>        <C>            <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents..............   $   --     $   --     $   --       $   44        $    --        $   44
  Trade receivables, net.................       --         --         --          609             --           609
  Inventories............................       --         --         --          539             --           539
  Deferred income taxes..................       45         --         --           30             --            75
  Net assets held for disposition........       --         --         --          143             --           143
  Other current assets...................       --         --         11           62             --            73
                                            ------     ------     ------       ------        -------        ------
      Total current assets...............       45         --         11        1,427             --         1,483

Property, plant and equipment, net.......       --         --         --          508             --           508
Deferred income taxes....................        8         --         --            8             --            16
Other assets.............................       --         --          7          213             --           220
Goodwill, net............................       --         --         --          549             --           549
Investments in subsidiaries..............    1,266        745      1,221           --         (3,232)           --
Intercompany receivable (payable), net...      (51)       277        245         (471)            --            --
                                            ------     ------     ------       ------        -------        ------
      Total assets.......................   $1,268     $1,022     $1,484       $2,234        $(3,232)       $2,776
                                            ======     ======     ======       ======        =======        ======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable..........................   $   --     $   --     $   --       $   15        $    --        $   15
  Current maturities of long-term debt...       --         --         --            4             --             4
  Trade accounts payable.................       --          2         --          245             --           247
  Accrued expenses and other
    liabilities..........................        5          6         43          247             --           301
  Income taxes payable...................       33         --         --            7             --            40
                                            ------     ------     ------       ------        -------        ------
      Total current liabilities..........       38          8         43          518             --           607

Long-term debt...........................      270         --        629           48             --           947
Other liabilities........................       --         --         67          195             --           262
                                            ------     ------     ------       ------        -------        ------
      Total liabilities..................      308          8        739          761             --         1,816
Total stockholders' equity...............      960      1,014        745        1,473         (3,232)          960
                                            ------     ------     ------       ------        -------        ------
      Total liabilities and stockholders'
        equity...........................   $1,268     $1,022     $1,484       $2,234        $(3,232)       $2,776
                                            ======     ======     ======       ======        =======        ======
</TABLE>

                                       70
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                                 FOR THE YEAR ENDED SEPTEMBER 30, 1999
                                      -------------------------------------------------------------------------------------------
                                                   USI        USI                 NONGUARANTOR
                                        USI       GLOBAL    ATLANTIC    USIAH     SUBSIDIARIES    ELIMINATIONS     CONSOLIDATED
                                      --------   --------   --------   --------   ------------   --------------   ---------------
                                                                             (IN MILLIONS)
<S>                                   <C>        <C>        <C>        <C>        <C>            <C>              <C>
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES..............  $     6     $ (22)      $ (8)     $  37        $ 239           $  --            $   252
INVESTING ACTIVITIES:
Proceeds from sale of businesses....      132        --         --         --           --              --                132
Acquisition of companies, net of
  cash acquired.....................     (335)       --         --         --           --              --               (335)
Purchases of property, plant and
  equipment.........................       --        --         --         --         (108)             --               (108)
Proceeds from sales of property,
  plant and equipment...............       --        --         --         --            6              --                  6
Proceeds from sale of excess real
  estate............................       --        --         --         --           28              --                 28
Capital contributions to
  subsidiaries......................       --        --         --         --           --              --                 --
Dividends from subsidiaries.........       --        --         --         --           --              --                 --
Net transfers with subsidiaries.....      195       138         13         --           --            (346)                --
Collection of notes.................       --        --         --         --            1              --                  1
Other investing activities..........       --        --         --         --           --              --                 --
                                      -------     -----       ----      -----        -----           -----            -------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES................       (8)      138         13         --          (73)           (346)              (276)
FINANCING ACTIVITIES:
Proceeds from long-term debt--
  third parties.....................    1,487       147         --        264            1              --              1,899
Repayment of long-term debt--
  third parties.....................   (1,281)      (73)        --       (264)          (5)             --             (1,623)
Proceeds from notes payable, net....       --        --         --         --            7              --                  7
Payment of dividends................      (19)       --         --         --           --              --                (19)
Proceeds from exercise of stock
  options...........................        4        --         --         --           --              --                  4
Payment to settle treasury locks....       --        --         --        (22)          --              --                (22)
Purchase of treasury stock..........     (190)       --         --         --           --              --               (190)
Capital contributions from parent...       --        --         --         --           --              --                 --
Net transfers with parent...........       --      (190)        (5)       (13)        (138)            346                 --
                                      -------     -----       ----      -----        -----           -----            -------
NET CASH PROVIDED BY (USED IN)
  FINANCING ACTIVITIES..............        1      (116)        (5)       (35)        (135)            346                 56
Effect of exchange rate changes on
  cash and cash equivalents.........        1        --         --         (2)         (17)             --                (18)
                                      -------     -----       ----      -----        -----           -----            -------
INCREASE IN CASH AND CASH
  EQUIVALENTS.......................       --        --         --         --           14              --                 14
Cash and cash equivalents at
  beginning of period...............       --        --         --         --           44              --                 44
                                      -------     -----       ----      -----        -----           -----            -------
CASH AND CASH EQUIVALENTS AT END OF
  PERIOD............................  $    --     $  --       $ --      $  --        $  58           $  --            $    58
                                      =======     =====       ====      =====        =====           =====            =======
</TABLE>

                                       71
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED SEPTEMBER 30, 1998
                                           ---------------------------------------------------------------------------
                                                        USI                 NONGUARANTOR
                                             USI      ATLANTIC    USIAH     SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                           --------   --------   --------   ------------   ------------   ------------
                                                                          (IN MILLIONS)
<S>                                        <C>        <C>        <C>        <C>            <C>            <C>
NET CASH PROVIDED BY (USED IN) OPERATING
  ACTIVITIES.............................   $ (33)      $ 12      $  19         $ 78           $ --          $   76
INVESTING ACTIVITIES:
Proceeds from sale of businesses.........      --         --         --           11             --              11
Acquisition of companies, net of cash
  acquired...............................      --         --         --         (173)            --            (173)
Purchases of property, plant and
  equipment..............................      --         --         --          (99)            --             (99)
Proceeds from sales of property, plant
  and equipment..........................      --         --         20           14             --              34
Proceeds from sale of excess real
  estate.................................      --         --         --           14             --              14
Capital contributions to subsidiaries....     (10)        --        (73)          --             83              --
Dividends from subsidiaries..............       2         --         --           --             (2)             --
Net transfers with subsidiaries..........    (193)      (205)      (303)          --            701              --
Collection of notes......................      --         --         --            5             --               5
Purchase of investment...................      --         --         --           (7)            --              (7)
Other investing activities...............      --         --         --          (13)            --             (13)
                                            -----       ----      -----         ----           ----          ------
NET CASH (USED IN) PROVIDED BY INVESTING
  ACTIVITIES.............................    (201)      (205)      (356)        (248)           782            (228)
FINANCING ACTIVITIES:
Proceeds from long-term debt.............     270         --      1,075           61             --           1,406
Repayment of long-term debt..............      --         --       (978)        (267)            --          (1,245)
Repayment of notes payable, net..........      --         --         --            5             --               5
Payment of dividends.....................     (21)        --         --           (2)             2             (21)
Proceeds from exercise of stock
  options................................      20         --         --           --             --              20
Purchase of treasury stock...............     (35)        --         --           --             --             (35)
Capital contributions to subsidiaries....      --         --         --           83            (83)             --
Net transfers with parent................      --        193        205          303           (701)             --
                                            -----       ----      -----         ----           ----          ------
NET CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES.............................     234        193        302          183           (782)            130
Effect of exchange rate changes on cash
  and cash equivalents...................      --         --         --           (1)            --              (1)
                                            -----       ----      -----         ----           ----          ------
INCREASE IN CASH AND CASH EQUIVALENTS....      --         --        (35)          12             --             (23)
Cash and cash equivalents at beginning of
  period.................................      --         --         35           32             --              67
                                            -----       ----      -----         ----           ----          ------
CASH AND CASH EQUIVALENTS AT END OF
  PERIOD.................................   $  --       $ --      $  --         $ 44           $ --          $   44
                                            =====       ====      =====         ====           ====          ======
</TABLE>

                                       72
<PAGE>
                             U.S. INDUSTRIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED SEPTEMBER 30, 1997
                                          ----------------------------------------------------------------
                                            USI                 NONGUARANTOR
                                          ATLANTIC    USIAH     SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                          --------   --------   ------------   ------------   ------------
                                                                   (IN MILLIONS)
<S>                                       <C>        <C>        <C>            <C>            <C>
NET CASH PROVIDED BY (USED IN) OPERATING
  ACTIVITIES............................    $ (4)    $    --        $  44         $  --          $    40
INVESTING ACTIVITIES:
Proceeds from sale of businesses........      --          --          390            --              390
Acquisition of companies, net of cash
  acquired..............................      --          --         (260)           --             (260)
Purchases of property, plant and
  equipment.............................      --         (11)         (57)           --              (68)
Proceeds from sales of property, plant
  and equipment.........................      --          --            2            --                2
Proceeds from sale of excess real
  estate................................      --          --           28            --               28
Proceeds from sale of subsidiary
  stock.................................      --          --            4            --                4
Capital contributions to subsidiaries...      (2)         (5)          --             7               --
Dividends from subsidiaries.............       4          32           --           (36)              --
Net transfers with subsidiaries.........      66         248           --          (314)              --
Purchase of investment..................      --          --           (1)           --               (1)
Proceeds from sale of marketable
  securities............................      --          --           24            --               24
Other investing activities..............      --          --           (5)           --               (5)
                                            ----     -------        -----         -----          -------
NET CASH (USED IN) PROVIDED BY INVESTING
  ACTIVITIES............................      68         264          125          (343)             114
FINANCING ACTIVITIES:
Proceeds from long-term debt............      --       1,460          166            --            1,626
Repayment of long-term debt.............      --      (1,623)         (82)           --           (1,705)
Repayment of notes payable, net.........      --          --            4            --                4
Payment of dividends....................      (4)         --          (36)           36               (4)
Proceeds from exercise of stock
  options...............................       7          --           --            --                7
Purchase of treasury stock..............     (67)         --           --            --              (67)
Capital contributions to subsidiaries...      --          --            7            (7)              --
Net transfers with parent...............      --         (66)        (248)          314               --
                                            ----     -------        -----         -----          -------
NET CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES............................     (64)       (229)        (189)          343             (139)
Effect of exchange rate changes on cash
  and cash equivalents..................      --          --           (5)           --               (5)
                                            ----     -------        -----         -----          -------
INCREASE IN CASH AND CASH EQUIVALENTS...      --          35          (25)           --               10
Cash and cash equivalents at beginning
  of period.............................      --          --           57            --               57
                                            ----     -------        -----         -----          -------
CASH AND CASH EQUIVALENTS AT END OF
  PERIOD................................    $ --     $    35        $  32         $  --          $    67
                                            ====     =======        =====         =====          =======
</TABLE>

                                       73
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

    Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The information included under the caption "Executive Officers" in Item 1 of
this Annual Report on Form 10-K is incorporated herein by reference.

    The information to be included under the caption "Election of Directors" in
the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A of the Securities Exchange Act of 1934 in connection
with the annual meeting of the Company's stockholders to be held on February 3,
2000 (the "Proxy Statement") is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

    The information to be included under the caption "Execution Compensation" in
the Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information to be included under the caption "Ownership of Common Stock"
in the Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    None.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

    (A) Listing of Documents

    (1) FINANCIAL STATEMENTS. The Company's Consolidated Financial Statements
included in Item 8 hereof, as required at September 30, 1999, 1998 and 1997, and
for the years ended September 30, 1999, 1998 and 1997, consist of the following:

       Consolidated Statements of Operations
       Consolidated Balance Sheets
       Consolidated Statements of Cash Flows
       Consolidated Statements of Changes in Stockholders' Equity
       Notes to Consolidated Financial Statements

    (2) FINANCIAL STATEMENT SCHEDULE. Financial Statement Schedule of the
Company appended hereto, as required for the years ended September 30, 1999,
1998 and 1997, consists of the following:

       II. Valuation and Qualifying Accounts

    (3) MANAGEMENT CONTRACTS AND COMPENSATORY PLANS AND ARRANGEMENTS.

    - Employment Agreement, dated February 22, 1995, of David H. Clarke (filed
      as Exhibit 10.9 to the Company's Registration Statement on Form 10, dated
      April 21, 1995 (the "Form 10")).*

                                       74
<PAGE>
    - First Amendment, dated June 12, 1995, to the Employment Agreement, dated
      February 22, 1995, of David H. Clarke (filed as Exhibit 10.19(b) to the
      Company's Report on Form 10-K for the fiscal year ended September 30, 1995
      (the "1995 10-K")).*

    - Employment Agreement, dated February 22, 1995, of John G. Raos (filed as
      Exhibit 10.10 to the Form 10).*

    - First Amendment, dated June 12, 1995, to the Employment Agreement, dated
      February 22, 1995, of John G. Raos (filed as Exhibit 10.20(b) to the 1995
      10-K).*

    - Interim Employment Agreement dated as of May 18, 1999 by and between John
      G. Raos and the Company (filed as Exhibit 10.1 to the Form 10-Q filed
      August 17, 1999).*

    - Employment Agreement, dated June 1, 1997, of John F. Bendik (filed as
      Exhibit 10.6 to the 1998 10-K).*

    - Employment Agreement, dated February 22, 1995, of George H. MacLean (filed
      as Exhibit 10.8(a) to the Company's Report on Form 10-K for the fiscal
      year ended September 27, 1997 (the "1997 10-K").*

    - First Amendment, dated June 12, 1995, to the Employment Agreement dated
      February 22, 1995, of George H. MacLean (filed as Exhibit 10.8(b) to the
      1997 10-K).*

    - Restated Employment Agreement, dated June 17, 1998, of Dorothy E. Sander
      (filed as Exhibit 10.8 to the 1998 10-K).*

    - Amended U. S. Industries, Inc. Stock Option Plan, as restated June 11,
      1998 (filed as Exhibit 10.9 to the 1998 10-K).*

    - U. S. Industries, Inc. Restricted Stock Plan, as restated June 11, 1998
      (filed as Exhibit 10.11 to the 1998 10-K).*

    - U. S. Industries, Inc. Supplemental Retirement Plan (filed as Exhibit
      10.14 to the Form 10).*

    - U. S. Industries, Inc. Long-Term Incentive Plan (filed as Exhibit 10.15 to
      the Form 10).*

    (B) Reports on Form 8-K.

    (C) Exhibits.

<TABLE>
<C>         <S>        <C>
  3.1(a)    --         Form of Amended and Restated Certificate of Incorporation
                       (filed as part of the Company's 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).*
     (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 the Company's Report on
                       Form 8-K dated October 15, 1998.*
  3.2       --         Amended and Restated By-laws of the Company (filed as
                       Exhibit 3(ii) to the Form 10-Q filed Feb 18, 1999).*
  4.1       --         Specimen form of certificate representing shares of Common
                       Stock of USI (filed as Exhibit 4.1 to the Form 10).*
  4.2(a)    --         Indenture, dated as of December 12, 1996 (the "1996
                       Indenture"), among USI American Holdings, Inc. ("USIAH"),
                       USI Atlantic (then known as U.S. Industries, Inc.) and PNC
                       Bank National Association, as Trustee ("PNC") (filed as
                       Exhibit 4.1 to the Company's Registration Statement No.
                       333-2083 on Form S-4 (the "1997 S-4")).*
</TABLE>

                                       75
<PAGE>
<TABLE>
<C>         <S>        <C>
     (b)    --         First Supplemental Indenture to the 1996 Indenture, dated as
                       of June 11, 1998, among USI, USIAH, USI Atlantic and PNC
                       (filed as Exhibit 4.3 to the Form 10K filed December 15,
                       1998 (the "1998 10-K")).*
     (c)    --         Second Supplemental Indenture to the 1996 Indenture, dated
                       as of April 30, 1999, among the Company, USI Global Corp.,
                       USI American Holding, Inc., USI Atlantic Corp. and the The
                       Chase Manhattan Bank as successor Trustee (filed as Exhibit
                       4.1 (b) to the Form 10-Q May 18, 1999).*
  4.2(a)    --         Indenture, dated as of October 27, 1998 (the "1998
                       Indenture), among USI, USIAH, USI Atlantic and the First
                       National Bank of Chicago, as Trustee (filed as Exhibit 4.4
                       to the 1998 10-K).*
     (b)    --         First Supplemental Indenture to the 1998 Indenture, dated as
                       of April 30, 1999, among the Company, USI Global Corp., USI
                       American Holdings, Inc., USI Atlantic Corp. and The First
                       National Bank of Chicago, as Trustee (filed as Exhibit
                       4.1(a) to the Form 10-Q filed May 18, 1999).*
 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(a)    --         Employment Agreement, dated February 22, 1995, of David H.
                       Clarke (filed as Exhibit 10.9 to the Form 10).*
     (b)    --         First Amendment, dated June 12, 1995, to the Employment
                       Agreement, dated February 22, 1995, of David H. Clarke
                       (Filed as Exhibit 10.19(b) to the 1995 10-K).*
 10.5(a)    --         Employment Agreement, dated February 22, 1995, of John G.
                       Raos (filed as Exhibit 10.10 to the Form 10).*
     (b)    --         First Amendment, dated June 12, 1995, to the Employment
                       Agreement, dated February 22, 1995 of John G. Raos (filed as
                       Exhibit 10.20(b) to the 1995 10-K).*
     (c)    --         Interim Employment Agreement dated as of May 18, 1999 by and
                       between John G. Raos and the Company (filed as Exhibit 10.1
                       to the Form 10-Q filed August 17, 1999).*
 10.6       --         Employment Agreement, dated June 1, 1997, of John F. Bendik
                       (filed as Exhibit 10.6 to the 1998 10-K).*
 10.7(a)    --         Employment Agreement, dated February 22, 1995, of George H.
                       MacLean (filed as Exhibit 10.8(a) to the 1997 10-K).*
     (b)    --         First Amendment, dated June 12, 1995, to the Employment
                       Agreement, dated February 22, 1995, of George H. MacLean.
                       (filed as Exhibit 10.8(b) to the 1997 10-K).*
 10.8       --         Restated Employment Agreement, dated June 17, 1998, of
                       Dorothy E. Sander (filed as Exhibit 10.8 to the 1998 10-K).
 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 10K).
10.12       --         U.S. Industries, Inc. Long-Term Incentive Plan (filed as
                       Exhibit 10.15 to the Form 10).*
</TABLE>

                                       76
<PAGE>
<TABLE>
<C>         <S>        <C>
10.13       --         Credit Agreement, dated December 12, 1996, as amended
                       through June 11, 1998 (the "Credit Agreement"), among USIAH,
                       USI Atlantic, USI and Bank of America National Trust and
                       Savings Association, as Agent, and BA Securities, Inc., as
                       Arranger (filed as Exhibit 10.2 to the Report on Form 8-K
                       filed on June 12, 1998).*
10.14       --         First Amendment and Consent, dated as of April 22, 1999,
                       among the Company, USI American Holdings, Inc., USI Atlantic
                       Corp., USI Global Corp., Various Banks named therein, Bank
                       of America National Trust and Savings Association, as
                       Issuing Bank, Swingline Bank and Agent, and BA Securities,
                       Inc. as Arranger (filed as Exhibit 10.1 to the Form 10-Q
                       filed May 18, 1999).*
10.15       --         Agreement and Plan of Merger, dated February 16, 1998, among
                       USI, USI Atlantic, Zurn Industries, Inc. and certain other
                       parties named therein (filed as Exhibit A-1 to the Merger
                       Proxy).*
10.16       --         Rights Agreement dated as of October 15, 1998 between the
                       Company and the Chase Manhattan Bank, as Rights Agent (filed
                       as Exhibit (4) to the Company's Report on Form 8-K dated
                       October 15, 1998).*
 21.1       --         Subsidiaries
 23.1       --         Consent of Ernst & Young LLP
 23.2       --         Consent of PricewaterhouseCoopers LLP
 27.1       --         Financial Data Schedule
</TABLE>

    (D) Financial Statement Schedule

------------------------

*   Incorporated by reference

+  Denotes a management contract or compensatory plan or arrangement required to
    be filed as an exhibit pursuant to Item 14 (c) of this Report.

                                       77
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this amendment to be signed on its behalf
by the undersigned, thereunto duly authorized.

<TABLE>
<S>                                                    <C>  <C>
                                                       U.S. INDUSTRIES, INC.

                                                       By:             /s/ DAVID H. CLARKE
                                                            -----------------------------------------
                                                                         David H. Clarke
                                                                    CHAIRMAN OF THE BOARD AND
                                                                     CHIEF EXECUTIVE OFFICER
</TABLE>

December 28, 1999

    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.
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.

<TABLE>
<CAPTION>
                      SIGNATURE                                            TITLE
                      ---------                                            -----
<C>                                                    <S>
                 /s/ DAVID H. CLARKE
     -------------------------------------------       Chairman of the Board and Chief Executive
                   David H. Clarke                       Officer (Principal Executive Officer)

                  /s/ JAMES O'LEARY
     -------------------------------------------       Executive Vice President
                    James O'Leary

                  /s/ JOHN G. RAOS
     -------------------------------------------       Director
                    John G. Raos

                 /s/ BRIAN C. BEAZER
     -------------------------------------------       Director
                   Brian C. Beazer

                /s/ WILLIAM E. BUTLER
     -------------------------------------------       Director
                  William E. Butler

               /s/ JOHN J. MCATEE, JR.
     -------------------------------------------       Director
                 John J. McAtee, Jr.

          /s/ THE HON. CHARLES H. PRICE II
     -------------------------------------------       Director
            The Hon. Charles H. Price II

                /s/ SIR HARRY SOLOMON
     -------------------------------------------       Director
                  Sir Harry Solomon

                /s/ ROYALL VICTOR III
     -------------------------------------------       Director
                  Royall Victor III

               /s/ MARK VORDER BRUEGGE
     -------------------------------------------       Director
                 Mark Vorder Bruegge

                /s/ ROBERT R. WOMACK
     -------------------------------------------       Director
                  Robert R. Womack

                /s/ JOHN W. DEAN III
     -------------------------------------------       Vice President, Chief Financial Officer and
                  John W. Dean III                       Treasurer (Principal Financial Officer)

                /s/ ROBERT P. NOONAN
     -------------------------------------------       Corporate Controller
                  Robert P. Noonan                       (Principal Accounting Officer)
</TABLE>

                                       78
<PAGE>
                                                                     SCHEDULE II

                             U.S. INDUSTRIES, INC.

                       VALUATION AND QUALIFYING ACCOUNTS

                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                  COLUMN A                    COLUMN B         COLUMN C          COLUMN D     COLUMN E
                                                               ADDITIONS
                                                          -------------------
                                               BALANCE    CHARGED
                                                 AT       TO COSTS   CHARGED                 BALANCE AT
                                              BEGINNING     AND      TO OTHER                  END OF
DESCRIPTION                                   OF PERIOD   EXPENSES   ACCOUNTS   DEDUCTIONS     PERIOD
-----------                                   ---------   --------   --------   ----------   ----------
<S>                                           <C>         <C>        <C>        <C>          <C>
Year ended September 30, 1997
  Deducted from asset accounts:

  Allowance for doubtful accounts...........     $33         $2                 $   (4)(1)       $31

Year ended September 30, 1998
  Deducted from asset accounts:

  Allowance for doubtful accounts...........     $31         $8                 $   (1)(2)       $38

Year ended September 30, 1999
  Deducted from asset accounts:

  Allowance for doubtful accounts...........     $38         $6                 $(3)(1)(2)       $41
</TABLE>

------------------------

(1) Amount in connection with acquisition.

(2) Uncollectible accounts written off, net of recoveries

                                       79