##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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FORM 10-K

|                                                 |  |                                                                                                 
|------------------------------------------------ |  | ------------------------------------------------------------------------------------------------
|þ                                                |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                                
|For the fiscal year ended September 27,
    2003
|                                                
|OR                                              
|                                                
|o                                                |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
    from          to  

Commission File Number 1-14557



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Jacuzzi Brands, Inc.

(Exact name of registrant as specified in its
charter)


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

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

(561) 514-3838

(Registrants telephone number, including
area code)


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

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

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



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Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the
past
90 days:    Yes þ        No o

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

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

The aggregate market value of the voting and
non-voting common equity held by non-affiliates of the
registrant as of March 28, 2003 (based on the last reported
sale price of such stock on the New York Stock Exchange on such
date) was approximately $291,444,932.

As of November 28, 2003, the registrant had
75,049,976 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrants
definitive proxy statement pursuant to Regulation 14A of
the Securities Exchange Act of 1934 in connection with the
annual meeting of stockholders of the registrant to be held on
February 11, 2004 are incorporated by reference into
Part III of this Report.



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TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS                                 
|PART I                                            
|                                                   | Item 1. Business                                                                             
|                                                   | Item 2. Properties                                                                           
|                                                   | Item 3. Legal Proceedings                                                                    
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                           
|                                                   | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|                                                   | Item 6. Selected Financial Data                                                              
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 7a. Qualitative and Quantitative Disclosures About Market Risk                          
|                                                   | Item 8. Financial Statements and Supplementary Data                                          
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|                                                   | Item 9a. Controls and Procedures                                                             
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                   | Item 11. Executive Compensation                                                              
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                   | Item 13. Certain Relationships and Related Transactions                                      
|                                                   | Item 14. Principal Accounting Fees and Services                                              
|PART IV                                           
|                                                   | Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K                      
|SIGNATURES                                        
|SCHEDULE II                                       
|Charge over Shares Agreement/Fleet Bank           
|Charge over Shares Agreement/Wilmington Trust     
|First Amendment to Loan & Security Agreement      
|Supplement & First Amendment to Pledge Agreement  
|Supplement to Guaranty and Guarantor Security Agmt
|Supplement & First Amendment to Class B Pledge Agm
|Supplement Class B Collateral Agreement           
|Supplemental Indenture                            
|Subsidiaries                                      
|Consent of Ernst & Young LLP                      
|Seperate Company Financials                       
|Section 302 Certification - CEO                   
|Section 302 Certification - CFO                   
|Section 906 Certification - CEO and CFO           



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##### Table of Contents






TABLE OF CONTENTS

|     |     |  |  |                                                                                           |  |  |     | 
|---- | --- |  |  | ----------------------------------------------------------------------------------------- |  |  | --- | 
|Item |     |  |  | Page                                                                                     
|     |     |  |  |                                                                                          
|     |     |  |  | PART I                                                                                    |  |  |     | 
|     | 1.  |  |  | Business                                                                                  |  |  | 1   | 
|     | 2.  |  |  | Properties                                                                                |  |  | 15  | 
|     | 3.  |  |  | Legal Proceedings                                                                         |  |  | 16  | 
|     | 4.  |  |  | Submission of Matters to a Vote of Security
    Holders                                   |  |  | 17  | 
|     |     |  |  | PART II                                                                                   |  |  |     | 
|     | 5.  |  |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |  |  | 18  | 
|     | 6.  |  |  | Selected Financial Data                                                                   |  |  | 18  | 
|     | 7.  |  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |  | 20  | 
|     | 7a. |  |  | Qualitative and Quantitative Disclosures About
    Market Risk                            |  |  | 49  | 
|     | 8.  |  |  | Financial Statements and Supplementary Data                                               |  |  | 51  | 
|     | 9.  |  |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure  |  |  | 99  | 
|     | 9a. |  |  | Controls and Procedures                                                                   |  |  | 99  | 
|     |     |  |  | PART III                                                                                  |  |  |     | 
|     | 10. |  |  | Directors and Executive Officers of the Registrant                                        |  |  | 99  | 
|     | 11. |  |  | Executive Compensation                                                                    |  |  | 99  | 
|     | 12. |  |  | Security Ownership of Certain Beneficial Owners
    and Management                        |  |  | 99  | 
|     | 13. |  |  | Certain Relationships and Related Transactions                                            |  |  | 99  | 
|     | 14. |  |  | Principal Accounting Fees and Services                                                    |  |  | 99  | 
|     |     |  |  | PART IV                                                                                   |  |  |     | 
|     | 15. |  |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |  |  | 100 | 
|     |     |  |  | SIGNATURES                                                                                |  |  | 106 | 
|     |     |  |  | FINANCIAL STATEMENT SCHEDULES                                                             |  |  |     | 
|     |     |  |  | Valuation and Qualifying Accounts                                                         |  |  | 107 | 





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PART I






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

General

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

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

We were originally incorporated in 1995 when we
were spun-off from Hanson plc (Hanson). At that
time, we had holdings in 34 diverse businesses, including
Jacuzzi and Rexair, and we subsequently acquired Zurn
Industries, Inc. We recently completed an asset disposal program
that transformed us from a diversified industrial conglomerate
into a focused operating company serving the home and building
products markets. These dispositions included the separate
disposals of our ladder business and infant and children
footwear business, our Diversified businesses, our fire
protection businesses and our European HVAC business in 2000.
Our Board of Directors approved a formal disposal plan for the
sale of five businesses in December 2001 and a formal disposal
plan for the sale of three businesses in February 2003. The
dispositions under these two plans included 1) Ames True
Temper, Lighting Corporation of America, Selkirk,
Spear & Jackson and SiTeco, and 2) our swimming
pool and equipment, hearth and water systems businesses. All of
the businesses, except the water systems businesses, were sold
prior to the end of fiscal 2003. The water systems business was
sold in October 2003.

With the completion of our 2001 and 2003 asset
disposal programs, we have largely completed our transformation
into a focused operating company primarily serving the bath and
plumbing products markets. We have renewed our focus on
operations by reorganizing our management structure to include a
Chief Operating Officer while eliminating layers of corporate
management. We continue to explore strategic alternatives to
improve our operating efficiencies as we position ourselves to
grow net sales and free cash flow at our core businesses.

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

Financial information for the segments discussed
below can be found in Note 12to our Consolidated
Financial Statements.

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Bath Products Segment

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

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

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

The home center channel is an important channel
for our domestic distribution of bath products. Our largest
customer, The Home Depot, carries an extensive line of
ELJER® branded sanitary ware products. We recently entered
into a multi-year agreement to be the primary supplier of
whirlpool baths to all of the nearly 900 stores in the
Lowes chain after a competitive product line review. In
addition, we have expanded our product category at Lowes
to include JACUZZI® branded sanitary ware. We believe the
strong brand power of the JACUZZI® brand name, our
commitment to strong customer support programs and our broad
product range were instrumental in our success in this review.
This agreement should allow us to expand our market share in the
U.S. in the whirlpool bath category.

Our spa products, SUNDANCE® and JACUZZI
PREMIUM®, are primarily sold through our network of nearly
1,000 independent specialty retailers. We act as the exclusive
supplier to a majority of these retailers, and we support them
with extensive product training, comprehensive point-of-purchase
marketing materials, advertising and a national warranty service
support program. We have approximately 400 service centers,
which perform service on our products and provide parts
replacements. We serve mass merchant retailers primarily through
private label offerings which provide them with brand
exclusivity.

The majority of the bath products we distribute
in the U.S. are manufactured domestically. Our whirlpool baths
and showers are manufactured in a facility in Chino, CA which
replaced six older, decentralized California facilities earlier
this fiscal year. We also have a modern spa manufacturing
facility in Chino, which began operating in 2001. These new
facilities should enable us to more effectively manage quality
control and product improvement as well as cost reduction. We
recently announced the closure of our spa manufacturing facility
in Plant City, FL, which closed in November 2003. The Chino
facility began manufacturing these spas, without any
interruption to our customers, in the first quarter of fiscal
2004. We currently manufacture our china bath products in Ford
City, PA and Verona, MS and our enameled cast iron fixtures in
Salem, OH. We have recently announced the closing of the Salem
facility, which is over 90 years old and extremely costly
to operate, in fiscal 2004 and will begin outsourcing our
enameled cast iron fixtures from an overseas supplier. We will
continue to evaluate ways to further reduce costs at all of our
manufacturing facilities and enhance the quality of our
products. In addition, we source components and finished
products domestically and internationally to complement our
product lines and lower costs.

International Bath
Products.We manufacture and
distribute bath products in the same product categories in the
European and other international residential construction and
remodeling markets. For the year ended September 30, 2003,
approximately 26% of our net sales were derived from sales of
bath products outside the U.S., most of which were in Europe. We
offer our branded bath products in Europe under the following
brand names: JACUZZI®, VERNON TUTBURY® and B.C.
SANITAN® which serve premium retailers; FORDHAM® which
serves the residential construction and builder markets; and
NIAGARA® which serves wholesale distributors. We also
market a full line of composite and stainless steel kitchen
sinks under the ASTRACAST® brand name.

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Our bath products are distributed in Europe
through home centers including B&Q, Homebase and Focus;
wholesalers including the Wolseley Group, St. Gobain,
Mark II and Travis Perkins Group; and specialty kitchen and
bath retailers. We serve the home centers primarily through
private label offerings which provide them with brand
exclusivity. In the U.K. and other parts of Europe,
JACUZZI® products are marketed through a large network of
specialty bath and kitchen boutiques. We primarily manufacture
these bath products in Italy, the U. K., France and Malta.

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

Plumbing Products Segment

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

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

Product innovation is key in the commercial and
institutional plumbing products markets since new products must
continually be developed to meet specifications and regulatory
demands. Our plumbing products are known in the industry for
such innovation. For example, in 2003 we introduced the next
generation ZURN EZ FLUSH® sensor operated flush valve which
is engineered to reduce water usage in standard bathroom
fixtures. Additionally, our new contractor series roof drains
with patented roof deckplates substantially reduce
contractors costs associated with the installation and
maintenance of our products. In 2002 we introduced a
high-capacity, pre-sloped trench drain with a patented one-piece
design which provides improved hydraulics and significant labor
savings in installation for airport runways and road side
drainage.

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

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

3



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Rexair Segment

Our Rexair segment manufactures premium vacuum
cleaner systems for the global direct sales market. The
RAINBOW® e SERIESTM is a full-service cleaning
system that collects dirt particles by combining a distinctive
water-based separator system with High Efficiency
Particulate Air Filtration, or HEPA. This combination provides a
technologically-superior alternative to traditional vacuum
cleaners. The full system has optional accessories including the
POWER NOZZLE®, a motorized power nozzle; the
RAINBOWMATE®, a motorized, hand-held attachment for
cleaning upholstery, stairs and other hard-to-reach areas; and
the AQUAMATE® carpet shampooing attachment. For the year
ended September 30, 2003, sales in the U.S. and Canada
accounted for slightly more than half of Rexairs sales. A
significant portion of Rexairs international sales are in
Portugal, Germany, Saudi Arabia, Singapore, Czech Republic and
Puerto Rico.

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

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

Discontinued Operations

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

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

A comprehensive discussion of these disposals can
be found under Results of Operations 
Acquisitions, Dispositions and Discontinued Operationsin
Managements Discussion and Analysis of Financial Condition
and Results of Operations (MD&A).

Seasonality

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

4



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Housing starts, consumer spending and remodeling
expenditures have a major impact on our consumer focused bath
and spa business, which is served by our Bath Products segment.
Our Plumbing Products business is dependent upon commercial and
institutional construction activity and is therefore affected by
macroeconomic factors such as the unemployment rate and the
availability of financing. Despite the cyclical nature of
commercial and institutional construction, including declines of
approximately 14% in fiscal 2002 and approximately 6% in fiscal
2003, our commercial and institutional products business has
increased sales over the past year by enhancing our product
offerings with new product introductions.

Reliance on a Single Customer

A single customer of the Bath Products segment,
The Home Depot, accounted for 8%, 10% and 15% of net sales in
fiscal 2003, 2002 and 2001, respectively. Although we expect our
relationship with this customer to flourish in future years, if
we were to lose their business, it would have an adverse affect
on our operating results.

Raw Materials, Energy and Suppliers

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

Patents, Trademarks and Licenses

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

Competition

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

Backlog

Our backlog orders believed to be firm were
$59.5 million and $56.8 million as of
September 30, 2003 and 2002, respectively. The backlog
orders are all in the Bath Products and Plumbing Products
segments.

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Backlog is comprised of all open customer orders
not yet shipped as of a particular date. For numerous reasons,
including the timing of shipments, the product mix of, or
adjustments to, customer orders and the mix of futures and
at-once orders, our backlog as of any date may not be a reliable
measure of sales or net income for future periods. We expect all
of our backlog orders to be filled within one year.


Export and International Operations

Certain of our domestic businesses generate
revenue from export sales and/or revenue from operations
conducted outside the U.S. Export sales amounted to 8%, 7% and
4% of total revenues in fiscal 2003, 2002 and 2001,
respectively, principally reflecting sales by Rexair to foreign
distributors of RAINBOW® products in numerous countries.
Revenue from international operations amounted to 26%, 25% and
24% of total revenues in fiscal 2003, 2002 and 2001,
respectively. Identifiable assets of international operations
represented approximately 20%, 16% and 16% of total identifiable
assets (excluding assets held for sale) at September 30,
2003, 2002 and 2001, respectively. These revenues and
identifiable assets arise principally from international
operations within our Bath Products segment.

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

Employee Relations

We employed approximately 6,150 persons at
September 30, 2003, of whom approximately 1,529 were
salaried employees. Unions represented approximately 26% of our
employees. We currently have collective bargaining agreements
with five union locals in North America including one covering
the employees at our Salem plant. We are currently in
negotiations with the union in Salem regarding the termination
benefits those employees will receive when we close that
facility in fiscal 2004. Three of our collective bargaining
agreements are expected to expire in the months of June and
August 2004 (covering approximately 641 employees). We also
have agreements covering employees at facilities in Brazil,
Italy, Malta and the U.K. The agreements in Brazil and the U.K.
are annual agreements. They cover approximately 197 and
48 employees, respectively. The agreement in Italy,
covering approximately 56 employees, was renegotiated in May
2003. The first part of the contract, relating to norms and
regulations, is valid until December 2006 and the second part of
the contract, relating to compensation, is valid until December
2004. The agreement in Malta covers approximately
114 employees and expires in December 2004. We have not
experienced any significant work stoppages in the last six years
with our ongoing businesses. We believe that our relations with
our employees and unions are satisfactory.

Environmental Regulation

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

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

We are investigating and remediating
contamination at a number of present and former operating sites
under the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980

6



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


As of September 30, 2003, we had accrued
approximately $8.5 million ($0.7 million accrued as
current liabilities and $7.8 million as non-current
liabilities), including $4.4 million for discontinued
operations, for environmental liabilities. These amounts have
not been discounted. We accrue an amount for each case when the
likelihood of an unfavorable outcome is probable and the amount
of loss associated with such unfavorable outcome is reasonably
estimable. We believe that the range of liability for these
matters could reach $14.9 million if it included cases
where the likelihood of an unfavorable outcome is only
reasonably possible. We cannot predict whether future
developments in laws and regulations concerning environmental
protection or unanticipated enforcement actions will require
material capital expenditures or otherwise affect our financial
condition, results of operations or cash flows in a materially
adverse manner, or whether our businesses will be successful in
meeting future demands of regulatory agencies in a manner which
will not have a material adverse effect on our financial
condition, results of operations or cash flows.

Corporate Governance

In accordance with the corporate governance rules
of the New York Stock Exchange, we have adopted Corporate
Governance Guidelines relating to certain key areas such as
director qualifications and responsibilities, responsibilities
of key board committees and director compensation. We have also
adopted a Code of Business Conduct and Ethics for directors,
officers and employees. Our Corporate Governance Guidelines, our
code of business conduct and ethics and the charters of our
Audit Committee, Compensation Committee and Nominating &
Corporate Governance Committee are published on our website. We
will provide any shareholder with printed versions of any of the
foregoing guidelines, code or committee charters upon request.

Executive Officers

Set forth below are the names, positions and
ages, as of September 30, 2003, of our executive officers:

|                    |  |     |    |          |  |                                                         
|------------------- |  | --- | -- | -------- |  | --------------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|David H. Clarke     |  |     | 62 |          |  | Chairman of the Board and Chief Executive Officer       
|Donald C. Devine    |  |     | 44 |          |  | President and Chief Operating Officer                   
|Steven C. Barre     |  |     | 43 |          |  | Senior Vice President, General Counsel and
    Secretary
|Jeffrey B. Park     |  |     | 51 |          |  | Senior Vice President and Chief Financial Officer       
|Allan D. Weingarten |  |     | 65 |          |  | Senior Vice President and Treasurer                     
|Diana E. Burton     |  |     | 58 |          |  | Vice President  Investor Relations                     
|Francisco V. Puñal  |  |     | 44 |          |  | Vice President and Corporate Controller                 
|Robert G. Hennemuth |  |     | 48 |          |  | Vice President  Human Resources                        

David H. Clarkehas served as our Chairman and Chief Executive Officer since our
spin-off from Hanson in 1995. Mr. Clarke was Vice Chairman
of Hanson from 1993 until the spin-off, Deputy

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Chairman and Chief Executive Officer of Hanson
Industries from 1992 until the spin-off and a director of Hanson
from 1989 until May 1996. Mr. Clarke is a director of
Fiduciary Trust International, a subsidiary of Franklin
Templeton Investments, engaged in investment management and
administration of assets for individuals. Mr. Clarke is
also a director of Lions Gate Investment Limited, a medical
device company operating under the name DOBI Medical Systems,
Inc., which is developing an optical imaging system for cancer
diagnosis.


Donald C.
Devinehas served as our President and
Chief Operating Officer since April 2003. Mr. Devine had
served as President and Chief Executive Officer of Jacuzzi,
Inc., one of our wholly-owned subsidiaries, since June 2002.
Prior to that, Mr. Devine served as President and Chief
Executive Officer of Kimble Glass Inc., the U.S. subsidiary
of Germanys Gerresheimer Group, from 1998 until 2001. From
1996 to 1997, Mr. Devine served as Vice President and
General Manager of Ivex Packaging.

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

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

Allan D.
Weingartenhas served as our Senior
Vice President and Treasurer since April 2003.
Mr. Weingarten joined our company in January 2001, serving
as our Senior Vice President and Chief Financial Officer from
that time until April 2003. Mr. Weingarten was previously a
senior partner with the accounting firm of Ernst &
Young, where he had spent 34 years. Subsequent to his
retirement from Ernst & Young in 1995, Mr. Weingarten
was a business consultant and private investor.
Mr. Weingarten is also a director of Programmers Paradise,
Inc. and AXS-One, Inc.

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

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

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

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RISK FACTORS

The following risk factors and other information
included in this Annual Report on Form 10-K should be
carefully considered. The risks and uncertainties described
below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we presently
deem less significant may also impair our business operations.
Refer to Disclosure Concerning Forward-Looking Statements and
Factors That May Affect Future Resultsin Item 7
of this Annual Report on Form 10-K for additional
discussion of these forward looking statements. If any of the
following risks actually occur, our business, operating results,
and financial condition could be materially adversely affected.

Risks Related to Our Indebtedness

Refer to the Refinancing section of
Liquidity and Capital Resourcesin Item 7 for
information and definitions related to our indebtedness.



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

We are highly leveraged. Our substantial
indebtedness could interfere with our ability to operate our
business. For example, it could:



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



| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | We and our subsidiaries may still be able
    to incur substantially more debt which could intensify the risks
    described above.

We and our subsidiaries may be able to incur
substantial additional indebtedness in the future. Although the
indenture governing our notes and our new credit facilities
contain restrictions on the incurrence of additional
indebtedness, these restrictions are subject to a number of
qualifications and exceptions, and the indebtedness incurred in
compliance with these restrictions could be substantial. In
addition, these restrictions do not prevent us from incurring
obligations that do not constitute indebtedness as defined under
the applicable agreements. If new debt is added to our and our
subsidiaries current debt levels, the substantial leverage
risks that we now face could increase.

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

Our financing arrangements, including our Bank
Facilities and the indenture governing the New Notes, contain
various provisions that limit managements discretion by
restricting our ability to, among other things:



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

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

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



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

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

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

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Risks Related to Our Business



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

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



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

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



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

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



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

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



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

The markets in which we sell our products are
highly competitive. We compete against both large international
and national rivals, as well as many regional competitors. Some
of our competitors have greater financial, marketing and
distribution resources than we do. Significant competition in
any given market can result in substantial pressure on our
pricing and profit margins, thereby adversely affecting our
financial results. As a result of pricing pressures, we may in
the future experience reductions in profit

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margins. We cannot assure you that we will be
able to maintain or increase the current market share of our
products successfully in the future.




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

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



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

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



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

We have significant operations outside the U.S.
We currently have operations in Europe, Asia, Canada and South
America, with approximately 20% of our assets (excluding assets
held for sale) located outside the U.S. as of September 30,
2003. Further, certain of our businesses obtain raw materials
and finished goods from foreign suppliers. Accordingly, our
business is subject to the political, economic and other risks
that are inherent in operating in numerous countries. These
risks include:



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

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

12



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

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

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



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

Zurn Industries, Inc. (Zurn), our
wholly-owned subsidiary, is, along with many other unrelated
companies, a co-defendant in numerous asbestos related lawsuits
pending in the U.S. Plaintiffs claims primarily allege
personal injuries allegedly caused by exposure to asbestos used
primarily in industrial boilers formerly manufactured by a
segment of Zurn that has been presented as a discontinued
operation. Zurn did not manufacture asbestos or asbestos
components but purchased it from other suppliers. Since Zurn
received its first asbestos claim in the 1980s, Zurn has
settled, agreed to settle or otherwise disposed of approximately
84,000 asbestos claims including dismissals of approximately
6,400 of such claims through September 30, 2003. As of
September 30, 2003, the number of asbestos claims pending
against Zurn was approximately 59,000.

At September 30, 2003, Zurn and its
actuarial consultant estimated that its potential liability for
asbestos claims pending against it and for claims estimated to
be filed through 2013 is approximately $160 million. This
estimate is based on the current and anticipated number of
future asbestos claims, the timing and amounts of asbestos
payments, the status of ongoing litigation and the potential
impact of defense strategies and settlement initiatives.
However, there are inherent uncertainties involved in estimating
both the number of future asbestos claims as well as future
settlement costs, and the actual liability could exceed
Zurns estimate due to changes in law and other factors
beyond their control. Further, while Zurns current
asbestos liability is based on an estimate of claims through
2013, such liability may continue beyond 2013, and such
liability could be substantial.

Zurns analysis of its available insurance
to cover its potential asbestos liability as of
September 30, 2003 is approximately $314 million.
While Zurn believes, based on its experience in defending and
dismissing such claims and the insurance coverage available,
that it has sufficient insurance to cover the pending and
reasonably estimable future claims, there is no assurance that
this amount of insurance will ultimately be available or that
Zurns asbestos liabilities will not ultimately exceed this
amount. Factors that could cause a decrease in the amount of
coverage include insolvencies of one or more of Zurns
carriers, changes in law governing the policies and potential
disputes with the carriers on the scope of coverage.



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

Our past and present business operations and our
past and present ownership and operation of real property are
subject to extensive and changing federal, state, local and
foreign environmental laws and regulations pertaining to the
discharge of materials into the environment, the generation,
storage, use, transportation, handling and disposal of wastes
(including solid and hazardous wastes) and the exposure to
hazardous substances. If our operating units fail to completely
comply with these laws and regulations, we

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could be fined or otherwise sanctioned or we
could incur liability for cleanup costs or other damages.
Changes in environmental regulations or their interpretation, or
other unanticipated events may also give rise to increased
expenditures or liabilities.


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



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

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



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

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



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

As of September 30, 2003, approximately 26%
of our employees in the U.S. and abroad were represented by
labor unions. While we believe our relations with our employees
are satisfactory, a lengthy work stoppage at any of our
facilities could have a material adverse effect on us.
Furthermore, three of our collective bargaining agreements are
expected to expire in the months of June and August 2004
(covering approximately 641 employees), two agreements expire in
December 2004 (covering approximately 170 employees), one
agreement expires in October 2004 (covering approximately 197
employees) and another will expire in May 2004 (covering
approximately 48 employees). Negotiations for the extension of
these agreements may result in modifications to the terms of
these agreements, and these modifications could cause us to
incur increased costs relating to our labor force.

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Item 2.     Properties

We lease approximately 11,935 square feet of
office space for our headquarters in West Palm Beach, FL. The
principal properties of each of our operating segments as of
September 30, 2003, and the location, primary use,
approximate square footage and ownership status, are set forth
below:

|                           |  |                                                |  |                |         |              |  |             
|-------------------------- |  | ---------------------------------------------- |  | -------------- | ------- | ------------ |  | ------------
|                           |  |                                                |  | Approximate    |         |             
|Location                   |  | Use                                            |  | Square Footage |         | Owned/Leased
|                           |  |                                                |  |                |         |             
|Bath Products:             |  |                                                |  |                |         |              |  |             
|Europe                     |  |                                                |  |                |         |              |  |             
|Valvasone, Italy           |  | Manufacturing/Warehouse                        |  |                | 251,572 |              |  | Owned/Leased
|Newcastle, England         |  | Manufacturing                                  |  |                | 99,429  |              |  | Owned       
|Bradford, England          |  | Manufacturing/Office Warehouse                 |  |                | 662,256 |              |  | Owned/Leased
|Hilton, England            |  | Warehouse                                      |  |                | 125,000 |              |  | Leased      
|Vichy, France              |  | Warehouse                                      |  |                | 18,300  |              |  | Leased      
|Cusset, France             |  | Manufacturing                                  |  |                | 10,764  |              |  | Owned       
|Marsa, Malta               |  | Manufacturing                                  |  |                | 57,834  |              |  | Leased      
|South America              |  |                                                |  |                |         |              |  |             
|San Paulo, Brazil          |  | Manufacturing/Office                           |  |                | 232,418 |              |  | Owned       
|Santiago, Chile            |  | Manufacturing/Office/Showroom                  |  |                | 52,480  |              |  | Owned       
|United States              |  |                                                |  |                |         |              |  |             
|Chino, California          |  | Spa Manufacturing/Warehouse                    |  |                | 440,000 |              |  | Owned/Leased
|Chino, California          |  | Whirlpool Bath Manufacturing/Warehouse         |  |                | 306,700 |              |  | Leased      
|Concord, California        |  | Whirlpool Bath Manufacturing/Warehouse/Testing |  |                | 7,168   |              |  | Leased      
|Walnut Creek, California   |  | Office                                         |  |                | 34,881  |              |  | Leased      
|Plant City, Florida        |  | Manufacturing/Warehouse                        |  |                | 116,226 |              |  | Owned       
|Valdosta, Georgia          |  | Manufacturing/Office                           |  |                | 236,700 |              |  | Leased      
|Verona, Mississippi        |  | Manufacturing                                  |  |                | 439,000 |              |  | Leased      
|Salem, Ohio                |  | Manufacturing/Warehouse                        |  |                | 479,644 |              |  | Owned       
|Ford City, Pennsylvania    |  | Manufacturing/Warehouse                        |  |                | 732,246 |              |  | Owned       
|Kittanning, Pennsylvania   |  | Warehouse                                      |  |                | 28,825  |              |  | Leased      
|Schenley, Pennsylvania     |  | Warehouse/Distribution                         |  |                | 155,742 |              |  | Owned/Leased
|Addison, Texas             |  | Office                                         |  |                | 110,649 |              |  | Leased      
|Dallas, Texas              |  | Warehouse/Office                               |  |                | 33,000  |              |  | Leased      
|Plumbing Products:         |  |                                                |  |                |         |              |  |             
|Canada                     |  |                                                |  |                |         |              |  |             
|Mississauga, Ontario       |  | Manufacturing/Warehouse                        |  |                | 27,878  |              |  | Leased      
|United States              |  |                                                |  |                |         |              |  |             
|Gardena, California        |  | Office/Warehouse/Distribution                  |  |                | 73,987  |              |  | Owned       
|Paso Robles, California    |  | Manufacturing/Office                           |  |                | 158,000 |              |  | Owned       
|Grosvenordale, Connecticut |  | Manufacturing/Warehouse                        |  |                | 44,045  |              |  | Leased      
|Norcross, Georgia          |  | Warehouse/Office                               |  |                | 46,560  |              |  | Leased      
|Elkhart, Indiana           |  | Manufacturing/Distribution                     |  |                | 95,000  |              |  | Owned       
|Ellicot, New York          |  | Manufacturing/Warehouse/ Distribution          |  |                | 124,000 |              |  | Leased      
|Sanford, North Carolina    |  | Assembly/Office                                |  |                | 78,000  |              |  | Owned       

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|                        |  |                                   |  |                |         |              |  |             
|----------------------- |  | --------------------------------- |  | -------------- | ------- | ------------ |  | ------------
|                        |  |                                   |  | Approximate    |         |             
|Location                |  | Use                               |  | Square Footage |         | Owned/Leased
|                        |  |                                   |  |                |         |             
|Toledo, Ohio            |  | Warehouse                         |  |                | 15,000  |              |  | Leased      
|Ben Salem, Pennsylvania |  | Warehouse/Office                  |  |                | 40,000  |              |  | Leased      
|Erie, Pennsylvania      |  | Manufacturing/Office Distribution |  |                | 310,562 |              |  | Owned/Leased
|Commerce, Texas         |  | Manufacturing/Distribution        |  |                | 175,000 |              |  | Owned       
|Rexair:                 |  |                                   |  |                |         |              |  |             
|Troy, Michigan          |  | Office                            |  |                | 22,696  |              |  | Leased      
|Cadillac, Michigan      |  | Manufacturing                     |  |                | 370,000 |              |  | Owned       

In addition, we lease sales office space in
Singapore; Nice, France; Lohne, Germany; Rome, Italy; Barcelona,
Spain; Kuala Lumpur, Malaysia and Bensheim, Germany. We also own
several excess properties being held for sale in Swainsboro,
Georgia; Waynesboro, Georgia; Thomasville, North Carolina;
Abilene, Texas and Milford, Virginia.




Item 3.     Legal
Proceedings

We and our 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 our financial condition, results of
operations or cash flows. For information concerning
environmental proceedings, see Business 
Environmental Regulation.

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

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

As of September 30, 2003, the number of
asbestos claims pending against Zurn was approximately 59,000.
These 59,000 claims were included in approximately 5,600
lawsuits, in which Zurn and an average of 100 other companies
are named as defendants, and in which cumulatively allege
damages of approximately $12 billion against all
defendants. Asbestos claims pending against Zurn as of
September 30, 2002 and September 30, 2001 were
approximately 65,000 and 52,000, respectively. Asbestos claims
filed against Zurn, and settled unfiled claims treated as if
filed, for the years ended September 30, 2003, 2002 and
2001 were approximately 32,400, 31,000 and 33,500, respectively.

Since Zurn received its first asbestos claim in
the 1980s, Zurn has settled, agreed to settle or otherwise
disposed of approximately 84,000 asbestos claims including
dismissals of approximately 6,400 of such claims through
September 30, 2003. During the fiscal year ended
September 30, 2003 and as of such date, settlements paid
and/or pending payment amounted to approximately 45,000 claims
and approximately 3,000 claims were dismissed and/or pending
dismissal. During the fiscal year ended September 30, 2002
and as of such date, settlements paid and/or pending payment
amounted to approximately 20,000 claims (including approximately
4,000 unfiled claims) and approximately 3,000 claims were
dismissed and/or pending dismissal. Finally, during the fiscal
year ended September 30, 2001 and as of such date,
settlements paid and/or pending payment amounted to
approximately 17,000 claims and approximately 1,000 claims were
dismissed and/or pending dismissal. Zurns insurers have
paid or have agreed to pay all settlement costs relating to
these claims. Defense costs are currently being paid by
Zurns insurers without eroding the coverage amounts of its
insurance policies, although a few policies that will be
accessed in the future may count defense costs toward aggregate
limits.

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At September 30, 2003, Zurn and its
actuarial consultant estimated that its potential liability for
asbestos claims pending against it and for claims estimated to
be filed through 2013 is approximately $160 million. This
accrual comprises (i) approximately $8 million in
claims that had been settled but unpaid as of September 30,
2003; (ii) approximately $36 million in proposed
settlements of pending and future claims; and
(iii) approximately $116 million for other future
claims. At September 30, 2002, it was estimated that
Zurns potential liability for asbestos claims pending
against it and for claims estimated to be filed through 2012 was
approximately $145 million. This estimate was comprised of
(i) $10 million in claims that had been settled but
unpaid as of September 30, 2002; (ii) $58 million in
proposed settlements of pending and future claims; and
(iii) $77 million for other future claims. These
estimates are based on the current and anticipated number of
future asbestos claims, the timing and amounts of asbestos
payments, the status of ongoing litigation and the potential
impact of defense strategies and settlement initiatives.
However, there are inherent uncertainties involved in estimating
both the number of future asbestos claims as well as future
settlement costs, and the actual liability could exceed
Zurns estimate due to changes in law and other factors
beyond their control.

Zurns present estimate of its asbestos
liability assumes (i) its recent vigorous defense strategy
will enable it to reduce both its claim frequency and claim
severity in the future; (ii) approximately 178,000 other
future asbestos claims; and (iii) its insurers will
continue to pay defense costs without eroding the coverage
amounts of its insurance policies. While Zurn believes there is
evidence, in recent claims settlements, for such an impact of a
successful defense strategy, if the defense strategy ultimately
is not successful, to the extent assumed by Zurn, the severity
and frequency of asbestos claims could increase substantially
above Zurns estimates. Further, while Zurns current
asbestos liability is based on an estimate of claims through
2013, such liability may continue beyond 2013, and such
liability could be substantial.

Zurns analysis of its available insurance
to cover its potential asbestos liability as of
September 30, 2003 is approximately $314 million. This
total includes the remaining limits of $68 million in
insurance coverage under certain excess policies which were a
subject of a settlement of an action commenced by Zurn in the
U.S. District Court of the Western District of Pennsylvania
which sought, among other things, a declaration that the
insurance coverage limits of certain excess policies provided
$68 million in coverage. As part of the settlement, Zurn
agreed to pay its insurer $5.0 million over four years. The
first payment in the sum of $1.25 million was paid in March
2003, and we have secured the balance of the obligation with a
letter of credit in the amount of $1.25 million.

Zurn believes, based on its experience in
defending and dismissing such claims and the approximately
$314 million of insurance coverage available, that it has
sufficient insurance to cover the pending and reasonably
estimable future claims. This conclusion was reached after
considering Zurns experience in asbestos litigation, the
insurance payments made to date by Zurns insurance
carriers, existing insurance policies, the industry ratings of
the insurers and the advice of insurance coverage counsel with
respect to applicable insurance coverage law relating to the
terms and conditions of those policies. However, there is no
assurance that this amount of insurance will ultimately be
available or that Zurns asbestos liabilities will not
ultimately exceed this amount. Factors that could cause a
decrease in the amount of available coverage include
insolvencies of one or more of Zurns carriers, changes in
law governing the policies and potential disputes with the
carriers on the scope of coverage. After review of the foregoing
with Zurn and its consultants, we believe that the resolution of
Zurns pending and reasonably estimable asbestos claims
will not have a material adverse effect on our financial
condition, results of operations or cash flows.




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

We did not submit any matter to a vote of
security holders during the last quarter of fiscal 2003.

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PART II




Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters

(a) Market Information.

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

|               |  |             |      |             |  |      |      |     |  |   |      |  |  |   |      | 
|-------------- |  | ----------- | ---- | ----------- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|               |  |             |      |            
|               |  | Fiscal 2003 |      | Fiscal 2002
|               |  |             |      |            
|               |  | High        |      | Low         |  | High |      | Low
|               |  |             |      |             |  |      |      |    
|First Quarter  |  | $           | 3.06 |             |  | $    | 1.50 |     |  | $ | 2.69 |  |  | $ | 1.91 | 
|Second Quarter |  | $           | 4.15 |             |  | $    | 2.52 |     |  | $ | 3.92 |  |  | $ | 1.76 | 
|Third Quarter  |  | $           | 5.73 |             |  | $    | 3.82 |     |  | $ | 4.40 |  |  | $ | 3.20 | 
|Fourth Quarter |  | $           | 6.50 |             |  | $    | 4.56 |     |  | $ | 3.70 |  |  | $ | 2.25 | 

(b) Holders.

As of November 28, 2003, there were
approximately 18,566 record holders of our common stock.

(c) Dividends.

Prior to March 2001, our Board of Directors
adopted a cash dividend policy under which we paid quarterly
cash dividends of $0.05 per share of common stock. The last
dividend payment was declared on December 31, 2000 and paid
on January 21, 2001. In March 2001, our Board indefinitely
suspended the quarterly payment of dividends. Furthermore, our
new Bank Facilities executed on July 15, 2003 (See
Note 6 to our Consolidated Financial Statements)
include a restriction on the payment of any dividends.

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

The following table sets forth information, as of
the end of fiscal year 2003, with respect to our compensation
plans under which shares of our common stock is or was
authorized for issuance and is outstanding:

|                           |                                  |                      |  |                      |           |                         |   |      |      |  |  |           |           | 
|-------------------------- | -------------------------------- | -------------------- |  | -------------------- | --------- | ----------------------- | - | ---- | ---- |  |  | --------- | --------- | 
|                           |                                  | Column (a)           |  | Column (b)           |           | Column (c)             
|                           |                                  |                      |  |                      |           |                        
|                           |                                  | Number of Securities |  |                      |           | Number of Securities   
|                           |                                  | to be Issued Upon    |  | Weighted-Average     |           | Remaining Available for
|                           |                                  | Exercise of          |  | Exercise Price of    |           | Future Issuance Under  
|                           |                                  | Outstanding Options, |  | Outstanding Options, |           | Equity Compensation    
|                           |                                  | Warrants and Rights  |  | Warrants and Rights  |           | Plans(1)               
|                           |                                  |                      |  |                      |           |                        
|Equity compensation plans: |                                  |                      |  |                      |           |                         |   |      |      |  |  |          
|                           | Approved by security holders     |                      |  | 5,190,202            |           |                         | $ | 9.97 |      |  |  | 1,152,832 |          
|                           | Not approved by security holders |                      |  |                     |           |                         |   |     |      |  |  |          |          
|                           |                                  |                      |  |                      |           |                         |   |      |      |  |  |          
|                           |                                  | Total                |  |                      | 5,190,202 |                         |   | $    | 9.97 |  |  |           | 1,152,832 | 
|                           |                                  |                      |  |                      |           |                         |   |      |      |  |  |          



---



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




Item 6.     Selected
Financial Data

The following table presents summary historical
consolidated financial data. The summary consolidated financial
data for the fiscal years ended September 30, 2003, 2002
and 2001 has been derived from our audited consolidated
financial statements included in Item 8 of this
Annual Report on Form 10-K. Our business has undergone
significant changes during the periods presented below.
Accordingly, results from any one period may not be comparable
to results from any other period.

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You should read the following summary
consolidated financial data in conjunction with Items 7and8 of this Annual Report on Form 10-K.

|                                    |                                                            |                                            |   |         |       |      |   |         |      |      |   |         |       |   |   |         |      |  |   |         |      | 
|----------------------------------- | ---------------------------------------------------------- | ------------------------------------------ | - | ------- | ----- | ---- | - | ------- | ---- | ---- | - | ------- | ----- | - | - | ------- | ---- |  | - | ------- | ---- | 
|                                    |                                                            |                                           
|                                    |                                                            | For the Fiscal Years Ended September 30,  
|                                    |                                                            |                                           
|                                    |                                                            | 2003                                       |   | 2002    |       | 2001 |   | 2000    |      | 1999
|                                    |                                                            |                                            |   |         |       |      |   |         |      |     
|                                    |                                                            |                                           
|                                    |                                                            | (in millions, except per share amounts)   
|Statements of Operations:           |                                                            |                                            |   |         |       |      |   |         |      |      |   |         |       |   |   |         |      |  |   |        
|                                    | Net sales                                                  |                                            | $ | 1,192.6 |       |      | $ | 1,068.3 |      |      | $ | 1,007.2 |       |   | $ | 1,619.4 |      |  | $ | 2,038.5 |     
|                                    | Operating income (loss)                                    |                                            |   | 81.2    |       |      |   | 94.4    |      |      |   | (29.6   | )     |   |   | 71.7    |      |  |   | 198.5   |     
|                                    | Income (loss) from continuing operations                   |                                            |   | 10.1    |       |      |   | 31.9    |      |      |   | (165.7  | )     |   |   | 32.0    |      |  |   | 90.4    |     
|                                    | (Loss) income from discontinued operations, net
    of tax |                                            |   | (41.2   | )     |      |   | 9.0     |      |      |   | (340.8  | )     |   |   | 3.6     |      |  |   | 51.0    |     
|                                    | Cumulative effect of accounting change, net of tax         |                                            |   |        |       |      |   |        |      |      |   | (0.7    | )     |   |   |        |      |  |   |        |     
|                                    | Net (loss) income                                          |                                            |   | (31.1   | )     |      |   | 40.9    |      |      |   | (507.2  | )     |   |   | 35.6    |      |  |   | 141.4   |     
|                                    |                                                            | Basic (loss) income per share:             |   |         |       |      |   |         |      |      |   |         |       |   |   |         |      |  |   |         |      | 
|                                    |                                                            | Income (loss) from continuing operations   |   |         | 0.14  |      |   |         | 0.43 |      |   |         | (2.24 | ) |   |         | 0.40 |  |   |         | 0.98 | 
|                                    |                                                            | (Loss) income from discontinued operations |   |         | (0.56 | )    |   |         | 0.12 |      |   |         | (4.60 | ) |   |         | 0.04 |  |   |         | 0.55 | 
|                                    |                                                            | Cumulative effect of accounting change     |   |         |      |      |   |         |     |      |   |         | (0.01 | ) |   |         |     |  |   |         |     | 
|                                    |                                                            | Net (loss) income                          |   |         | (0.42 | )    |   |         | 0.55 |      |   |         | (6.85 | ) |   |         | 0.44 |  |   |         | 1.53 | 
|                                    | Diluted (loss) income per share:                           |                                            |   |         |       |      |   |         |      |      |   |         |       |   |   |         |      |  |   |         |     
|                                    |                                                            | Income (loss) from continuing operations   |   |         | 0.14  |      |   |         | 0.43 |      |   |         | (2.24 | ) |   |         | 0.39 |  |   |         | 0.97 | 
|                                    |                                                            | (Loss) Income from discontinued operations |   |         | (0.56 | )    |   |         | 0.12 |      |   |         | (4.60 | ) |   |         | 0.04 |  |   |         | 0.54 | 
|                                    |                                                            | Cumulative effect of accounting change     |   |         |      |      |   |         |     |      |   |         | (0.01 | ) |   |         |     |  |   |         |     | 
|                                    |                                                            | Net (loss) income                          |   |         | (0.42 | )    |   |         | 0.55 |      |   |         | (6.85 | ) |   |         | 0.43 |  |   |         | 1.51 | 
|                                    |                                                            | Cash dividend declared per share           |   |         |      |      |   |         |     |      |   |         | 0.05  |   |   |         | 0.20 |  |   |         | 0.20 | 
|Balance Sheet Data (at period end): |                                                            |                                            |   |         |       |      |   |         |      |      |   |         |       |   |   |         |      |  |   |        
|                                    | Cash and cash equivalents                                  |                                            | $ | 31.2    |       |      | $ | 32.1    |      |      | $ | 65.2    |       |   | $ | 24.7    |      |  | $ | 57.7    |     
|                                    | Working capital                                            |                                            |   | 181.5   |       |      |   | 292.0   |      |      |   | 449.0   |       |   |   | 541.5   |      |  |   | 834.2   |     
|                                    | Total assets                                               |                                            |   | 1,336.8 |       |      |   | 1,682.6 |      |      |   | 2,175.1 |       |   |   | 2,489.8 |      |  |   | 3,028.3 |     
|                                    | Total debt                                                 |                                            |   | 500.1   |       |      |   | 808.1   |      |      |   | 1,226.8 |       |   |   | 1,046.2 |      |  |   | 1,251.8 |     
|                                    | Stockholders equity                                       |                                            |   | 255.7   |       |      |   | 254.4   |      |      |   | 217.0   |       |   |   | 753.7   |      |  |   | 920.3   |     

Financial data in fiscal 1999 and 2000 includes
the Diversified businesses and Rexair which were sold in March
2000. We repurchased Rexair in August 2001. A comprehensive
discussion of these dispositions and re-acquisition can be found
in Item 7.

Operating income (loss) for fiscal 2001,
2000, and 1999 includes goodwill amortization of
$9.5 million, $13.0 million and $12.1 million,
respectively. We stopped amortizing goodwill after adoption of
SFAS No. 142 on October 1, 2001. Operating income for
fiscal 1999 includes $6.8 million of equity losses from our
investment in United Pacific Industries (UPI). These
losses include charges associated with impairments of UPI and
its subsidiaries of $5.5 million.

Net sales in fiscal 2003 include
$8.6 million from the sale of a license for certain
patented technology. In addition to the after-tax benefit of
$5.3 million related to the license sale, income from
continuing operations in fiscal 2003 includes impairment,
restructuring and other after-tax charges of $12.1 million,
which consist primarily of $8.1 million for the closure of
two manufacturing plants and $5.2 million for the
restructuring of our corporate headquarters, partially offset by
a $2.0 million favorable adjustment related to prior year
restructuring reserves. Income from continuing operations also
includes $13.1 million of after-tax charges associated with
the extension and eventual refinancing of our debt in July 2003.
During the

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


Income from continuing operations in fiscal 2002
includes restructuring and other after-tax charges of
$4.7 million, which consist of $2.2 million for a
lease obligation, $2.0 million in severance charges and
$0.5 million to increase reserves related to the U.S. Brass
product lines which were discontinued in 2000, as well as
$5.6 million of after-tax charges related to financing
initiatives. Also, we recorded a tax benefit of
$29.6 million in fiscal 2002 largely attributable to
benefits that will be realized due to the completion of certain
asset sales and changes in tax laws regarding the utilization of
loss carry backs.

Loss from continuing operations in fiscal 2001
includes impairment, restructuring and other after-tax charges
of $159.3 million, which consist of $100.2 million in
goodwill impairment charges, $45.1 million of impairment
charges related to notes due from Strategic Industries LLC
(Strategic), $6.7 million for the payment of
advisory and other related fees associated with the debt
restructuring, $4.6 million for professional fees
associated with the previously planned spin-off of Lighting
Corporation of America and $2.7 million related to the
elimination of certain product lines.

Income from continuing operations in fiscal 2000
includes impairment, restructuring and other after-tax charges
of $64.9 million, which consist of $8.0 million for
the closure of the former Zurn corporate office,
$14.1 million related to the elimination of certain
products lines at our U.S. Brass operations, and
$42.8 million for goodwill and asset impairments related to
our European HVAC operations. Fiscal 2000 also includes net
after-tax credits of $24.4 million related to a gain on the
sale of our Diversified businesses, gains on the sales of the
Strategic notes and equity interest and charges related to the
abandoned sale of the Lighting segment. In addition, fiscal 2000
results include a $20.0 million reversal of tax
contingencies related to our spin-off from Hanson.

Income from continuing operations in fiscal 1999
includes restructuring and other after-tax charges of
$2.3 million associated with severance for certain senior
executives and $4.7 million primarily related to the
closure of a manufacturing facility and the elimination of
certain product lines. Fiscal 1999 results also include a
$6.2 million tax benefit from the resolution of prior
years tax issues.

In March 2001, the Board of Directors
indefinitely suspended the quarterly payment of dividends.
Furthermore, the new debt facilities executed on July 15,
2003 (See Note 6to our Consolidated Financial
Statements) include a restriction on the payment of any
dividends.




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

Overview

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

We were originally formed in 1995 when we were
spun-off from Hanson. At that time, we had holdings in 34
diverse businesses, including Jacuzzi and Rexair, and we
subsequently acquired Zurn in 1998. We recently completed an
asset disposal program that transformed us from a diversified
industrial conglomerate into a focused operating company
primarily serving the home and building products markets. As a
result of this program, the financial information presented for
any one period may not be comparable to that of any other
period. The following describes our principal dispositions of
businesses since October 1, 1999.



| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In the first quarter of fiscal 2000, we sold our
    ladder and infant and children footwear businesses in two
    separate transactions for aggregate consideration of
    $18.0 million. The results of the ladder and

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | the infant and children footwear operations were
    included in the Lawn & Garden and Diversified segments,
    respectively. We retained certain product liabilities of the
    ladder operations for which $11.3 million has been accrued
    as of September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | In March 2000, we sold a majority equity interest
    in our Diversified businesses to Strategic. In this transaction,
    we received $203.4 million in cash, received a preferred
    equity interest of approximately $19.5 million and common
    equity interest of 17.7% in Strategic and received approximately
    $209.0 million of notes due from Strategic (Strategic
    Notes). The businesses in our Diversified segment
    manufactured a wide range of consumer, precision engineered and
    automotive interior products. We accounted for our retained
    interest in the Diversified businesses under the equity method
    of accounting from March 2000 until January 2002 when we sold
    all remaining interests. The March 2000 sale included a 75%
    interest in Rexair, which we re-acquired in August 2001. We
    accounted for Rexair under the equity method of accounting from
    March 2000 to August 2001 when we held only a 25% interest. The
    consolidated results of Rexair have been included in the Rexair
    segment since we re-acquired it in August 2001. In August 2000,
    we sold approximately $25.0 million of the Strategic Notes,
    approximately $1.8 million stated value of the preferred
    equity and approximately 1.9% of the common equity in Strategic
    for a pre-tax gain of $0.9 million. In January 2002, we
    sold the remaining $156.9 million of Strategic Notes,
    $18.0 million stated value of the preferred equity and
    15.8% of the common equity in Strategic back to Strategic for
    net proceeds of $105.9 million.
|
| |  | In the second quarter of 2000, we sold our fire
    protection businesses, which were part of our previously defined
    Bath & Plumbing segment, for $23.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | In November 2000, we sold our European HVAC
    business, which was part of our previously defined
    Bath & Plumbing segment, for $7.5 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

We have included the financial results of each of
these businesses as part of our results of continuing operations
through the date of its sale. However, certain estimates made in
connection with these dispositions may need to be adjusted in
future periods.

Our Board of Directors approved a formal disposal
plan for the sale of five businesses in December 2001 and a
formal disposal plan for the sale of three businesses in
February 2003. We have completed the sale of all businesses
under both disposal plans. The results of these discontinued
businesses are excluded from our results from continuing
operations for all periods presented and from any discussions of
our continuing operating results. They are, however, included in
our results from discontinued operations and are discussed
separately under Dispositions and Discontinued
Operations. The following outlines our dispositions of these
discontinued operations.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In January 2002, we sold Ames True Temper, which
    was part of our Lawn & Garden segment, for
    $165.0 million. Ames True Temper manufactures non-powered
    lawn and garden tools and industrial hand and striking tools in
    North America.                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | In April 2002, we sold Lighting Corporation of
    America, which was part of our Lighting segment, for
    $250.0 million. Lighting Corporation of America
    manufactures and distributes indoor and outdoor lighting
    fixtures for markets in North America and Europe.                                                                                                                                                                                                                                                                                                                                                        
|
| |  | In June 2002, we sold Selkirk, which was part of
    our previously defined Bath & Plumbing segment, for
    $40.0 million. Selkirk manufactures and distributes
    grilles, registers, chimneys, gas vents and other venting
    products to the North American HVAC markets.                                                                                                                                                                                                                                                                                                                                                       
|
| |  | In September 2002, we sold Spear &
    Jackson, which was part of our Lawn & Garden segment, for
    $1.2 million in proceeds consisting of notes from the buyer and
    an equity interest in the common shares of the buyer. We are
    subject to restrictions on the voting and disposition of these
    shares and have no involvement in the management or operations
    of the buyer. The investment was recorded at its fair value at
    the date of acquisition based on an independent valuation and
    has since been adjusted to its market value of $22.0 million as
    of September 30, 2003 in accordance with SFAS

21



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | No. 115. Spear & Jackson
    manufactures and distributes hand tools, lawn and garden tools,
    industrial magnets and metrology tools, primarily in the U.K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In October 2002, we sold SiTeco, which was part
    of our Lighting segment, for $103.8 million. SiTeco
    manufactures and distributes indoor and outdoor and
    sign  shift 7 fixtures for markets in Europe.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | In May 2003, we sold our swimming pool &
    equipment business, which was part of our previously defined
    Bath & Plumbing segment, for $30.0 million in cash
    and two notes from the buyer totaling $8.5 million. The
    first note, valued at $5.0 million, is convertible at our
    option into 598,802 shares of the buyers common stock
    anytime after March 31, 2004 and through the due date of
    March 31, 2009. The closing price of the note issuers
    common stock on September 27, 2003 was $10.15 per share.
    The value of the smaller note is subject to adjustment after
    calculation of the final purchase price.
|
| |  | In June 2003, we sold our hearth business, which
    was part of our previously defined Bath & Plumbing segment,
    for $1.0 million in cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In October 2003, we sold our water systems
    business, which was part of our previously defined Bath &
    Plumbing segment, for $3.1 million in cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

With the completion of our 2001 and 2003 asset
disposal programs, we have largely completed our transformation
into an operating company.

We continue to explore strategic alternatives to
improve our operating efficiencies. In the first half of fiscal
2003, we combined six separate operating facilities into one new
facility in Chino, CA. Additionally, we have adopted a number of
efficiency enhancing manufacturing techniques, including lean
manufacturing techniques, to further improve our cost structure.
While we have experienced some initial inefficiency, we believe
that this new facility will enhance our operations
significantly. We also announced the closing of our
manufacturing plants in Plant City, FL and Salem, OH. The Plant
City plant, which manufactured spas, was closed in November
2003. Their production demands were absorbed by our main spa
facility located in Chino, CA. The Salem plant, which
manufactures cast iron sanitary ware, will be closed during
fiscal 2004, and the production will be outsourced to an
overseas supplier at a lower cost. These restructuring
initiatives are discussed in more detail under Impairment,
Restructuring and Other Charges.

While we have no specific plans at this time, we
continue to evaluate strategies to improve the results of
certain under-performing product lines within our Bath Product
segment. We believe that there remains significant potential for
further rationalization of our Bath Product segments cost
structure. Implementation of these strategies could result in
our recording charges in future periods, including charges
related to asset impairments.

We redefined our business segments in fiscal 2003
to reflect changes made to our management structure and the way
we evaluate our businesses (see Note 12to our
audited consolidated financial statements). We currently operate
as three business segments, consisting of a Bath Products
segment, a Plumbing Products segment and a Rexair segment. The
Bath Products segment manufactures whirlpool baths, spas,
showers, sanitary ware, including sinks and toilets, and
bathtubs for the residential construction and remodeling
markets. The Plumbing Products segment manufactures professional
grade drainage, water control, commercial brass and PEX piping
products primarily for the commercial and institutional
construction, renovation and facilities maintenance markets. The
Rexair segment manufactures premium vacuum cleaner systems sold
through independent distributors in the direct sales retail
channel. The Bath Products segment and Plumbing Products segment
were previously classified by management as the Bath &
Plumbing Products segment.

Over the last three years, we engaged in a number
of transactions with respect to our indebtedness that affected
our operating results for those periods. On August 15,
2001, we restructured our previous bank financing arrangements
by amending and restating two credit facilities. One facility,
which was our principal credit facility, provided for an
aggregate of $830.0 million of term and revolving loans
available to

22



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##### Table of Contents



us and certain of our subsidiaries (excluding
Rexair). The other facility, which we refer to as the
Rexair facility, provided for an aggregate of
$195.0 million of term and revolving loans available to
Rexair. As part of our debt reduction program, we repaid and
permanently reduced the commitments under these amended and
restated credit facilities (collectively the Restructured
Facilities) with proceeds from asset disposals and cash
flow from operations.


In addition, early in fiscal 2003 we completed a
restructuring of our senior notes. Prior to this restructuring,
we had outstanding $250.0 million aggregate principal
amount of 7.125% senior notes due 2003 and $125.0 million
aggregate principal amount of 7.25% senior notes due 2006. In
November 2002, we completed an exchange offer in which we
exchanged $238.2 million aggregate principal amount of our
7.125% senior notes due 2003 for $104.8 million in cash and
$133.4 million aggregate principal amount of 11.25% senior
notes due 2005. In November 2002, we completed an offer to
redeem $54.8 million aggregate principal amount of 7.25%
senior notes due 2006.

On July 15, 2003, we completed a
comprehensive re-financing of our corporate debt by closing on
the issuance of $380.0 million in aggregate principal
amount of 9.625% Senior Secured Notes (the New
Notes) as well as a new five-year $200.0 million
asset-based revolving credit facility and a five-year
$65.0 million term loan (collectively the Bank
Facilities). The proceeds from the New Notes, together
with the initial borrowings under the Bank Facilities were used
to repay the outstanding debt under our then outstanding debt
facilities and fund the redemption of the 7.25% senior notes,
the 7.125% senior notes and the 11.25% senior notes (Old
Notes).

For more information on the transactions that
relate to our previously outstanding debt facilities, senior
notes and debt refinancing, see Note 6 to our
Consolidated Financial Statements.

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

Housing starts, consumer spending and remodeling
expenditures have a major impact on our consumer focused bath
and spa businesses, which is served by our Bath Products
segment. Our Plumbing Products business is dependent upon
commercial and institutional construction activity and is
therefore affected by macroeconomic factors such as the
unemployment rate and the availability of financing. Despite the
cyclical nature of commercial and institutional construction,
including declines of approximately 6% in fiscal 2003 and
approximately 14% in fiscal 2002, our commercial and
institutional products business has grown sales over the past
year by enhancing our product offerings with new product
introductions.

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##### Table of Contents



Results of Operations

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

|                        |                   |                               |       |       |         |      |       |       |         |  |       |       |         |  
|----------------------- | ----------------- | ----------------------------- | ----- | ----- | ------- | ---- | ----- | ----- | ------- |  | ----- | ----- | ------- | -
|                        |                   |                              
|                        |                   | For the Fiscal Years Ended   
|                        |                   | September 30,                
|                        |                   |                              
|                        |                   | 2003                          |       | 2002  |         | 2001
|                        |                   |                               |       |       |         |     
|                        |                   |                              
|                        |                   | (in millions)                
|Net Sales               |                   |                               |       |       |         |      |       |       |         |  |       |      
|                        | Bath Products     |                               | $     | 813.9 |         |      | $     | 711.9 |         |  | $     | 721.5 |        
|                        | Plumbing Products |                               |       | 276.6 |         |      |       | 257.8 |         |  |       | 272.4 |        
|                        | Rexair            |                               |       | 102.1 |         |      |       | 98.6  |         |  |       | 13.3  |        
|                        |                   |                               |       |       |         |      |       |       |         |  |       |      
|                        |                   | Total Net Sales               |       | $     | 1,192.6 |      |       | $     | 1,068.3 |  |       | $     | 1,007.2 |  
|                        |                   |                               |       |       |         |      |       |       |         |  |       |      
|Operating Income (Loss) |                   |                               |       |       |         |      |       |       |         |  |       |      
|                        | Bath Products     |                               | $     | 7.4   |         |      | $     | 26.7  |         |  | $     | (75.7 | )      
|                        | Plumbing Products |                               |       | 62.1  |         |      |       | 51.3  |         |  |       | 48.7  |        
|                        | Rexair            |                               |       | 26.6  |         |      |       | 27.4  |         |  |       | 2.9   |        
|                        |                   |                               |       |       |         |      |       |       |         |  |       |      
|                        |                   |                               | 96.1  |       |         |      | 105.4 |       |         |  | (24.1 | )    
|Corporate Expenses      |                   |                               | (14.9 | )     |         |      | (11.0 | )     |         |  | (5.5  | )    
|                        |                   |                               |       |       |         |      |       |       |         |  |       |      
|                        |                   | Total Operating Income (Loss) |       | $     | 81.2    |      |       | $     | 94.4    |  |       | $     | (29.6   | )
|                        |                   |                               |       |       |         |      |       |       |         |  |       |      



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



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

Overall sales increased $124.3 million or
11.6% in fiscal year 2003 when compared to fiscal 2002. The
results reflect sales increases in each of our operating
segments, with the most significant increases achieved in our
Bath Products segment. Fiscal 2003 results of our Plumbing
Products segment include $8.6 million in sales recognized
upon the granting of a license for certain technology that had
been the subject of patent litigation. Operating income
decreased $13.2 million or 14.0% in fiscal 2003 as compared
to fiscal 2002. Included in our fiscal 2003 results are
$19.9 million of impairment, restructuring and other
charges, of which $0.9 million is included in cost of
products sold, while our fiscal 2002 results include
restructuring and other charges of $7.2 million. For
detailed information on these charges see our discussion under
Impairment, Restructuring and Other Charges. The decrease
in operating income, beyond the net impact of the impairment,
restructuring and other charges, is primarily due to a decrease
in operating results in our Bath Products segment as more fully
described below.



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

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

Operating income of $7.4 million for fiscal
2003 includes $14.6 million of restructuring and other
charges primarily related to the closure of two plants, while
operating income of $26.7 million for fiscal 2002 includes
$2.5 million of restructuring and other charges related to
the elimination of an executive layer of management. A separate
discussion of these charges can be found under Impairment,

24



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##### Table of Contents



Restructuring and Other
Charges . Excluding these charges,
operating income decreased as favorable sales volume was offset
by labor inefficiencies and start up costs related to the move
to a new whirlpool bath manufacturing facility in Chino, CA,
costs of process improvements to enhance quality and future
operating efficiencies at the new Chino, CA plant, costs related
to the Lowes roll-out, higher insurance costs, increased
marketing expenses and escalating costs associated with our cast
iron and sanitary ware businesses. In addition, we established a
$2.5 million reserve against a note receivable from a
customer in fiscal 2003 in accordance with SFAS No. 114.
Favorable currency exchange rates improved earnings by
$5.0 million for the year.


The costs associated with the move to the new
whirlpool bath plant in Chino, CA, process improvements at the
new plant and the Lowes roll-out are not expected to
continue into 2004. The higher insurance costs are primarily
associated with higher workers compensation costs at our
Southern California spa and whirlpool bath manufacturing
facilities. The increase in marketing expenses reflects an
increased investment in the strong portfolio of brand names
within our Bath Products segment. This level of investment is
expected to continue into the future. The escalating costs
associated with our cast iron business has led us to conclude
that we can no longer economically produce cast iron products
and have recently announced the planned closure of our Salem, OH
cast iron manufacturing facility in fiscal 2004. The shut down
will result in additional charges in 2004 of approximately
$6.9 million primarily for severance and plant shut down
costs. We plan to relinquish production of our cast iron
products to outside suppliers, who will build them to our design
and specification. We do not expect a material loss of revenue
as a result of the closing of the Salem, OH plant.



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

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

Operating income increased from
$51.3 million (19.9% of sales) in fiscal 2002 to
$62.1 million (22.5% of sales) in fiscal 2003. Fiscal 2002
results include restructuring and other charges of
$1.3 million related to a management restructuring and
discontinued product lines (see Impairment, Restructuring and
Other Charges). The increase in operating income, after
giving effect for the restructuring and other charges in fiscal
2002, is the result of higher sales and the $8.6 million
sale of the technology license. Without the sale of the license,
margins as a percentage of sales would have decreased slightly
primarily as a result of changes in the product mix sold.



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

Net sales increased by $3.5 million (3.5%)
in fiscal 2003 as compared to fiscal 2002. Current year sales
were positively impacted by an increase in overall unit sales
and a price increase implemented at the beginning of fiscal
2003. The number of units sold increased in both our domestic
and international operations over the prior year. Domestic sales
were favorably impacted by the price increase and initiatives to
increase the size of our distributorships. International sales
were also favorably impacted by the price increases. Increases
in unit sales in the Middle East and Latin America were
partially offset by decreases in Europe and Asia. The
distributors in the Middle East were able to raise sales after
benefiting from additional training and support provided by the
home office in fiscal 2003. Latin America saw increased sales
because of increased selling effort. The decreases in Europe
were primarily attributable to Portugal, while sales in Asia
were impacted by the SARS epidemic earlier in the year.

Operating income decreased from
$27.4 million (27.8% of sales) in fiscal 2002 to
$26.6 million (26.1% of sales) in fiscal 2003. Increased
margins from the increase in sales were offset by decreased
overhead absorption of approximately $1.0 million related
to an inventory reduction program and increased

25



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##### Table of Contents



compensation costs in fiscal 2003 and a decrease
in estimated warranty reserves during 2002 that increased
operating income that year.




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

Corporate expenses increased by $3.9 million
in fiscal 2003, as compared with fiscal 2002. The increase is
primarily attributable to net restructuring charges in fiscal
2003 of $5.3 million related to the consolidation of
corporate offices and a favorable adjustment to prior year
reserves related to a corporate lease obligation. Fiscal 2002
includes restructuring charges of $3.4 million related to
the same corporate lease obligation (see Impairment,
Restructuring and Other Charges). We increased the reserve
in fiscal 2002 when it became apparent that we could not
sub-lease the empty space. A portion of the reserve was reversed
when we decided to utilize the space for the shared services
operations center. The remaining increase, after giving effect
to the net restructuring charges, is primarily due to a
$4.6 million decrease in pension income, reflecting a
reduction in the discount rate and expected return on plan
assets used in valuing the plans. Partially offsetting these
increased costs are decreases in compensation and other
personnel related expenses due to staffing reductions as well as
decreases in professional fees.



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

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

The decrease in interest income in fiscal 2003
was primarily due to the January 2002 sale of
$156.9 million in aggregate principal amount of 12.5%
Strategic Notes we had received as part of the consideration
from the sale of our Diversified businesses to Strategic in
March 2000.



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

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



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

During fiscal 2003, the IRS completed its
examination of the federal income tax returns for fiscal 1995
through 1997. As a result of the audit settlement, a tax benefit
of $13.6 million was recorded in fiscal 2003. In early
November 2003, the IRS informed us that it was ready to begin
its audit of our returns for years after 1997. In addition, one
of our subsidiaries is also under audit by the IRS for 1997 and
1998, a period prior to our acquisition of that subsidiary.

In fiscal 2002, we recorded a tax benefit of
$29.6 million, which was largely attributable to benefits
realized as the result of certain asset sales and changes in tax
laws regarding the utilization of loss carry backs.

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

26



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##### Table of Contents



Fiscal 2002
Compared to Fiscal 2001

Overall

Overall sales increased $61.1 million or
6.1% in fiscal 2002 when compared to fiscal 2001 due to the
inclusion of Rexair in our fiscal 2002 results. On
August 15, 2001, we re-acquired the 75% equity interest in
Rexair that we had previously sold to Strategic in March 2000 as
part of the sale of our Diversified businesses. We accounted for
Rexair under the equity method of accounting during the period
from March 24, 2000 until August 15, 2001 when we held
only a 25% equity interest. This increase was partially offset
by a 1.3% decrease in sales in the Bath Products segment and a
5.4% decrease in sales in the Plumbing Products segment.

Overall operating income (loss) for fiscal
2002 and fiscal 2001 includes goodwill impairment, restructuring
and other charges of $7.2 million and $105.0 million,
respectively. Also included in fiscal 2001 results is goodwill
amortization of $9.5 million. We stopped amortizing
goodwill after the adoption of SFAS No. 142 on
October 1, 2001. Excluding these items, operating income
for fiscal 2002 increased over the comparable prior year period
due to the inclusion of Rexair, partially offset by a decrease
in operating income in the Bath Products and Plumbing Products
segments.



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

Net sales in the Bath Products segment decreased
$9.6 million or 1.3% in fiscal 2002 in comparison with the
prior year. The segment reported decreased sales in the domestic
non-premium spa and whirlpool bath product lines, partially
offset by sales increases in the U.K. bath and sink and domestic
premium spa product lines and our domestic sanitary ware product
line. The domestic non-premium spa and whirlpool bath product
lines were affected by reduced sales to home center mass
merchants. The U.K. bath and sink product lines experienced
improved weather conditions and we had implemented customer
programs during the period that increased sales to existing
customers. The premium spa product lines have been successful in
adding a number of new products and dealers for the
JACUZZI® and SUNDANCE® product lines. Foreign currency
exchange rates also favorably impacted sales for fiscal 2002 by
$3.5 million. Sales of our domestic sanitary ware line of
bathroom products increased over fiscal 2001 as a result of
greater demand in the home center channel.

Operating income (loss) for the Bath Products
segment included restructuring and goodwill impairment charges
of $2.5 million and $100.2 million in fiscal 2002 and
fiscal 2001, respectively. The fiscal 2002 charges of
$2.5 million were severance charges related to management
changes at the Jacuzzi corporate office as well as our decision
to eliminate the executive layer of management in our previously
defined Bath & Plumbing segment. For fiscal 2001, the entire
$100.2 million represented goodwill impairment charges (see
Impairment, Restructuring and Other Charges). The segment
also recorded goodwill amortization of $7.6 million in
fiscal 2001. Excluding these items, operating income for fiscal
2002 decreased as compared to fiscal 2001 primarily due to the
decrease in sales for the fiscal 2002 period. Also contributing
to the decrease in fiscal 2002 were the costs of consolidating
selected whirlpool bath manufacturing facilities into the Chino,
CA plant, which became fully operational in the first fiscal
quarter of 2003. These decreases were partially offset by a
$9.6 million reduction in advertising of the JACUZZI®
brand and an increase in operating margins for the domestic spa
product line due to a shift in the sales mix towards the premium
spa lines, which are sold at higher margins. Further, exchange
rates favorably impacted operating income by $0.6 million.



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

Net sales in the Plumbing Products segment
decreased $14.6 million or 5.4% in fiscal 2002 compared to
fiscal 2001 primarily due to the disposal of the segments
European HVAC businesses and discontinued product lines in the
segments U.S. Brass operations, which contributed
approximately $14.0 million to net sales in fiscal 2001.
Excluding the effects of these transactions, net sales remained
virtually unchanged despite softness in the U.S. commercial and
institutional construction markets due to a gain in market share
across all product groups. This increase in market share was
achieved by enhancing our product line.

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For example, in 2002 we introduced a
high-capacity, pre-sloped trench drain with a patented one piece
design which provides improved hydraulics and significant labor
savings in installation for airport runways and road side
drainage.


Operating income for the Plumbing Products
segment includes $1.3 million and $4.8 million in
restructuring and other charges in fiscal 2002 and 2001,
respectively, the details of which can be found under
Impairment, Restructuring and Other Charges. The segment
also recorded goodwill amortization of $1.9 million in
fiscal 2001. Excluding these items, operating income decreased
in gross dollars but increased as a percentage of sales largely
due to the disposal and discontinuance of less profitable
businesses and product lines.



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

The Rexair segment consists solely of the Rexair
business, which we re-acquired from Strategic in August 2001.
While still owned by Strategic, Rexair recorded sales of
$96.1 million and operating income of $24.3 million
for the period from October 1, 2000 through August 15,
2001. Sales and operating income for Rexair for the entire year
ended September 30, 2001 were $109.4 million and $27.2
million, respectively, compared to $98.6 million and
$27.4 million, respectively, for the year ended
September 30, 2002.

The sales decrease of $10.8 million in
fiscal 2002 from the comparable prior year period is primarily
attributable to a decrease in unit sales due to the political
uncertainty resulting from events of September 11, 2001 and
events in the Middle East.

Operating income for fiscal 2001 includes
goodwill amortization of $3.5 million, which was recorded
while Rexair was owned by Strategic, and intangible asset
amortization of $0.1 million. Operating income for fiscal
2002 includes intangible asset amortization of $1.1 million.
Excluding this amortization, the decrease in operating income in
fiscal 2002 was primarily due to lower sales, partially offset
by reduced general and administrative costs and a decrease in
their estimated warranty reserves.



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

Corporate expenses increased $5.5 million in
fiscal 2002 in comparison with the prior fiscal year primarily
due to restructuring charges of $3.4 million associated
with a corporate lease obligation (see Impairment,
Restructuring and Other Charges) and an increase in legal
and other professional services expenses of approximately
$1.8 million.



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

Interest expense decreased $12.8 million in
fiscal 2002 compared to fiscal 2001 largely due to lower debt
balances resulting from payments made to satisfy the permanent
debt reduction requirements under the terms of our then
outstanding credit facilities, which were refinanced in fiscal
2003.

Interest income decreased by $20.6 million
in fiscal 2002 when compared with the prior fiscal year. The
decrease was largely due to the interest earned on the Strategic
Notes we received from Strategic as part of the consideration
from the sale of our Diversified businesses in March 2000. We
sold our remaining investment of $156.9 million in the
Strategic Notes back to Strategic in January 2002. Interest on
these notes totaled $1.6 million and $22.5 million in
fiscal 2002 and 2001, respectively.



| |                           
| | --------------------------
| | Equity Losses in Investees

We recorded equity losses related to our
investment in Strategic and Rexair of $1.4 million in
fiscal 2001. As a result of the Rexair re-acquisition on
August 15, 2001, we now own 100% of Rexair. In January
2002, we sold our remaining equity interests in Strategic which
we had obtained in March 2000 in connection with the sale of our
Diversified businesses.

28



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

Other expense, net, was $15.5 million and
$79.8 million for fiscal 2002 and fiscal 2001,
respectively. In fiscal 2002, other expense, net includes
$9.2 million in financing related charges and
$5.2 million in expenses associated with liabilities
retained when we sold our ladder operations in October 1999. In
fiscal 2001 other expenses, net includes $45.1 million in
impairment charges related to the Strategic Notes, $23.6 million
in advisory and other related costs associated with our debt
restructuring, $8.1 million of professional fees related to
our previously planned spin-off of Lighting Corporation of
America and $4.3 million related to our ladder operations.



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

In fiscal 2002, we recorded a tax benefit of
$29.6 million, which is largely attributable to benefits
that will be realized due to the completion of certain asset
sales and changes in tax laws regarding the utilization of loss
carry backs.

Due to a change in tax law under the Job Creation
and Workers Assistance Act of 2002, we are able to carry
back net operating losses for which we had previously
established a valuation allowance. In accordance with Statements
of Financial Accounting Standards number (SFAS No.)
109, the release of the valuation allowance in 2002 was due to a
change in tax law and is reflected through continuing
operations. We had established a valuation allowance principally
related to deferred tax assets resulting from losses recognized
in connection with the 2001 disposal plan, reflecting the
uncertainty of the future realization of these assets.

For fiscal 2001, the difference between the U.S.
statutory rate and our effective tax rate arose principally as a
result of the non-deductibility of a portion of the goodwill
impairments recorded during the year, as well as a valuation
allowance for deferred tax assets.



| |                                                
| | -----------------------------------------------
| | Impairment, Restructuring and Other
    Charges



| |         
| | --------
| | Overview

The principal components of impairment,
restructuring and other charges, including $0.9 million
recorded in cost of products sold in 2003, are:

|                                        |       |                            |      |      |  |      |     |     |  |   |       |       | 
|--------------------------------------- | ----- | -------------------------- | ---- | ---- |  | ---- | --- | --- |  | - | ----- | ----- | 
|                                        |       |                           
|                                        |       | For the Fiscal Years Ended
|                                        |       | September 30,             
|                                        |       |                           
|                                        |       | 2003                       |      | 2002 |  | 2001
|                                        |       |                            |      |      |  |     
|                                        |       |                           
|                                        |       | (in millions)             
|Impairment of goodwill                  |       | $                          |     |      |  | $    |    |     |  | $ | 100.2 |      
|Impairment of other assets              |       |                            | 9.2  |      |  |      |    |     |  |   |      |      
|Lease obligations and other commitments |       |                            | (1.7 | )    |  |      | 4.1 |     |  |   |      |      
|Severance and related costs             |       |                            | 12.4 |      |  |      | 3.1 |     |  |   |      |      
|                                        |       |                            |      |      |  |      |     |     |  |   |       |      
|                                        | Total |                            | $    | 19.9 |  |      | $   | 7.2 |  |   | $     | 100.2 | 
|                                        |       |                            |      |      |  |      |     |     |  |   |       |      
|Cash charges                            |       | $                          | 7.4  |      |  | $    | 6.4 |     |  | $ |      |      
|Non-cash charges                        |       |                            | 12.5 |      |  |      | 0.8 |     |  |   | 100.2 |      
|                                        |       |                            |      |      |  |      |     |     |  |   |       |      
|                                        | Total |                            | $    | 19.9 |  |      | $   | 7.2 |  |   | $     | 100.2 | 
|                                        |       |                            |      |      |  |      |     |     |  |   |       |      



| |                                                            
| | -----------------------------------------------------------
| | Fiscal 2003 Impairment, Restructuring and
    Other Charges

We launched several initiatives in fiscal 2003 to
reduce costs and position ourselves to better accommodate future
growth. Below is a summary of the charges we incurred in fiscal
2003 associated with

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those initiatives. Charges are recorded when a
liability is incurred in accordance with SFAS No. 146 and
SFAS No. 144 or other applicable guidance.


|                                                 |                              |               |     |                   |  |         |      |       |  |   |     |      |  |   |      |      | 
|------------------------------------------------ | ---------------------------- | ------------- | --- | ----------------- |  | ------- | ---- | ----- |  | - | --- | ---- |  | - | ---- | ---- | 
|                                                 |                              |               |     |                   |  |        
|                                                 |                              |               |     | Impairment,       |  |        
|                                                 |                              |               |     | Restructuring and |  |        
|                                                 |                              |               |     | Other Charges     |  |        
|                                                 |                              |               |     |                   |  |        
|                                                 |                              |               |     | Restructuring     |  | Plant   |      |      
|                                                 |                              | Cost of       |     | and Severance     |  | Closure |      |      
|                                                 |                              | Products Sold |     | Charges           |  | Costs   |      | Total
|                                                 |                              |               |     |                   |  |         |      |      
|                                                 |                              |              
|                                                 |                              | (in millions)
|Bath Products:                                   |                              |               |     |                   |  |         |      |       |  |   |     |      |  |   |      |     
|Closure of Salem, OH facility(1)                 |                              | $             | 0.9 |                   |  | $       |     |       |  | $ | 8.5 |      |  | $ | 9.4  |     
|Closure of Plant City, FL facility(2)            |                              |               |    |                   |  |         |     |       |  |   | 3.9 |      |  |   | 3.9  |     
|Consolidation of administrative
    functions(3) |                              |               |    |                   |  |         | 0.4  |       |  |   |    |      |  |   | 0.4  |     
|Dismissal of wholesale sales force(4)            |                              |               |    |                   |  |         | 0.9  |       |  |   |    |      |  |   | 0.9  |     
|                                                 |                              |               |     |                   |  |         |      |       |  |   |     |      |  |   |      |     
|                                                 | Sub-total Bath Products      |               |     | 0.9               |  |         |      | 1.3   |  |   |     | 12.4 |  |   |      | 14.6 | 
|                                                 |                              |               |     |                   |  |         |      |       |  |   |     |      |  |   |      |     
|Corporate Expenses:                              |                              |               |     |                   |  |         |      |       |  |   |     |      |  |   |      |     
|Adjustment of estimated lease
    obligation(5)  |                              |               |    |                   |  |         | (3.2 | )     |  |   |    |      |  |   | (3.2 | )   
|Corporate headquarters restructuring(6)          |                              |               |    |                   |  |         | 8.5  |       |  |   |    |      |  |   | 8.5  |     
|                                                 |                              |               |     |                   |  |         |      |       |  |   |     |      |  |   |      |     
|                                                 | Sub-total Corporate Expenses |               |     |                  |  |         |      | 5.3   |  |   |     |     |  |   |      | 5.3  | 
|                                                 |                              |               |     |                   |  |         |      |       |  |   |     |      |  |   |      |     
|                                                 | Total                        |               | $   | 0.9               |  |         | $    | 6.6   |  |   | $   | 12.4 |  |   | $    | 19.9 | 
|                                                 |                              |               |     |                   |  |         |      |       |  |   |     |      |  |   |      |     



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our Salem manufacturing plant produces
    ELJER® cast iron sanitary ware for retail and wholesale
    customers. In recent years, as prices in the retail and
    wholesale markets have been driven lower, the costs to
    manufacture product in Salem have continued to escalate. As a
    result, we have determined that continued manufacturing in Salem
    is not economically feasible. In 2003, management initiated a
    plan to close the plant and will exit the facility by the end of
    fiscal 2004. Even so, we still plan to be a provider of cast
    iron products, which will be manufactured to our specification
    and design by a third party.

We have recorded a $9.4 million charge
associated with the closure of the Salem plant. We estimate that
approximately $0.9 million of the raw materials on hand at
September 30, 2003 will need to be scrapped prior to the
closure of the plant as a direct result of our decision to exit
this facility. Also, as a result of our decision, we performed a
recoverability test of the long-lived assets and determined that
an impairment charge of $5.2 million was required to reduce
the carrying value of these long-lived assets to their estimated
fair value. The estimated fair value of the plant was determined
based on the value of comparable plants in the area. Our
decision to close the plant also resulted in a curtailment of
our pension and other post- employment benefit plans, leading to
a curtailment charge of $3.0 million. Finally, we have
recorded a charge of $0.3 million associated with other
cash commitments of exiting the facility. We expect to incur
another $6.9 million in charges in fiscal 2004 related to this
plant closing, primarily for severance and other cash
obligations associated with preparing the plant for shut down.
As a result of this plant closing, approximately 253 employees
will be terminated.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | In fiscal 2003, management approved a plan to
    close our Plant City, FL plant in the first quarter of fiscal
    2004. The plant was subsequently closed in November 2003. This
    plant produced less than 10% of our spa volume, and production
    was absorbed by our, state-of-the-art spa manufacturing facility
    in Chino, CA. In fiscal 2003, we recorded a $3.9 million charge
    associated with the closure of the Plant City facility. As a
    result of our decision to close the plant, we performed a
    recoverability test of the long-lived assets and determined that
    an impairment charge of $3.1 million was required to reduce
    the carrying value of the property, plant and equipment to their
    estimated fair value. The estimated fair value of the plant was
    determined based on the value of comparable plants in the area
    plus the book value of the equipment that was transferred to our
    Chino facility. Except for costs directly associated

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | with the sale of the facility, we do not expect
    to incur any additional charges in fiscal 2004 associated with
    this plant closing. Approximately 120 employees were terminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | We will be consolidating a number of
    administrative functions into a shared services operations
    center. These functions are presently being performed by our
    domestic whirlpool bath, spa and sanitary bath operations in
    multiple locations. The shared services center is expected to be
    fully operational by the third quarter of fiscal 2004. The
    shared service center will occupy a portion of the unused office
    space in Dallas, TX that has remained vacant since our closing
    of the Zurn corporate office in fiscal 2000. We incurred
    severance charges of $0.4 million in fiscal 2003, and expect to
    incur an additional $1.0 million in fiscal 2004 for
    severance and other related cash obligations. Approximately 44
    employees will be terminated as a result of this plan.                                                                                          
|   
|(4) | Management also approved a plan to replace our
    entire domestic sanitary bath wholesale sales force with
    independent manufacturer representatives to market our
    ELJER® brand products to the wholesale channel on a
    commission basis. We incurred $0.9 million in severance
    costs in fiscal 2003 related to the dismissal of 26 employees in
    the first quarter of fiscal 2004. Minimal costs are expected to
    be incurred in fiscal 2004 related to this sales force reduction.                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(5) | A favorable adjustment of $3.2 million was
    recorded in fiscal 2003 to reduce the associated restructuring
    reserves for the space that will be occupied by the shared
    services center. The restructuring reserves for the Zurn
    corporate lease obligation were initially established in fiscal
    2000 and later adjusted in fiscal 2002 (see Fiscal 2002
    Restructuring and Other Charges). As of September 30,
    2003, we have restructuring reserves of $4.0 million
    related to the remaining unused space in Dallas. These costs are
    expected to be paid over the remaining lease term, which extends
    through November 2007.                                                                                                                                                                                                                                                                 
|   
|(6) | In April 2003, management initiated a
    restructuring and consolidation of the corporate headquarters
    that included a number of management changes and the relocation
    and consolidation of the Jacuzzi headquarters in Walnut Creek,
    CA into our principal offices in West Palm Beach, FL. This
    resulted in the termination of 17 employees from California and
    3 from Florida. All but one of the employees has been terminated
    as of September 2003. Upon approval of our Board and
    stockholders, we also changed our name from U.S. Industries,
    Inc. to Jacuzzi Brands, Inc. We incurred charges of
    $8.5 million during fiscal 2003 related to these
    initiatives and expect to incur another $0.2 million in the
    first quarter of 2004. These charges consist primarily of
    employee severance, lease termination costs, relocation expenses
    and other related exit costs.



| |                                                
| | -----------------------------------------------
| | Fiscal 2002 Restructuring and Other
    Charges

In fiscal 2002, a decision was made to eliminate
the executive layer of management and execute other management
changes within the segment previously reported as the Bath &
Plumbing segment. This decision resulted in the termination of
four employees and a restructuring charge of $3.1 million,
consisting of $2.3 million in cash severance payments and
$0.8 million in non-cash charges associated with the
accelerated vesting of restricted stock. Substantially all of
the severance had been paid by the end of fiscal 2003. Operating
income in the Bath Products segment and Plumbing Products
segment included $2.5 million and $0.6 million of these
charges, respectively.

We also recorded restructuring charges of
$0.7 million in our Plumbing Products segment to adjust
reserves associated with a restructuring plan initiated in a
prior year for the discontinuance of a product line. Our
estimates of the remaining product liability and warranty claims
associated with these products required revision based on
updated information.

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

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All charges are classified as impairment,
restructuring and other charges in our consolidated statement of
operations.



| |                                            
| | -------------------------------------------
| | Fiscal 2001 Goodwill Impairment
    Charges

Operating results at a number of our subsidiaries
declined during 2001. In the third quarter of 2001, we evaluated
the recoverability of the goodwill of these subsidiaries based
on a fair value methodology. This evaluation indicated that the
carrying value of the goodwill of certain of our subsidiaries
was impaired. As a result, we recorded goodwill impairment
charges totaling $100.2 million in the Bath Products
segment. All charges were classified as impairment,
restructuring and other charges in our consolidated statement of
operations.



| |                       
| | ----------------------
| | Restructuring Reserves

As of September 30, 2003, we had remaining
accruals of $11.5 million for restructuring costs. The
activity in the restructuring liability accounts by cost
category is as follows:

|                      |                               |               |     |             |   |       |     |      |   |   |      |      |  
|--------------------- | ----------------------------- | ------------- | --- | ----------- | - | ----- | --- | ---- | - | - | ---- | ---- | -
|                      |                               | Lease and     |     |             |   |      
|                      |                               | Contract      |     | Severance   |   |      
|                      |                               | Related       |     | and Related |   | Total
|                      |                               | Costs         |     | Costs       |   | Costs
|                      |                               |               |     |             |   |      
|                      |                               |              
|                      |                               | (in millions)
|At September 30, 2001 |                               | $             | 6.8 |             |   | $     | 0.3 |      |   | $ | 7.1  |     
|                      | Fiscal 2002 charges           |               |     | 4.1         |   |       |     | 2.3  |   |   |      | 6.4  |  
|                      | Cash payments                 |               |     | (2.1        | ) |       |     | (2.0 | ) |   |      | (4.1 | )
|                      |                               |               |     |             |   |       |     |      |   |   |      |     
|At September 30, 2002 |                               |               | 8.8 |             |   |       | 0.6 |      |   |   | 9.4  |     
|                      | Fiscal 2003 (credits) charges |               |     | (1.7        | ) |       |     | 9.1  |   |   |      | 7.4  |  
|                      | Cash payments                 |               |     | (1.6        | ) |       |     | (3.7 | ) |   |      | (5.3 | )
|                      |                               |               |     |             |   |       |     |      |   |   |      |     
|At September 30, 2003 |                               | $             | 5.5 |             |   | $     | 6.0 |      |   | $ | 11.5 |     
|                      |                               |               |     |             |   |       |     |      |   |   |      |     

Approximately $6.9 million of the reserves
are included in the balance sheet caption Accrued expenses
and other current liabilities, while the remaining
$4.6 million are recorded in the balance sheet caption
Other liabilities. We expect the remaining accruals
to be paid with cash over the periods provided by the severance
and lease agreements over the next four years.



| |                                                           
| | ----------------------------------------------------------
| | Acquisitions, Dispositions and Discontinued
    Operations



| |                        
| | -----------------------
| | Acquisition of Business

In connection with our sale of a 75% interest in
Rexair to Strategic in March 2000, we guaranteed Rexairs
$200 million credit facility (Rexair
Guarantee). This guarantee required us to maintain certain
credit rating levels. In response to a downgrade of our credit
ratings in March 2001, we obtained waivers of the ratings
default from Rexairs lenders while we pursued the
re-acquisition of Rexair from Strategic and the restructuring of
our debt. On August 15, 2001, we re-acquired the 75% equity
interest in Rexair previously sold to Strategic. The purchase
consideration included the return to Strategic of
$27.4 million in face value of Strategic Notes and the
assumption of borrowings outstanding under Rexairs
$200 million credit facility.

In connection with the re-acquisition, we reduced
our basis in Rexair by our previously deferred gain of
$69.6 million and our previously recorded share of
Rexairs net liabilities of $29.3 million and
increased our basis by $17.4 million in deferred
transaction costs related to the original sale of Rexair in
March 2000. The allocation of the purchase consideration
(adjusted by the deferred gain, the carrying value of the
retained liabilities and the deferred transaction costs) to the
assets acquired and liabilities assumed resulted in goodwill of
$52.5 million and other intangible assets of approximately
$63.3 million. Finite-lived intangible assets include
patented technology of $2.6 million and a distributor
network of $36.0 million that

32



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are being amortized over their useful lives of
10 years and 40 years, respectively. The balance of
the intangible assets is related to a trade name, which is not
being amortized. The results of Rexair have been included in the
Rexair segment from the date of re-acquisition. We accounted for
Rexair under the equity method of accounting during the time
period from March 24, 2000 to August 15, 2001 when we
held only a 25% interest.




| |                                             
| | --------------------------------------------
| | Dispositions and Discontinued
    Operations

In November 2000, we sold our European HVAC
business for proceeds of $7.5 million, which approximated
its carrying value.

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

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

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

Each of these disposal plans qualified for
treatment as discontinued operations. The results of these
discontinued businesses are excluded from our results from
continuing operations for all periods presented. They are,
instead, included in our results from discontinued operations
and are discussed separately below. The assets and liabilities
of these businesses are included in assets held for sale and
liabilities associated with assets held for sale, respectively,
for all periods presented through their respective sale date.
Thus, included in these balances at September 30, 2003 are
the assets and liabilities of our water systems business, and
included in these balances at September 30, 2002 are the
assets and liabilities of SiTeco and our swimming pools &
equipment, hearth and water systems businesses.

The following outlines the sales of our
discontinued businesses:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In January 2002, we sold Ames True Temper, which
    was part of our Lawn & Garden segment, for
    $165.0 million. Ames True Temper manufactures non-powered
    lawn and garden tools and industrial hand and striking tools in
    North America.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | In April 2002, we sold Lighting Corporation of
    America, which was part of our Lighting segment, for
    $250.0 million. Lighting Corporation of America
    manufactures and distributes indoor and outdoor lighting
    fixtures for markets in North America and Europe.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | In June 2002, we sold Selkirk, which was part of
    our previously defined Bath & Plumbing segment, for
    $40.0 million. Selkirk manufactures and distributes
    grilles, registers, chimneys, gas vents and other venting
    products to the North American HVAC markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In September 2002, we sold Spear &
    Jackson, which was part of our Lawn & Garden segment,
    for $1.2 million in proceeds consisting of notes from the
    buyer and an equity interest in the common shares of the buyer.
    We are subject to restrictions on the voting and disposition of
    these shares and have no involvement in the management or
    operations of the buyer. The investment was recorded at its fair
    value at the date of acquisition based on an independent
    valuation and has since been adjusted to its market value of
    $22.0 million as of September 30, 2003 in accordance
    with SFAS No. 115. Spear & Jackson manufactures and
    distributes hand tools, lawn and garden tools, industrial
    magnets and metrology tools, primarily in the U.K.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In October 2002, we sold SiTeco, which was part
    of our Lighting segment, for net proceeds of
    $103.8 million. SiTeco manufactures and distributes indoor
    and outdoor lighting fixtures for markets in Europe.                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | In May 2003, we sold our swimming pool &
    equipment business, which was part of our previously defined
    Bath & Plumbing segment, for $30.0 million in cash
    and two notes from the buyer totaling $8.5 million. The
    first note, valued at $5.0 million, is convertible at our
    option into 598,802 shares of the buyers common stock
    anytime after March 31, 2004 and through the due date of
    March 31, 2009. The closing price of the note issuers
    common stock on September 27, 2003 was $10.15 per share.
    The value of the smaller note is subject to adjustment after
    calculation of the final purchase price.
|
| |  | In June 2003, we sold our hearth business, which
    was part of our previously defined Bath & Plumbing segment,
    for $1.0 million in cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In October 2003, we sold our water systems
    business, which was part of our previously defined
    Bath & Plumbing segment, for $3.1 million in cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

The estimated fiscal 2002 operating income of the
businesses in the 2001 Disposal Plan were included in our
expected loss on disposal of $232.6 million, net of tax,
which was recorded in fiscal 2001 and adjusted in fiscal 2002 in
accordance with APB No. 30. The expected operating income
of the businesses in the 2003 Disposal Plan was not included in
our loss on disposal of $39.9 million, net of tax. Instead,
the results of operations were recorded as income
(loss) from discontinued operations in the period in which
they occurred in accordance with SFAS No. 144.

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

|                        |  |                            |      |      |  |      |       |  |  |   |         |  
|----------------------- |  | -------------------------- | ---- | ---- |  | ---- | ----- |  |  | - | ------- | -
|                        |  |                           
|                        |  | For the Fiscal Years Ended
|                        |  | September 30,             
|                        |  |                           
|                        |  | 2003                       |      | 2002 |  | 2001
|                        |  |                            |      |      |  |     
|                        |  |                           
|                        |  | (in millions)             
|Net sales               |  | $                          | 66.9 |      |  | $    | 807.3 |  |  | $ | 1,460.3 |  
|Operating (loss) income |  |                            | (0.7 | )    |  |      | 34.7  |  |  |   | (51.2   | )

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

Included in operating income (loss) in
fiscal 2001 are goodwill impairment charges of
$121.4 million. In June 2001, we evaluated the
recoverability of the goodwill based on a fair value
methodology, leading us to record the charge at that time.
Excluding these impairment charges, the decrease in net sales
and operating income (loss) from fiscal 2001 to fiscal 2002
primarily relates to the lost contribution from the businesses
sold in accordance with the 2001 Disposal Plan.

With the completion of our 2001 and 2003 asset
disposal programs, we have largely completed our transformation
into an operating company. We continue to explore strategic
alternatives to improve our operating efficiencies. For example,
in the first half of fiscal 2003, we combined six separate
operating facilities into one new facility in Chino, CA.
Additionally, we have adopted a number of efficiency enhancing
manufacturing techniques, including lean manufacturing
techniques, to further improve our cost structure. While we have
experienced some initial inefficiency, we believe that this new
facility will enhance our operations significantly. We have also
announced the closure of our manufacturing plants in Plant City,
FL and Salem, OH. The Plant City plant, which manufactured spas,
was closed in November 2003. Their production demands were
absorbed by our main spa facility located in Chino, CA. The
Salem plant, which manufactures cast iron sanitary ware, will
not be replaced. Instead, the production will be

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outsourced to an overseas supplier at a lower
cost to the overall operations. These restructuring initiatives
are discussed in more detail under Impairment, Restructuring
and Other Charges.


While we have no specific plans at this time, we
continue to evaluate strategies to improve the results of
certain under-performing product lines within our Bath Product
segment. We believe that there remains significant potential for
further rationalization of our Bath Product segments cost
structure. Implementation of these strategies could result in
our recording charges in future periods, including charges
related to asset impairments.

Liquidity and Capital Resources

Our primary sources of liquidity and capital
resources are cash and cash equivalents, cash provided from
operations and available borrowings under our existing credit
facilities. We expect to satisfy future operating needs through
operating cash flow and borrowings under our new Bank Facilities
(see Refinancing).

Net cash provided by operating activities of
continuing operations was $79.9 million for fiscal 2003,
compared to $39.0 million for fiscal 2002 and
$42.1 million for fiscal 2001. The difference between 2003
and 2002 was primarily due to the receipt of $46.7 million
of income tax refunds, net of tax payments, received in fiscal
2003. We also received $8.6 million in fiscal 2003 from the
sale of the technology license that had been the subject of
patent litigation. These favorable events were offset by
payments in fiscal 2003 for retained liabilities associated with
businesses sold in fiscal 2002 and the receipt of
$11.1 million of interest on the Strategic Notes in fiscal
2002. The decrease from fiscal 2001 to fiscal 2002 was primarily
the result of an increase in international trade receivable
balances, partially offset by an increase in operating income,
largely due to a full years contribution from the Rexair
business we re-acquired in August 2001. Credit terms for our
international customers are generally longer than those provided
to our domestic customers. The percentage of international trade
receivables represented 38% of total trade receivables in fiscal
2002 compared to 33% in fiscal 2001. We typically use cash in
the first half of the fiscal year due to the seasonality of most
of our businesses. Weather can significantly impact both
residential and non-residential construction and installation,
which ultimately impacts sales in our Bath Products and Plumbing
Products segments. Sales of outdoor jetted spas and other
products are also sensitive to weather conditions and tend to
decrease during the fall and winter months (predominantly the
first and second fiscal quarters).

In March 2003, we entered into an agreement with
Lowes to be its primary supplier of stocked jetted tub
products. This agreement resulted in increased sales of
whirlpool bath and other products starting late in the third
quarter of fiscal 2003. As a result of this agreement,
approximately $12 million was required to fund increased
levels of working capital and to purchase in-store displays.
Additional store openings will require purchase of in-store
displays as part of our ongoing relationship with Lowes;
however, we believe that this will have minimal impact on
working capital in future years. Our relationships with Homebase
and Focus in the U.K. require similar in-store display
commitments, but are not expected to have a significant impact
on working capital in future years.

During fiscal 2003, we paid approximately
$5.3 million related to our restructuring plans, and expect
to pay approximately $13.8 million in the next
12 months (see Impairment, Restructuring and Other
Charges) including $6.9 million of charges to be
incurred during fiscal 2004. During fiscal 2002, we paid
approximately $4.1 million related to our restructuring
plans.

Net cash used by discontinued operations in
fiscal 2003 was $5.0 million as compared to net cash
provided of $33.1 million for fiscal 2002 and
$71.5 million in fiscal 2001. The decrease in 2003 compared
to fiscal 2002 was mainly due to the loss in contribution from
Lighting Corporation of America, which provided
$28.1 million in cash in fiscal 2002 prior to its sale in
April 2002. In addition, the swimming pool and equipment
business was sold in May 2003, before its cash-generating
season. The decrease in cash provided by discontinued operations
in fiscal 2002 compared to fiscal 2001 was due to the lost
contribution from the businesses in the 2001 Disposal Plan,
largely Ames True Temper in January 2002 and Lighting
Corporation of America in April 2002.

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Net cash provided by investing activities of
$112.6 million for fiscal 2003 consists of net proceeds of
$120.5 million from the sale of SiTeco and our swimming
pool & equipment business and $11.1 million from
the sale of excess real estate, partially offset by
$19.2 million of capital expenditures. Net cash provided by
investing activities of $482.4 million in fiscal 2002
included $388.2 million in proceeds from the sale of
businesses. These net proceeds consist of $143.1 million
for Ames True Temper, $210.2 million for Lighting
Corporation of America and $34.9 million for Selkirk. Also
included in cash provided from investing activities in 2002 was
$105.9 million received from the sale of the Strategic
Notes and $3.3 million from the sale of excess real estate,
fixed assets and other investments, partially offset by
$15.0 million in capital expenditures. Net cash used by
investing activities of $4.8 million in fiscal 2001
consists of $20.3 million for capital expenditures,
partially offset by cash proceeds of $7.5 million received
from the sale of the European HVAC business and
$8.7 million from the sale of excess real estate and fixed
assets.

Net cash used in financing activities was
$197.9 million for fiscal 2003, which consists of net
repayments of long-term debt and notes payable of
$310.1 million, deposits of $66.5 million into
restricted cash collateral accounts, payments of debt issuance
and other financing costs of $45.6 million, offset by
$224.3 million of withdrawals from the restricted cash
collateral accounts. The collateral deposits, made for the
benefit of the holders of our Old Notes and certain other
creditors, were required under the terms of the Restructured
Facilities, which were refinanced in July 2003. Cash withdrawn
from these accounts was used in the redemption of the Old Notes
and the repayment of the Restructured Facilities. The debt
issuance and other financing costs were comprised of bank
amendment fees and legal and professional fees of
$7.0 million paid in connection with the extension of the
due date of the Restructured Facilities in October 2002 and the
bond exchange in November 2002, consent fees of
$2.0 million paid to holders of the 7.125% senior notes in
connection with the bond exchange in November 2002, costs of
$11.4 million associated with the issuance of the New Notes
in July 2003, costs of $8.7 million related to the new Bank
Facilities structured in July 2003, financing costs of
$2.3 million directly associated with the Restructured
Facilities and a bond redemption premium of $14.2 million
paid to the holders of the Old Notes in August 2003. See
Refinancingand Debt Structure Prior to July 15,
2003for a detailed discussion of the financing activities
that led to these costs.

We used net cash of $588.1 million and
$58.6 million for financing activities in fiscal 2002 and
2001, respectively. Cash used in financing activities in fiscal
2002 consisted of net repayments of long-term debt and notes
payable of $423.2 million and deposits of
$152.7 million into restricted cash collateral accounts. We
also paid $12.2 million in fiscal 2002 associated with the
restructuring of our debt in August 2001. Cash used in financing
activities for fiscal 2001 includes net proceeds from long-term
debt and notes payable of $16.3 million, offset by debt
restructuring costs of $19.1 million, dividend payments of
$7.7 million and $43.1 million of common stock
purchases for treasury.

During 1999 and 2000, our Board of Directors
authorized share repurchase programs aggregating
$350.0 million. Under these programs, we repurchased
$331.8 million of our common stock for treasury, of which
$43.1 million was purchased in fiscal 2001. The repurchase
programs have been suspended indefinitely, as the Restructured
Facilities contained, and the new Bank Facilities contain,
restrictions on the purchase of our stock and the payment of
dividends. In March 2001, our Board of Directors indefinitely
suspended the payment of dividends.



| |            
| | -----------
| | Refinancing

On July 15, 2003, we completed a
comprehensive re-financing of our corporate debt by closing on
the New Notes and Bank Facilities. The net proceeds from the New
Notes, together with the initial borrowings under the Bank
Facilities were used to repay the outstanding debt under our
Restructured Facilities and fund the redemption of the Old Notes.

The Restructured Facilities were paid down
simultaneously with the closing of the Bank Facilities and New
Notes, on July 15, 2003. Funds required for the redemption
of the Old Notes were placed into an

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escrow account on July 15, 2003. These
funds, totaling $243.2 million, were used for the
redemption of the Old Notes on August 14, 2003. The amount
deposited reflected the principal, accrued interest and
redemption premium payable to the Old Note holders. The
redemption premium, as well as all unamortized fees and
discounts associated with the Old Notes and the Restructured
Facilities, were expensed in the fourth quarter of 2003,
resulting in a charge of $19.2 million.


The net cash proceeds from the New Notes were
approximately $368.6 million after transaction fees.
Transaction fees were capitalized and are being amortized over
the seven year term of the New Notes. The New Notes, which are
due July 1, 2010 and pay interest semiannually on
January 1 and July 1 of each year, are subject to
registration with the Securities and Exchange Commission
pursuant to a registration rights agreement.

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

The $65.0 million term loan matures
July 15, 2008 along with the asset-based facility and
carries an interest rate of 5.0% over Prime with a minimum rate
of 9.25%. Mandatory prepayments of $10.0 million are
required on the term loan annually beginning in September 2005,
which are amortized evenly over each twelve month period.
Additional prepayments are required for asset sale proceeds as
well as an annual prepayment equal to 25% of our annual
consolidated excess cash flow, as determined in the agreement.
Prepayments under each of these circumstances would, in most
cases, first be applied to the term loan facility.

We incurred approximately $8.7 million in
transaction and professional fees associated with the completion
of the Bank Facilities deal. These costs were capitalized and
are being amortized over the five year term of the Bank
Facilities. The Bank Facilities require us to maintain certain
consolidated fixed charged coverage, interest coverage and
leverage ratios; comply with maximum annual capital expenditure
limits and comply with other customary affirmative and negative
covenants. There are also several fees including an unused
commitment fee of 0.5%, a letter of credit fee equal to the
Applicable LIBOR Margin and a fronting fee of 0.125% on all
outstanding letters of credit.

Certain of our existing and future domestic
restricted subsidiaries guarantee the New Notes, jointly and
severally, on a senior basis. The New Notes are secured by a
first-priority lien on and security interest in substantially
all our domestic real property, plant and equipment (referred to
as Notes Collateral). The New Notes are also secured by a
second-priority lien on and security interests in the Bank
Collateral which consists of existing and future domestic
subsidiaries and 65% of the capital stock of, or other equity
interest in, existing and future first-tier foreign subsidiaries
and substantially all of the other assets (other than the assets
that constitute Notes Collateral), in each case that are held by
Jacuzzi Brands, Inc. or any of our subsidiary guarantors.
Obligations under the Bank Facilities are secured by a first
priority lien on the Bank Collateral and a second priority lien
on the Notes Collateral.



| |                                          
| | -----------------------------------------
| | Debt Structure Prior to July 15,
    2003

The Old Notes and Restructured Facilities
discussed in this section were re-financed on July 15,
2003, as discussed earlier under Refinancing.

In October 1998, Jacuzzi Brands, Inc. (then known
as U.S. Industries, Inc.) and USI American Holdings, Inc.
(USIAH), issued $250.0 million aggregate
principal amount of senior notes due October 15, 2003,
which bear interest at 7.125%, payable semiannually
(7.125% Notes). The net cash proceeds were
$247.7 million after transaction fees and discounts. On
September 9, 2002, we commenced an Exchange Offer to
exchange cash and notes with an interest rate of 11.25% payable
December 31, 2005 (the 11.25% Notes) for all
outstanding 7.125% Notes.

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On November 4, 2002, we announced that we
had accepted for payment all 7.125% Notes validly tendered in
the exchange offer. Approximately $238.2 million or 95% of
the 7.125% Notes were tendered for exchange. All Note holders
who tendered their 7.125% Notes received an amount of cash and
principal amount of 11.25% Notes that together equaled the
principal amount of the 7.125% Notes tendered. The transaction
resulted in the payment of $104.8 million in cash and the
issuance of $133.4 million of 11.25% Notes, leaving a gross
balance of $11.8 million payable to the 7.125% Note holders
who did not tender their Notes for exchange.

A consent payment of $15 per $1,000 principal
amount of the 11.25% Notes issued was paid out of our general
working capital to all holders who delivered their consents,
resulting in an additional payment to tendering note holders of
approximately $2.0 million.

In fiscal 1997, USIAH issued $125.0 million
aggregate principal amount of senior notes due December 1,
2006, which bear interest at 7.25%, payable semiannually
(7.25% Notes). The net cash proceeds were
$123.0 million after transaction fees and discounts. On
October 24, 2002, we offered to redeem a portion of each
outstanding 7.25% Note up to an aggregate principal amount of
$54.8 million. Virtually all of the 7.25% Notes were
tendered and accepted for redemption. The transaction resulted
in $54.8 million paid to the note holders from the 7.25%
Notes restricted cash collateral account. The restricted cash
collateral account was set up when we restructured our debt on
August 15, 2001 and funded through asset sales (see further
details below).

The Old Notes were guaranteed by USI Atlantic.
The Old Notes were redeemed on August 14, 2003, soon after
the completion of our debt refinancing on July 15, 2003. In
connection with the redemption of the Old Notes, we paid a
redemption premium of $14.2 million.

During fiscal 2001, we had a $300 million
364-day credit facility (the Credit Facility)
scheduled to expire on October 26, 2001. We also had a
five-year revolving line of credit, which had original
availability of $500 million (the Credit
Agreement), scheduled to terminate on December 12,
2001. The Credit Facility and Credit Agreement (together, the
Revolving Facilities) were restructured on
August 15, 2001. We completed the re-acquisition of Rexair
and restructured the Rexair facilities on the same date. The
Restructured Facilities extended the final maturity date of our
debt under the Revolving Facilities to November 30, 2002.
On October 21, 2002, we announced that we had obtained an
amendment to our Restructured Facilities, providing for an
extension of the maturity date to October 2004.

Under the Restructured Facilities, substantially
all proceeds from the sale of assets were required to be applied
to reduce our funded and unfunded senior debt, including, in
certain circumstances, the Old Notes. Proceeds allocable to the
Old Notes and other defined obligations were required to be
deposited in restricted cash collateral accounts for the benefit
of the relevant holders.



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

Below is a summary of our standby letters of
credit, bankers acceptances and commercial letters of
credit as of September 30, 2003. All but $2.2 million
of these commitments reduced the availability for borrowings
under our Bank Facilities (in millions).

|                             |       |   |      |      | 
|---------------------------- | ----- | - | ---- | ---- | 
|Standby letters of credit    |       | $ | 48.5 |     
|Bankers acceptances         |       |   | 2.3  |     
|Commercial letters of credit |       |   | 0.6  |     
|                             |       |   |      |     
|                             | Total |   | $    | 51.4 | 
|                             |       |   |      |     

At November 28, 2003, we had approximately
$145.2 million committed under the asset-based facility, of
which we had utilized approximately $44.4 million
(including $42.7 million of letters of credit), leaving
$100.8 million available for additional borrowings.

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Below is a summary of our significant contractual
cash obligations as of September 30, 2003.

|                                   |  |               |       |                        |  |          |      |      |  |      |      |      |  |            |      |  |  |   |      |  |  |   |      |  |  |   |       | 
|---------------------------------- |  | ------------- | ----- | ---------------------- |  | -------- | ---- | ---- |  | ---- | ---- | ---- |  | ---------- | ---- |  |  | - | ---- |  |  | - | ---- |  |  | - | ----- | 
|                                   |  |               |       |                        |  |         
|                                   |  |               |       | Payments Due in Fiscal |  | Payments
|                                   |  |               |       |                        |  | Due     
|                                   |  | Total         |       | 2004                   |  | 2005     |      | 2006 |  | 2007 |      | 2008 |  | Thereafter
|                                   |  |               |       |                        |  |          |      |      |  |      |      |      |  |           
|                                   |  |              
|                                   |  | (in millions)
|Long-term debt                     |  | $             | 476.6 |                        |  | $        | 25.2 |      |  | $    | 2.2  |      |  | $          | 11.5 |  |  | $ | 11.7 |  |  | $ | 46.0 |  |  | $ | 380.0 | 
|Notes payable                      |  |               | 23.5  |                        |  |          | 23.5 |      |  |      |     |      |  |            |     |  |  |   |     |  |  |   |     |  |  |   |      | 
|Lease obligations                  |  |               | 34.0  |                        |  |          | 9.4  |      |  |      | 7.8  |      |  |            | 6.2  |  |  |   | 4.4  |  |  |   | 2.5  |  |  |   | 3.7   | 
|                                   |  |               |       |                        |  |          |      |      |  |      |      |      |  |            |      |  |  |   |      |  |  |   |      |  |  |   |       | 
|Total contractual cash obligations |  | $             | 534.1 |                        |  | $        | 58.1 |      |  | $    | 10.0 |      |  | $          | 17.7 |  |  | $ | 16.1 |  |  | $ | 48.5 |  |  | $ | 383.7 | 
|                                   |  |               |       |                        |  |          |      |      |  |      |      |      |  |            |      |  |  |   |      |  |  |   |      |  |  |   |       | 

We continue to guarantee the lease payments of an
Ames True Temper master distribution center. The lease
obligation will expire in 2015. The lease payments totaled
$3.7 million for fiscal 2003, and increase by 2.25% each
year thereafter. In connection with the sale of Ames True Temper
in January 2002, we obtained a security interest and
indemnification from Ames True Temper on the lease that would
enable us to exercise remedies in the event of default.

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

We have sold a number of assets and operating
entities over the last several years and have, on occasion,
provided indemnifications for liabilities relating to product
liability, environmental and other claims. We have recorded
reserves totaling approximately $9.1 million as of
September 30, 2003 for asserted and potential unasserted
claims related to these liabilities. These amounts have not been
discounted.

New Accounting Pronouncements

In December 2002, the Financial Accounting
Standards Board (FASB) issued Statement
No. 148, Accounting for Stock-Based
Compensation  Transition and
Disclosure  an amendment of FASB Statement
No. 123(SFAS No. 148). This Statement
provides alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting
for stock-based employee compensation. Those methods include the
Prospective Method, the Modified Prospective Method or the
Retroactive Restatement Method. The statement also amends
Accounting Principles Board (APB) Opinion
No. 28, Interim Financial Reporting,to require
disclosure about the effects on reported net income of an
entitys accounting policy decisions with respect to
stock-based employee compensation in interim financial
information.

We do not plan to adopt SFAS No. 123 under
the guidelines set forth in SFAS No. 148. To review the
amounts that we would have recorded historically had we already
adopted SFAS No. 123, see our stock-based compensation
disclosure in Note 9 to our consolidated financial
statements. Past results, however, are not necessarily
indicative of the results that should be expected for future
years. We cannot determine, with any accuracy, the effect the
adoption of the fair value method of accounting for stock-based
compensation would have on our future operating results since
the amount to be recorded as compensation expense is dependent
on a number of unknown variables including the number of options
that will be granted during the year, the volatility of our
stock in the future and the option price at the time of the
grant.

In January 2003, the FASB issued Interpretation
Number 46, Consolidation of Variable Interest
Entities (FIN 46). This interpretation of
Accounting Research Bulletin No. 51, Consolidated
Financial Statements, addresses consolidation by business
enterprises of variable interest entities. Under current
practice, two enterprises generally have been included in
consolidated financial statements because one enterprise
controls the other through voting interests. FIN 46 defines
the concept of variable interests and requires
existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do
not effectively disperse risks among the parties involved. This
interpretation applies immediately to variable interest entities
created after January 31, 2003. It applies as of the end of
the first fiscal year or interim period ending after
December 15, 2003, to variable interest entities in which

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an enterprise holds a variable interest that it
acquired before February 1, 2003. The interpretation may be
applied prospectively with a cumulative-effect adjustment as of
the date on which it is first applied or by restating previously
issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first
year restated. We have completed our assessment of the impact
FIN 46 has on us immediately and have determined that we do not
have an interest in any VIEs established after
January 31, 2003. We do not have any special purpose
entities. We are in the process of evaluating our interests to
determine if they meet the characteristics of interests that
would qualify as variable interest entities based on the
Interpretation.


In April 2003, the FASB issued Statement
No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities.This Statement amends
and clarifies financial accounting and reporting for derivative
instruments and for hedging activities under SFAS No. 133.
Effective October 1, 2000, we adopted SFAS No. 133, as
amended, which requires that all derivative instruments be
reported on the balance sheet at fair value and establishes
criteria for designation and effectiveness of hedging
relationships. The adoption of this new guidance did not have an
impact on our financial position or results of operations.

In May 2003, the FASB issued Statement
No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify
a financial instrument within its scope as a liability (or an
asset in some circumstances). Many of those instruments were
previously classified as equity. This Statement is effective for
financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003.
The adoption of this Statement did not have an impact on our
financial position or results of operations.

Foreign Currency Matters

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

Effects of Inflation

Because of the relatively low level of inflation
experienced in our principal markets, inflation did not have a
material impact on our results of operations during the periods
presented.

Critical Accounting Policies and
Estimates

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

Trade
Receivables

We record an allowance for doubtful accounts,
reducing our receivables balance to an amount we estimate is
collectible from our customers. We use significant judgment in
estimating uncollectible amounts, considering numerous factors
such as current overall economic conditions, industry specific

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economic conditions, historical and current
customer performance and customer relationships. Although we
consider our allowances for uncollectible accounts to be
adequate and proper, changes in economic conditions or customer
circumstances could have a material effect on the reserve
balances required. Historically, actual results have not
deviated significantly from those previously estimated by
management.


Inventories

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

Deferred
Income Taxes

Deferred tax assets and liabilities represent the
tax effects, based on current law, of any temporary differences
in the timing of when net sales and expenses are recognized for
tax purposes and when they are recognized for financial
statement purposes. Management reviews the deferred tax assets
periodically for recoverability, and valuation allowances are
provided as necessary. We consider expected future income and
gains from investments as well as tax planning strategies,
including the potential sale of certain assets, in assessing the
need for a valuation allowance against our deferred tax assets.
If future taxable income is different than expected, we may need
to change our valuation allowance on our deferred tax assets.

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

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

Goodwill and
Other Intangibles

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



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

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

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

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

We have sold a number of assets and operating
entities over the last several years and have, on occasion,
provided indemnification for liabilities relating to product
liability, environmental and other claims. We have recorded
reserves for claims related to these obligations when
appropriate and, on certain occasions, have obtained the
assistance of an independent actuary in the determination of
those reserves. If actual experience deviates from our
estimates, we may need to record adjustments to these
liabilities in future periods.

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



| |         
| | --------
| | Warranty

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



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

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

When valuing the pension plans at September 2003,
we reduced our discount rate and maintained the same expected
rate of return on assets as in the prior year. This change in
assumption, along with other factors, will reduce the amount of
pension income recognized by approximately $2.8 million in
fiscal 2004 as compared to fiscal 2003. Future changes in the
assumptions underlying our pension valuations, including as a
result of continued declines in equity markets and interest
rates, could result in further reductions in pension income,
which could negatively affect our consolidated results of
operations in future periods.

We recognized $6.7 million,
$11.8 million and $13.3 million of pension income in
fiscal 2003, 2002 and 2001, respectively. These amounts
increased our operating income by an equal amount for each of
the respective periods. The lower discount rate and increase in
current healthcare costs are also expected to increase expenses
by an equal amount related to other post-employment benefits by
approximately $0.9 million in 2004. Pension income,
excluding service costs, related to our Master Plan is included
in corporate expenses. Our Master Plan covers certain employees
in our Bath Products segment, Plumbing Products segment and
corporate offices, as well as certain employees in some of our
legacy companies. The service cost portion of pension income
associated with our Master Plan is allocated to the operating

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segments and corporate based on employee data.
Pension income or expense associated with our other benefit
plans are recorded on the books of the business that employs the
benefited employees and are not shared between operating
segments.




| |                                           
| | ------------------------------------------
| | Environmental and Asbestos
    Liabilities

We are investigating and remediating
contamination at a number of present and former operating sites
under CERCLA, RCRA or comparable state statutes or agreements
with third parties. These proceedings are in various stages
ranging from initial investigations to active settlement
negotiations to the cleanup of sites. We have been named as a
potentially responsible party at a number of Superfund sites
under CERCLA or comparable state statutes. Under these statutes,
responsibility for the entire cost of cleanup of a contaminated
site can be imposed upon any current or former site owners or
operator, or upon any party who sent waste to the site,
regardless of the lawfulness of the original activities that led
to the contamination. No information currently available
reasonably suggests that projected expenditures associated with
any of these proceedings or any remediation of these sites will
have a material adverse effect on our financial condition,
results of operations or cash flows.

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

As of September 30, 2003, the number of
asbestos claims pending against Zurn was approximately 59,000.
These 59,000 claims were included in approximately 5,600
lawsuits, in which Zurn and an average of 100 other companies
are named as defendants, and in which cumulatively allege
damages of approximately $12 billion against all
defendants. Asbestos claims pending against Zurn as of
September 30, 2002 and September 30, 2001 were
approximately 65,000 and 52,000, respectively. Asbestos claims
filed against Zurn, and settled unfiled claims treated as if
filed, for the years ended September 30, 2003, 2002 and
2001 were approximately 32,400, 31,000 and 33,500, respectively.

Since Zurn received its first asbestos claim in
the 1980s, Zurn has settled, agreed to settle or otherwise
disposed of approximately 84,000 asbestos claims including
dismissals of approximately 6,400 of such claims through
September 30, 2003. During the fiscal year ended
September 30, 2003 and as of such date, settlements paid
and/or pending payment amounted to approximately 45,000 claims
and approximately 3,000 claims were dismissed and/or pending
dismissal. During the fiscal year ended September 30, 2002
and as of such date, settlements paid and/or pending payment
amounted to approximately 20,000 claims (including approximately
4,000 unfiled claims) and approximately 3,000 claims were
dismissed and/or pending dismissal. Finally, during the fiscal
year ended September 30, 2001 and as of such date,
settlements paid and/or pending payment amounted to
approximately 17,000 claims and approximately 1,000 claims were
dismissed and/or pending dismissal. Zurns insurers have
paid or have agreed to pay all settlement costs relating to
these claims. Defense costs are currently being paid by
Zurns insurers without eroding the coverage amounts of its
insurance policies, although a few policies that will be
accessed in the future may count defense costs toward aggregate
limits.

At September 30, 2003, Zurn and its
actuarial consultant estimated that its potential liability for
asbestos claims pending against it and for claims estimated to
be filed through 2013 is approximately $160 million. This
accrual comprises (i) approximately $8 million in
claims that had been settled but unpaid as of September 30,
2003; (ii) approximately $36 million in proposed
settlements of pending and future claims; and
(iii) approximately $116 million for other future
claims. At September 30, 2002, it was estimated that
Zurns potential liability for asbestos claims pending
against it and for claims estimated to be filed through 2012 was
approximately $145 million. This estimate was comprised of
(i) $10 million in claims that had been settled but
unpaid as of September 30, 2002; (ii) $58 million
in proposed settlements of pending and future claims; and
(iii) $77 million for other future claims. These
estimates are based on the current and anticipated number of
future asbestos claims, the timing and amounts of asbestos
payments, the status of ongoing litigation and the potential
impact of defense strategies and settlement

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initiatives. However, there are inherent
uncertainties involved in estimating both the number of future
asbestos claims as well as future settlement costs, and the
actual liability could exceed Zurns estimate due to
changes in law and other factors beyond their control.


Zurns present estimate of its asbestos
liability assumes (i) its recent vigorous defense strategy
will enable it to reduce both its claim frequency and claim
severity in the future; (ii) approximately 178,000 other
future asbestos claims; and (iii) its insurers will
continue to pay defense costs without eroding the coverage
amounts of its insurance policies. While Zurn believes there is
evidence, in recent claims settlements, for such an impact of a
successful defense strategy, if the defense strategy ultimately
is not successful, to the extent assumed by Zurn, the severity
and frequency of asbestos claims could increase substantially
above Zurns estimates. Further, while Zurns current
asbestos liability is based on an estimate of claims through
2013, such liability may continue beyond 2013, and such
liability could be substantial.

Zurns analysis of its available insurance
to cover its potential asbestos liability as of
September 30, 2003 is approximately $314 million. This
total includes the remaining limits of $68 million in
insurance coverage under certain excess policies which were a
subject of a settlement of an action commenced by Zurn in the
U.S. District Court of the Western District of Pennsylvania
which sought, among other things, a declaration that the
insurance coverage limits of certain excess policies provided
$68 million in coverage. As part of the settlement, Zurn
agreed to pay its insurer $5.0 million over four years. The
first payment in the sum of $1.25 million was paid in March
2003, and we have secured the balance of the obligation with a
letter of credit in the amount of $1.25 million.

Zurn believes, based on its experience in
defending and dismissing such claims and the approximately
$314 million of insurance coverage available, that it has
sufficient insurance to cover the pending and reasonably
estimable future claims. This conclusion was reached after
considering Zurns experience in asbestos litigation, the
insurance payments made to date by Zurns insurance
carriers, existing insurance policies, the industry ratings of
the insurers and the advice of insurance coverage counsel with
respect to applicable insurance coverage law relating to the
terms and conditions of those policies. However, there is no
assurance that this amount of insurance will ultimately be
available or that Zurns asbestos liabilities will not
ultimately exceed this amount. Factors that could cause a
decrease in the amount of available coverage include
insolvencies of one more of Zurns carriers, changes in law
governing the policies and potential disputes with the carriers
on the scope of coverage. After review of the foregoing with
Zurn and its consultants, we believe that the resolution of
Zurns pending and reasonably estimable asbestos claims
will not have a material adverse effect on our financial
condition, results of operations or cash flows.



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

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

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

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

SFAS No. 123, Accounting for Stock-Based
Compensation,defines a fair value method of accounting for
issuance of stock options and other equity instruments. Under
the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting
period. Pursuant to SFAS No. 123, we are not required to
adopt the fair value method of accounting for employee
stock-based transactions. We are permitted to account for such
transactions under APB Opinion No. 25, Accounting for
Stock Issued to Employees,which defines an intrinsic value
method of accounting for the issuance of stock options and other
equity instruments, but are required to disclose in a note to
our consolidated financial statements pro forma net income and
per share amounts as if we had applied the methods prescribed by
SFAS No. 123.

We apply APB Opinion No. 25 and related
interpretations in accounting for stock options granted to
employees and non-employee directors. As a result, we have not
recorded any compensation expense related to the issuance of
stock options. Instead, we have complied with the disclosure
requirements of SFAS No. 123. Except for non-employee
directors, we have not granted any options to non-employees. For
further information regarding our stock option plans, see
Note 9 to our consolidated financial statements.



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

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

In connection with our accounting for each of
these Disposal Plans, we segregated the assets, liabilities and
operations of the discontinued business. The operations are
presented as discontinued operations in our consolidated
statements of operations. The assets and liabilities of these
businesses are included in assets held for sale and liabilities
associated with assets held for sale in the balance sheets. In
fiscal 2001, we accrued for estimated losses during the disposal
phase for businesses included in the 2001 Disposal Plan. These
estimates were updated as circumstances changed or as additional
information became available such as the actual terms of the
sales transactions. Revenues and expenses associated with
businesses included in the 2003 Disposal Plan are included in
operations when earned or incurred, respectively.



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

Any potential variable interest entity
(VIE) created after January 31, 2003 in which we
hold a variable interest must be assessed to determine whether
the VIE should be consolidated into our results based on
criteria established by FIN 46. Managements judgment, and
in many cases, probability-weighted projected cash flows are
used in determining whether an entity is a variable interest
entity and whether we are the primary beneficiary. We have
tested all potential VIEs created after January 31, 2003
under the FIN 46 criteria, and we believe that we do not hold
any variable interests in any VIEs.

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

In December 1995, the Private Securities
Litigation Reform Act of 1995 (the Act) was enacted
by the U.S. Congress. The Act, as amended, contains certain
amendments to the Securities Act of 1933 and the Securities
Exchange Act of 1934. These amendments provide protection from
liability in private lawsuits for forward-looking
statements made by public companies. We take advantage of the
safe harbor provisions of the Act.

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

Forward-looking information involves risks and
uncertainties. This information is based on various factors and
assumptions about future events that may or may not actually
come true. As a result, our operations and financial results in
the future could differ substantially from those discussed in
the forward-looking statements in this Annual Report and other
documents that have been filed with the Securities and Exchange
Commission. In particular, various economic and competitive
factors, including those such as interest rates, foreign
currency exchange rates, inflation rates, instability in
domestic and foreign financial markets, terrorist acts, consumer
spending patterns, energy costs and availability, freight costs,
availability of consumer and commercial credit, adverse weather,
levels of residential and commercial construction and changes in
raw material and component costs could cause our actual results
in future years to differ materially from those expressed in any
forward-looking statement. All subsequent written and oral
forward-looking statements attributable to Jacuzzi Brands, Inc.
are expressly qualified in their entirety by the foregoing
factors.

The following are some of the factors we believe
could cause our actual results to differ materially from
expected and historical results. Other factors besides those
listed here could also adversely affect results.

Covenants of
Bank Facilities

The Bank Facilities contain various provisions
that limit our managements discretion by restricting its
ability to, among other things:



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

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

If we were to fail to comply with the covenants
and restrictions of the Bank Facilities, Notes or any other
subsequent financing agreements, a default could occur. Such a
default could allow the lenders, if the agreements so provide,
to accelerate the related debt as well as any other debt to
which a cross-acceleration or cross-default provision applies.
In addition, the lenders could terminate any commitments they
had made to supply us with further funds.

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| |                         
| | ------------------------
| | Substantial Indebtedness

We are highly leveraged. Our high level of
indebtedness could further interfere with our ability to operate
our business. For example, it could:



| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increase our vulnerability to general adverse
    economic and industry conditions;                                                                        
|
| |  | limit our ability to obtain additional financing;                                                                                                          
|
| |  | require the dedication of a substantial portion
    of our cash flow from operations to the payment of principal of,
    and interest on, our indebtedness;
|
| |  | limit our flexibility in planning for, or
    reacting to, changes in our business and the industry; and                                                   
|
| |  | place us at a competitive disadvantage relative
    to less leveraged competitors.                                                                         

Our ability to generate sufficient cash flow from
operations to pay the principal of, and interest on, our
indebtedness is uncertain. In particular, we may not meet its
anticipated revenue and operating expense targets, and as a
result, its future debt service obligations could exceed the
cash available to it.



| |                      
| | ---------------------
| | Significant Customers

We have certain customers that are very important
to our business and the successful implementation of our
business strategy. Some of our products are sold in very
competitive markets. Our competitors may adopt more aggressive
policies and devote greater resources to the development,
promotion and sale of their products, which could result in a
loss of customers. The loss of one or more of these major
customers could have a material adverse effect on our business,
results of operations and financial condition.



| |                                              
| | ---------------------------------------------
| | Prices of Raw Materials or Finished
    Goods

We purchase most of the raw materials for our
products on the open market, and rely on third parties for the
sourcing of certain finished goods. As such, cost of products
sold may be affected by changes in the market price of raw
materials or sourced finished goods. We do not generally engage
in commodity hedging transactions for raw materials. Significant
increases in the prices of our products due to increases in the
cost of raw materials or sourcing could have a negative effect
on demand for our respective end-products, or to the extent that
we cannot pass such increases on to our customers, on its
margins and profitability, as well as a material adverse effect
on our business, financial condition and results of operations.



| |                          
| | -------------------------
| | Interest Rate Sensitivity

The interest rate relating to our Senior Secured
Notes, due in 2010, is fixed at 9.625%. The interest rate
related to the our Term Loan is based on a spread over Prime and
the interest rate related to our revolving line of credit is
based on a spread over the LIBOR. A significant change in the
Prime rate or the LIBOR rate could have an adverse effect on our
business, financial condition and results of operations.
Currently we are not utilizing any interest rate protection
agreements to limit our exposure to this risk.



| |                         
| | ------------------------
| | International Operations

We have significant operations outside the U.S.
Also, certain of our domestic businesses generate significant
revenue from export sales and certain businesses obtain a
significant amount of finished goods from unaffiliated suppliers
in East Asia. Our international operations subject us to risks
associated with operating in foreign countries, including
fluctuations in currency exchange rates, unstable political and
economic conditions, imposition of limitations on conversion of
foreign currencies into dollars or remittance of dividends and
other payments by foreign subsidiaries, imposition or increase
of withholding and other taxes on remittances and other payments
of foreign subsidiaries, hyperinflation in certain foreign
countries and imposition or increase of investment and other
restrictions by foreign governments. No assurance can be given
that such risks will not have a material adverse effect on our
business, financial condition and results of operations.

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| |            
| | -----------
| | Product Mix

Historically, our businesses have sold a wide
range of products. If the mix of products we sell shift to
include a larger percentage of products with lower profit
margins, earnings may be negatively affected.



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

Our past and present business operations and our
past and present ownership and operation of real property are
subject to extensive and changing federal, state, local and
foreign environmental laws and regulations pertaining to the
discharge of materials into the environment, the handling and
disposal of wastes (including solid and hazardous wastes) or
otherwise relating to health, safety and protection of the
environment. As such, the nature of our operations and previous
operations by others at real property owned by Jacuzzi Brands,
Inc. expose us to the risk of claims under environmental, health
and safety laws and regulations, and there can be no assurance
that material costs or liabilities will not be incurred in
connection with such claims. Based on our experience to date, we
do not expect such claims or the costs of compliance with
federal, state, local and foreign environmental, health and
safety laws and regulations to have a material impact on its
capital expenditures, earnings or competitive position. No
assurance can be given, however, that the discovery of presently
unknown environmental conditions, changes in environmental,
health and safety laws and regulations or their interpretation,
or other unanticipated events will not give rise to expenditures
or liabilities that may have such an effect.



| |            
| | -----------
| | Seasonality

Our business segments experience seasonal
business swings, which correspond to the North American seasons.
This seasonality requires that we manage our cash flows over the
course of the year. If sales were to fall substantially below
what we would normally expect during certain periods, our annual
financial results would be adversely impacted and our ability to
service debt may also be adversely affected.



| |        
| | -------
| | Weather

Weather could adversely affect our business,
financial condition and our results of operations. Adverse
weather, such as unusually prolonged periods of cold or rain,
blizzards, hurricanes and other severe weather patterns, could
delay or halt construction activity. For example, an unusually
severe winter can lead to reduced construction activity and
magnify the seasonal decline in our net sales and earnings
during the winter months.



| |            
| | -----------
| | Competition

The markets in which we sell our products are
highly competitive. We compete against some international,
national and many regional rivals, resulting in substantial
pressure on our pricing and profit margins. In addition, certain
of our products from foreign manufacturers are subject to
competition from other importers and could even be subject to
competition from certain of our customers seeking to source
directly from such foreign manufacturers. As a result of pricing
pressures, we may in the future experience reductions in profit
margins. We believe that our purchasing power, nationwide
distribution network and marketing capabilities and our
manufacturing efficiency allow us to competitively price our
products. We cannot assure you that it will be able to maintain
or increase the current market share of our products
successfully in the future.



| |                    
| | -------------------
| | Demand for Products

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

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Furthermore, demand in the building and home
improvement product industries is influenced by new construction
activity and the demand for replacement products as well as
repairs/remodeling activity. There can be no assurance that we
will maintain a balanced mix of new and repair/remodel revenue
within the Bath Products and Plumbing Products segments.
Accordingly, the strength of the U.S. economy (including
confidence in the U.S. economy by our customers), the strength
of the residential and commercial real estate markets,
institutional building activity, the age of existing housing
stock, job growth and interest rates have a direct impact on us.
Threat or actual break out of hostilities and acts of war or
terrorism involving the U.S. could also negatively impact
construction, repair or remodeling activity. Any declines in new
housing or commercial construction starts or demand for
replacement building and home improvement products may adversely
impact our operation and there can be no assurance that any such
adverse effects would not be material and would not continue for
an indeterminate period of time.



| |                                                      
| | -----------------------------------------------------
| | Increase in Size and Market Power of
    Distributors

We believe that there is a trend among our
distributors to increase in size and market power. If this trend
continues, they may be able to exert pressure on us to reduce
prices and create price competition. Any resulting price
competition may adversely affect our sales and profit margins.



| |                  
| | -----------------
| | Business Strategy

Our ability to implement our business strategy
successfully is dependent upon a number of factors including
competition, availability of working capital and general
economic conditions. Significant elements of the business
strategy include growth of market share and introduction of
related and new products. There can be no assurance that we will
be able to implement our strategy or be able to obtain financing
for such strategy on acceptable terms. The Indentures governing
the senior secured credit facilities and senior notes will
substantially limit our ability to incur additional debt to
finance our strategy. In addition, the failure to implement our
business strategy successfully may adversely affect our ability
in the future to service our debt.



| |                                   
| | ----------------------------------
| | Off-balance Sheet
    Arrangements

We do not have any off-balance sheet arrangements
other than those disclosed under Commitments.




Item 7a.     Qualitative
and Quantitative Disclosures About Market Risk

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

To manage exposure to interest rate movements, we
have used interest rate protection agreements. However, as of
September 30, 2003, we do not have any such agreements
outstanding. Based on our overall exposure to interest rate
changes, a hypothetical increase of 100 basis points across all
maturities of our floating rate debt obligations would decrease
our estimated pre-tax earnings in fiscal 2004 by
$0.8 million, compared to a $3.3 million decrease in
fiscal 2003 pre-tax earnings had LIBOR rates been 100 basis
points higher. Net payments under swap agreements amounted to
approximately $3.4 million and $1.0 million for fiscal
2002 and 2001, respectively. There were no swap agreements
outstanding during any portion of fiscal 2003. The prior year
swaps were of notional amounts and maturities that related to
specific portions of outstanding debt, and accordingly, were
accounted for as hedge transactions.

We are also exposed to foreign currency exchange
risk related to our international operations as well as our U.S.
businesses, which import or export goods. We have made limited
use of financial instruments to manage this risk and have no
such instruments outstanding as of September 2003. Hypothetical
unfavorable movements of 10% across each of the foreign exchange
rates that we have exposure would have decreased our estimated
income from continuing operations by approximately
$3.6 million in fiscal 2003 and $3.5 million in fiscal
2002. This calculation assumes that each exchange rate would
change in

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the same direction relative to the
U.S. dollar. In addition to the direct effects of changes
in exchange rates, which are a changed dollar value of the
resulting sales, changes in exchange rates also affect the
volume of sales or the foreign currency sales price as
competitors products become more or less attractive. Our
sensitivity analysis of the effects of changes in foreign
currency exchange rates does not factor in a potential change in
sales levels or local currency prices. See Note 2 to
our Consolidated Financial Statements for additional information
on its derivative and hedging activities.


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

REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS

To the Board of Directors and Stockholders of

Jacuzzi Brands, Inc.


We have audited the consolidated balance sheets
of Jacuzzi Brands, Inc. (the Company) as of
September 30, 2003 and 2002, 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, 2003. Our audits also included
the financial statement schedule listed in the index at
Item 15(a). These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with
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 audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Jacuzzi Brands, Inc. at
September 30, 2003 and 2002, and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended September 30, 2003, in conformity with
accounting principles generally accepted in the United States.
Also, in our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.

As discussed in Note 2 to the consolidated
financial statements, the Company changed its method of
accounting for goodwill and other intangible assets in 2002.



| |                      
| | ---------------------
| | /s/ Ernst & Young LLP

West Palm Beach, Florida

November 21, 2003


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JACUZZI BRANDS, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |        |        |  
|--------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------- | ----- | ----- | ---- | ------- | ----- | ---- | - | ------- | ------ | ------ | -
|                                                                                                          |                                                                                                                       |                                        
|                                                                                                          |                                                                                                                       | For the Fiscal Years Ended             
|                                                                                                          |                                                                                                                       | September 30,                          
|                                                                                                          |                                                                                                                       |                                        
|                                                                                                          |                                                                                                                       | 2003                                    |         | 2002  |       | 2001
|                                                                                                          |                                                                                                                       |                                         |         |       |       |     
|                                                                                                          |                                                                                                                       |                                        
|                                                                                                          |                                                                                                                       | (in millions, except per share amounts)
|Net sales                                                                                                 |                                                                                                                       | $                                       | 1,192.6 |       |       | $    | 1,068.3 |       |      | $ | 1,007.2 |       
|Operating costs and expenses:                                                                             |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|                                                                                                          | Cost of products sold                                                                                                 |                                         |         | 834.4 |       |      |         | 731.9 |      |   |         | 710.7  |       
|                                                                                                          | Selling, general and administrative expenses                                                                          |                                         |         | 258.0 |       |      |         | 234.8 |      |   |         | 225.9  |       
|                                                                                                          | Impairment, restructuring and other charges                                                                           |                                         |         | 19.0  |       |      |         | 7.2   |      |   |         | 100.2  |       
|                                                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|                                                                                                          |                                                                                                                       | Operating income (loss)                 |         |       | 81.2  |      |         |       | 94.4 |   |         |        | (29.6  | )
|Interest expense                                                                                          |                                                                                                                       |                                         | (60.7   | )     |       |      | (74.7   | )     |      |   | (87.5   | )     
|Interest income                                                                                           |                                                                                                                       |                                         | 2.1     |       |       |      | 4.6     |       |      |   | 25.2    |       
|Equity losses of investees                                                                                |                                                                                                                       |                                         |        |       |       |      |        |       |      |   | (1.4    | )     
|Other expense, net                                                                                        |                                                                                                                       |                                         | (26.5   | )     |       |      | (15.5   | )     |      |   | (79.8   | )     
|                                                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|(Loss) income before income taxes, discontinued
    operations and cumulative effect of accounting change |                                                                                                                       |                                         | (3.9    | )     |       |      | 8.8     |       |      |   | (173.1  | )     
|Benefit from income taxes                                                                                 |                                                                                                                       |                                         | 14.0    |       |       |      | 23.1    |       |      |   | 7.4     |       
|                                                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|Income (loss) from continuing operations                                                                  |                                                                                                                       |                                         | 10.1    |       |       |      | 31.9    |       |      |   | (165.7  | )     
|Discontinued operations:                                                                                  |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|                                                                                                          | (Loss) income from operations, net of tax benefit
    (provision) of $1.1 in 2003, ($0.7) in 2002 and ($39.2) in 2001 |                                         |         | (1.3  | )     |      |         | 1.2   |      |   |         | (100.4 | )     
|                                                                                                          | (Loss) gain on disposals, net of tax benefit of
    $6.5 in 2003 and $10.3 in 2001                                    |                                         |         | (39.9 | )     |      |         | 7.8   |      |   |         | (240.4 | )     
|                                                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|                                                                                                          | (Loss) income from discontinued operations                                                                            |                                         |         | (41.2 | )     |      |         | 9.0   |      |   |         | (340.8 | )     
|Cumulative effect of accounting change, net of
    taxes of $0.8 in 2001                                  |                                                                                                                       |                                         |        |       |       |      |        |       |      |   | (0.7    | )     
|                                                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|                                                                                                          |                                                                                                                       | Net (loss) income                       |         | $     | (31.1 | )    |         | $     | 40.9 |   |         | $      | (507.2 | )
|                                                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|(Loss) income per basic share:                                                                            |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|                                                                                                          | Continuing operations                                                                                                 |                                         | $       | 0.14  |       |      | $       | 0.43  |      |   | $       | (2.24  | )     
|                                                                                                          | Discontinued operations                                                                                               |                                         |         | (0.56 | )     |      |         | 0.12  |      |   |         | (4.60  | )     
|                                                                                                          | Cumulative effect of accounting change                                                                                |                                         |         |      |       |      |         |      |      |   |         | (0.01  | )     
|                                                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|                                                                                                          | Net (loss) income                                                                                                     |                                         | $       | (0.42 | )     |      | $       | 0.55  |      |   | $       | (6.85  | )     
|                                                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|(Loss) income per diluted share:                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|                                                                                                          | Continuing operations                                                                                                 |                                         | $       | 0.14  |       |      | $       | 0.43  |      |   | $       | (2.24  | )     
|                                                                                                          | Discontinued operations                                                                                               |                                         |         | (0.56 | )     |      |         | 0.12  |      |   |         | (4.60  | )     
|                                                                                                          | Cumulative effect of accounting change                                                                                |                                         |         |      |       |      |         |      |      |   |         | (0.01  | )     
|                                                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       
|                                                                                                          | Net (loss) income                                                                                                     |                                         | $       | (0.42 | )     |      | $       | 0.55  |      |   | $       | (6.85  | )     
|                                                                                                          |                                                                                                                       |                                         |         |       |       |      |         |       |      |   |         |       

See Notes to Consolidated Financial Statements.

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JACUZZI BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |        |         | 
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                               |                                                                                                                                                                                           |                           
|                                               |                                                                                                                                                                                           | At September 30,          
|                                               |                                                                                                                                                                                           |                           
|                                               |                                                                                                                                                                                           | 2003                       |         | 2002  
|                                               |                                                                                                                                                                                           |                            |         |       
|                                               |                                                                                                                                                                                           |                           
|                                               |                                                                                                                                                                                           | (in millions, except      
|                                               |                                                                                                                                                                                           | share data)               
|ASSETS                                        
|Current assets:                                |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               | Cash and cash equivalents                                                                                                                                                                 |                            | $       | 31.2   |         |   | $       | 32.1   |        
|                                               | Restricted cash collateral accounts                                                                                                                                                       |                            |         |       |         |   |         | 142.9  |        
|                                               | Trade receivables, net of allowances of $9.0 in
    2003 and $8.4 in 2002                                                                                                                 |                            |         | 229.6  |         |   |         | 209.8  |        
|                                               | Inventories                                                                                                                                                                               |                            |         | 165.0  |         |   |         | 163.7  |        
|                                               | Deferred income taxes                                                                                                                                                                     |                            |         | 15.5   |         |   |         | 31.0   |        
|                                               | Assets held for sale                                                                                                                                                                      |                            |         | 16.8   |         |   |         | 244.5  |        
|                                               | Income taxes receivable                                                                                                                                                                   |                            |         |       |         |   |         | 37.5   |        
|                                               | Other current assets                                                                                                                                                                      |                            |         | 30.1   |         |   |         | 24.0   |        
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               |                                                                                                                                                                                           | Total current assets       |         |        | 488.2   |   |         |        | 885.5   | 
|Restricted cash collateral accounts            |                                                                                                                                                                                           |                            |        |        |         |   | 15.4    |       
|Property, plant and equipment, net             |                                                                                                                                                                                           |                            | 129.7   |        |         |   | 131.0   |       
|Pension assets                                 |                                                                                                                                                                                           |                            | 148.3   |        |         |   | 136.0   |       
|Insurance for asbestos claims                  |                                                                                                                                                                                           |                            | 160.0   |        |         |   | 145.0   |       
|Goodwill                                       |                                                                                                                                                                                           |                            | 283.1   |        |         |   | 282.1   |       
|Other intangibles, net                         |                                                                                                                                                                                           |                            | 60.8    |        |         |   | 62.0    |       
|Other non-current assets                       |                                                                                                                                                                                           |                            | 66.7    |        |         |   | 25.6    |       
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|TOTAL ASSETS                                   |                                                                                                                                                                                           | $                          | 1,336.8 |        |         | $ | 1,682.6 |       
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY      
|Current liabilities:                           |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               | Notes payable                                                                                                                                                                             |                            | $       | 23.5   |         |   | $       | 15.3   |        
|                                               | Current maturities of long-term debt                                                                                                                                                      |                            |         | 25.2   |         |   |         | 275.9  |        
|                                               | Trade accounts payable                                                                                                                                                                    |                            |         | 102.3  |         |   |         | 94.7   |        
|                                               | Income taxes payable                                                                                                                                                                      |                            |         | 10.8   |         |   |         |       |        
|                                               | Liabilities associated with assets held for sale                                                                                                                                          |                            |         | 8.7    |         |   |         | 79.5   |        
|                                               | Accrued expenses and other current liabilities                                                                                                                                            |                            |         | 136.2  |         |   |         | 128.1  |        
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               |                                                                                                                                                                                           | Total current liabilities  |         |        | 306.7   |   |         |        | 593.5   | 
|Long-term debt                                 |                                                                                                                                                                                           |                            | 451.4   |        |         |   | 516.9   |       
|Deferred income taxes                          |                                                                                                                                                                                           |                            | 26.2    |        |         |   | 41.6    |       
|Asbestos claims                                |                                                                                                                                                                                           |                            | 160.0   |        |         |   | 145.0   |       
|Other liabilities                              |                                                                                                                                                                                           |                            | 136.8   |        |         |   | 131.2   |       
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               |                                                                                                                                                                                           | Total liabilities          |         |        | 1,081.1 |   |         |        | 1,428.2 | 
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|Commitments and contingencies                  |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|Stockholders equity:                          |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               | Common stock (par value $.01 per share,
    authorized 300,000,000 shares; issued 99,096,734 shares;
    outstanding 74,986,982 and 74,607,499 shares in 2003 and 2002,
    respectively) |                            |         | 1.0    |         |   |         | 1.0    |        
|                                               | Paid-in capital                                                                                                                                                                           |                            |         | 650.1  |         |   |         | 655.5  |        
|                                               | Accumulated deficit                                                                                                                                                                       |                            |         | (33.7  | )       |   |         | (2.6   | )      
|                                               | Unearned restricted stock                                                                                                                                                                 |                            |         | (0.8   | )       |   |         | (1.7   | )      
|                                               | Accumulated other comprehensive loss                                                                                                                                                      |                            |         | (8.7   | )       |   |         | (39.1  | )      
|                                               | Treasury stock (24,109,752 and 24,489,235 shares
    in 2003 and 2002, respectively) at cost                                                                                              |                            |         | (352.2 | )       |   |         | (358.7 | )      
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|                                               |                                                                                                                                                                                           | Total stockholders equity |         |        | 255.7   |   |         |        | 254.4   | 
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       
|TOTAL LIABILITIES AND STOCKHOLDERS
    EQUITY |                                                                                                                                                                                           | $                          | 1,336.8 |        |         | $ | 1,682.6 |       
|                                               |                                                                                                                                                                                           |                            |         |        |         |   |         |       

See Notes to Consolidated Financial Statements.

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JACUZZI BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |          |       |      | 
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------- | ---------------------------------------------------------------------- | ------ | ----- | ---- | ------ | ------ | ----- | ---- | ----- | -------- | ----- | ---- | 
|                                                                 |                                                                                                                                                  |                                                                  
|                                                                 |                                                                                                                                                  | For the Fiscal Years Ended                                       
|                                                                 |                                                                                                                                                  | September 30,                                                    
|                                                                 |                                                                                                                                                  |                                                                  
|                                                                 |                                                                                                                                                  | 2003                                                              |                                                                        | 2002   |       | 2001
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |     
|                                                                 |                                                                                                                                                  |                                                                  
|                                                                 |                                                                                                                                                  | (in millions)                                                    
|OPERATING ACTIVITIES:                                            |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|                                                                 | Income (loss) from continuing operations                                                                                                         |                                                                   | $                                                                      | 10.1   |       |      | $      | 31.9   |       |      | $     | (165.7   | )    
|                                                                 | Adjustments to reconcile income (loss) from
    continuing operations to net cash provided by operating
    activities of continuing operations: |                                                                   |                                                                        |        |       |      |        |        |       |      |       |          |      
|                                                                 |                                                                                                                                                  | Depreciation and amortization                                     |                                                                        |        | 24.6  |      |        |        | 26.1  |      |       |          | 36.0  |     
|                                                                 |                                                                                                                                                  | Amortization of debt issuance costs and other
    financing costs |                                                                        |        | 8.9   |      |        |        | 6.9   |      |       |          | 4.2   |     
|                                                                 |                                                                                                                                                  | Charges for debt restructuring and refinancing
    costs          |                                                                        |        | 21.5  |      |        |        | 9.2   |      |       |          | 23.6  |     
|                                                                 |                                                                                                                                                  | Benefit from deferred income taxes                                |                                                                        |        | (8.7  | )    |        |        | (34.8 | )    |       |          | (2.7  | )   
|                                                                 |                                                                                                                                                  | Provision for doubtful accounts                                   |                                                                        |        | 5.8   |      |        |        | 3.3   |      |       |          | 2.6   |     
|                                                                 |                                                                                                                                                  | Gain on sale of excess real estate                                |                                                                        |        | (3.5  | )    |        |        | (0.8  | )    |       |          |      |     
|                                                                 |                                                                                                                                                  | Equity losses of investees                                        |                                                                        |        |      |      |        |        |      |      |       |          | 1.4   |     
|                                                                 |                                                                                                                                                  | Stock-based compensation expense, net                             |                                                                        |        | 1.4   |      |        |        | 0.7   |      |       |          | 0.2   |     
|                                                                 |                                                                                                                                                  | Loss on sale of property, plant and equipment                     |                                                                        |        | 0.2   |      |        |        | 1.7   |      |       |          |      |     
|                                                                 |                                                                                                                                                  | Impairment, restructuring and other charges                       |                                                                        |        | 12.5  |      |        |        | 0.8   |      |       |          | 145.2 |     
|                                                                 | Changes in operating assets and liabilities,
    excluding the effects of acquisition and dispositions:                                          |                                                                   |                                                                        |        |       |      |        |        |       |      |       |          |      
|                                                                 |                                                                                                                                                  | Trade receivables                                                 |                                                                        |        | (15.4 | )    |        |        | (15.1 | )    |       |          | 36.0  |     
|                                                                 |                                                                                                                                                  | Inventories                                                       |                                                                        |        | 0.6   |      |        |        | 1.7   |      |       |          | 13.5  |     
|                                                                 |                                                                                                                                                  | Other current assets                                              |                                                                        |        | (2.4  | )    |        |        | 3.9   |      |       |          | (3.5  | )   
|                                                                 |                                                                                                                                                  | Other assets                                                      |                                                                        |        | (4.3  | )    |        |        | (3.1  | )    |       |          | (4.1  | )   
|                                                                 |                                                                                                                                                  | Trade accounts payable                                            |                                                                        |        | 3.2   |      |        |        | 2.0   |      |       |          |      |     
|                                                                 |                                                                                                                                                  | Income taxes payable                                              |                                                                        |        | 46.7  |      |        |        | (1.0  | )    |       |          | 0.3   |     
|                                                                 |                                                                                                                                                  | Accrued expenses and other current liabilities                    |                                                                        |        | (12.1 | )    |        |        | (2.0  | )    |       |          | (22.6 | )   
|                                                                 |                                                                                                                                                  | Other liabilities                                                 |                                                                        |        | (8.1  | )    |        |        | 8.7   |      |       |          | (22.1 | )   
|                                                                 |                                                                                                                                                  | Other, net                                                        |                                                                        |        | (1.1  | )    |        |        | (1.1  | )    |       |          | (0.2  | )   
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|                                                                 |                                                                                                                                                  |                                                                   | Net cash provided by operating activities of
    continuing operations |        |       | 79.9 |        |        |       | 39.0 |       |          |       | 42.1 | 
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|                                                                 | (Loss) income from discontinued operations                                                                                                       |                                                                   |                                                                        | (41.2  | )     |      |        | 9.0    |       |      |       | (340.8   | )    
|                                                                 | Adjustments to reconcile (loss) income from
    discontinued operations to net cash (used in) provided by
    discontinued operations:           |                                                                   |                                                                        |        |       |      |        |        |       |      |       |          |      
|                                                                 |                                                                                                                                                  | Loss (gain) on disposal of discontinued
    operations            |                                                                        |        | 39.9  |      |        |        | (7.8  | )    |       |          | 240.4 |     
|                                                                 |                                                                                                                                                  | Impairments and other charges                                     |                                                                        |        |      |      |        |        |      |      |       |          | 121.4 |     
|                                                                 |                                                                                                                                                  | Other (increases) decreases in net assets held
    for sale       |                                                                        |        | (3.7  | )    |        |        | 31.9  |      |       |          | 50.5  |     
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|                                                                 |                                                                                                                                                  |                                                                   | Net cash (used in) provided by discontinued
    operations             |        |       | (5.0 | )      |        |       | 33.1 |       |          |       | 71.5 | 
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|NET CASH PROVIDED BY OPERATING ACTIVITIES                        |                                                                                                                                                  |                                                                   | 74.9                                                                   |        |       |      | 72.1   |        |       |      | 113.6 |         
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|INVESTING ACTIVITIES:                                            |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|                                                                 | Proceeds from sale of businesses                                                                                                                 |                                                                   |                                                                        | 120.5  |       |      |        | 388.2  |       |      |       | 7.5      |      
|                                                                 | Proceeds from sale of Strategic notes                                                                                                            |                                                                   |                                                                        |       |       |      |        | 105.9  |       |      |       |         |      
|                                                                 | Purchases of property, plant and equipment                                                                                                       |                                                                   |                                                                        | (19.2  | )     |      |        | (15.0  | )     |      |       | (20.3    | )    
|                                                                 | Proceeds from sale of property, plant and
    equipment                                                                                          |                                                                   |                                                                        | 0.2    |       |      |        | 1.5    |       |      |       | 5.5      |      
|                                                                 | Proceeds from sale of excess real estate                                                                                                         |                                                                   |                                                                        | 11.1   |       |      |        | 0.5    |       |      |       | 3.2      |      
|                                                                 | Other investing activities, net                                                                                                                  |                                                                   |                                                                        |       |       |      |        | 1.3    |       |      |       | (0.7     | )    
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|NET CASH PROVIDED BY (USED IN) INVESTING
    ACTIVITIES          |                                                                                                                                                  |                                                                   | 112.6                                                                  |        |       |      | 482.4  |        |       |      | (4.8  | )       
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|FINANCING ACTIVITIES:                                            |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|                                                                 | Proceeds from long-term debt                                                                                                                     |                                                                   |                                                                        | 127.0  |       |      |        | 72.5   |       |      |       | 1,544.6  |      
|                                                                 | Repayment of long-term debt                                                                                                                      |                                                                   |                                                                        | (449.3 | )     |      |        | (498.3 | )     |      |       | (1,514.9 | )    
|                                                                 | Deposits into restricted cash collateral accounts                                                                                                |                                                                   |                                                                        | (66.5  | )     |      |        | (152.7 | )     |      |       | (4.4     | )    
|                                                                 | Withdrawals from restricted cash collateral
    accounts                                                                                         |                                                                   |                                                                        | 224.3  |       |      |        |       |       |      |       |         |      
|                                                                 | Proceeds from issuance of New Notes                                                                                                              |                                                                   |                                                                        | 380.0  |       |      |        |       |       |      |       |         |      
|                                                                 | Redemption of Old Notes                                                                                                                          |                                                                   |                                                                        | (375.0 | )     |      |        |       |       |      |       |         |      
|                                                                 | Payment of debt issuance and other financing costs                                                                                               |                                                                   |                                                                        | (45.6  | )     |      |        | (12.2  | )     |      |       | (19.1    | )    
|                                                                 | Proceeds from (repayment of) notes payable, net                                                                                                  |                                                                   |                                                                        | 7.2    |       |      |        | 2.6    |       |      |       | (13.4    | )    
|                                                                 | Payment of dividends                                                                                                                             |                                                                   |                                                                        |       |       |      |        |       |       |      |       | (7.7     | )    
|                                                                 | Proceeds from exercise of stock options                                                                                                          |                                                                   |                                                                        |       |       |      |        |       |       |      |       | 0.3      |      
|                                                                 | Purchase of treasury stock                                                                                                                       |                                                                   |                                                                        |       |       |      |        |       |       |      |       | (43.1    | )    
|                                                                 | Other financing activities, net                                                                                                                  |                                                                   |                                                                        |       |       |      |        |       |       |      |       | (0.9     | )    
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|NET CASH USED IN FINANCING ACTIVITIES                            |                                                                                                                                                  |                                                                   | (197.9                                                                 | )      |       |      | (588.1 | )      |       |      | (58.6 | )       
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                                                                                  |                                                                   | 9.5                                                                    |        |       |      | 0.5    |        |       |      | (9.7  | )       
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|(DECREASE) INCREASE IN CASH AND CASH
    EQUIVALENTS             |                                                                                                                                                  |                                                                   | (0.9                                                                   | )      |       |      | (33.1  | )      |       |      | 40.5  |         
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                   |                                                                                                                                                  |                                                                   | 32.1                                                                   |        |       |      | 65.2   |        |       |      | 24.7  |         
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         
|CASH AND CASH EQUIVALENTS AT END OF YEAR                         |                                                                                                                                                  | $                                                                 | 31.2                                                                   |        |       | $    | 32.1   |        |       | $    | 65.2  |         
|                                                                 |                                                                                                                                                  |                                                                   |                                                                        |        |       |      |        |        |       |      |       |         

See Notes to Consolidated Financial Statements.

54



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##### Table of Contents



JACUZZI BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY

For the Fiscal Years Ended September 30, 2003,
2002 and 2001


|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |   |  | 
|------------------------------------------------------------------------------ | -------------------------- | -------------------------------- | --- | ------- |  | ------------ | ----- | ---------- |  | ------------- | ------ | -------- |  | ------------- | ---- | ----- |  | - | ----- | - |  | - | ------ | - |  | - | ------ | ---- | ------ | - | ------ | - |  | 
|                                                                               |                            |                                  |     |         |  | Retained     |       |            |  | Accumulated   |        |          |  |               |      |      
|                                                                               |                            |                                  |     |         |  | Earnings     |       | Unearned   |  | Other         |        |          |  | Comprehensive |      |      
|                                                                               |                            | Common                           |     | Paid-in |  | (Accumulated |       | Restricted |  | Comprehensive |        | Treasury |  | Income        |      |      
|                                                                               |                            | Stock                            |     | Capital |  | Deficit)     |       | Stock      |  | Loss          |        | Stock    |  | (Loss)        |      | Total
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |      
|                                                                               |                            |                                 
|                                                                               |                            | (in millions, except share data)
|Balance at September 30, 2000                                                  |                            | $                                | 1.0 |         |  | $            | 661.2 |            |  | $             | 467.6  |          |  | $             | (9.1 | )     |  | $ | (45.0 | ) |  | $ | (322.0 | ) |  |   |        |      |        | $ | 753.7  |  
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|Net loss                                                                       |                            |                                  |     |         |  |              |       |            |  |               | (507.2 | )        |  |               |      |       |  |   |       |   |  |   |        |   |  | $ | (507.2 | )    |        |   | (507.2 | )
|Cash dividend declared ($0.05 per share)                                       |                            |                                  |     |         |  |              |       |            |  |               | (3.9   | )        |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   | (3.9   | )
|Amortization of unearned restricted stock                                      |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               | 2.8  |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   | 2.8    |  
|Purchase of 2,815,200 shares of common stock                                   |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   | (43.1  | ) |  |   |        |      |        |   | (43.1  | )
|Treasury stock issued to directors
    (20,640 shares)                         |                            |                                  |     |         |  |              | (0.2  | )          |  |               |        |          |  |               |      |       |  |   |       |   |  |   | 0.3    |   |  |   |        |      |        |   | 0.1    |  
|Treasury stock issued upon exercise of options
    (30,000 shares)             |                            |                                  |     |         |  |              | (0.2  | )          |  |               |        |          |  |               |      |       |  |   |       |   |  |   | 0.5    |   |  |   |        |      |        |   | 0.3    |  
|Forfeiture of restricted stock (8,500 shares)                                  |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               | 0.3  |       |  |   |       |   |  |   | (0.2   | ) |  |   |        |      |        |   | 0.1    |  
|Translation adjustment (discontinued operations)                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   | 27.4  |   |  |   |        |   |  |   | 27.4   |      |        |   | 27.4   |  
|Minimum pension liability adjustment, net of tax
    (discontinued operations) |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   | 7.1   |   |  |   |        |   |  |   | 7.1    |      |        |   | 7.1    |  
|Translation adjustment                                                         |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   | (13.2 | ) |  |   |        |   |  |   | (13.2  | )    |        |   | (13.2  | )
|Fair value of derivatives adjustment, net of tax                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   | (1.4  | ) |  |   |        |   |  |   | (1.4   | )    |        |   | (1.4   | )
|Minimum pension liability adjustment, net of tax                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   | (5.7  | ) |  |   |        |   |  |   | (5.7   | )    |        |   | (5.7   | )
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|                                                                               | Other comprehensive income |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        | 14.2 |        |   |        |   | 
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|                                                                               |                            | Total comprehensive loss         |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        | $    | (493.0 | ) |        |   |  | 
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|Balance at September 30, 2001                                                  |                            |                                  | 1.0 |         |  |              | 660.8 |            |  |               | (43.5  | )        |  |               | (6.0 | )     |  |   | (30.8 | ) |  |   | (364.5 | ) |  |   |        |      |        |   | 217.0  |  
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|Net income                                                                     |                            |                                  |     |         |  |              |       |            |  |               | 40.9   |          |  |               |      |       |  |   |       |   |  |   |        |   |  | $ | 40.9   |      |        |   | 40.9   |  
|Amortization of unearned restricted stock                                      |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               | 2.3  |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   | 2.3    |  
|Amortization of unearned restricted stock
    (discontinued operations)        |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               | 1.8  |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   | 1.8    |  
|Treasury stock issued to directors
    (90,880 shares)                         |                            |                                  |     |         |  |              | (1.3  | )          |  |               |        |          |  |               |      |       |  |   |       |   |  |   | 1.5    |   |  |   |        |      |        |   | 0.2    |  
|Treasury stock issued in 401K match
    (262,804 shares)                       |                            |                                  |     |         |  |              | (3.5  | )          |  |               |        |          |  |               |      |       |  |   |       |   |  |   | 4.4    |   |  |   |        |      |        |   | 0.9    |  
|Forfeiture of restricted stock
    (32,833 shares)                             |                            |                                  |     |         |  |              | (0.5  | )          |  |               |        |          |  |               | 0.2  |       |  |   |       |   |  |   | (0.1   | ) |  |   |        |      |        |   | (0.4   | )
|Translation adjustment                                                         |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   | 3.4   |   |  |   |        |   |  |   | 3.4    |      |        |   | 3.4    |  
|Fair value of derivatives adjustment, net of tax                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   | 1.4   |   |  |   |        |   |  |   | 1.4    |      |        |   | 1.4    |  
|Minimum pension liability adjustment, net of tax                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   | (13.1 | ) |  |   |        |   |  |   | (13.1  | )    |        |   | (13.1  | )
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|                                                                               | Other comprehensive loss   |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        | (8.3 | )      |   |        |   | 
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|                                                                               |                            | Total comprehensive income       |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        | $    | 32.6   |   |        |   |  | 
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|Balance at September 30, 2002                                                  |                            |                                  | 1.0 |         |  |              | 655.5 |            |  |               | (2.6   | )        |  |               | (1.7 | )     |  |   | (39.1 | ) |  |   | (358.7 | ) |  |   |        |      |        |   | 254.4  |  
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|Net loss                                                                       |                            |                                  |     |         |  |              |       |            |  |               | (31.1  | )        |  |               |      |       |  |   |       |   |  |   |        |   |  | $ | (31.1  | )    |        |   | (31.1  | )
|Amortization of unearned restricted stock                                      |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               | 0.6  |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   | 0.6    |  
|Treasury stock issued to directors
    (79,793 shares)                         |                            |                                  |     |         |  |              | (1.0  | )          |  |               |        |          |  |               |      |       |  |   |       |   |  |   | 1.3    |   |  |   |        |      |        |   | 0.3    |  
|Treasury stock issued in 401K match
    (309,815 shares)                       |                            |                                  |     |         |  |              | (4.1  | )          |  |               |        |          |  |               |      |       |  |   |       |   |  |   | 5.2    |   |  |   |        |      |        |   | 1.1    |  
|Forfeiture of restricted stock (12,500 shares)                                 |                            |                                  |     |         |  |              | (0.3  | )          |  |               |        |          |  |               | 0.3  |       |  |   |       |   |  |   |       |   |  |   |        |      |        |   |       |  
|Exercise of stock options (2,375 shares)                                       |                            |                                  |     |         |  |              |      |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |       |   |  |   |        |      |        |   |       |  
|Translation adjustment                                                         |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   | 21.4  |   |  |   |        |   |  |   | 21.4   |      |        |   | 21.4   |  
|Minimum pension liability adjustment, net of tax                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   | (3.8  | ) |  |   |        |   |  |   | (3.8   | )    |        |   | (3.8   | )
|Net unrealized gains on investment securities,
    net of tax                  |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   | 12.8  |   |  |   |        |   |  |   | 12.8   |      |        |   | 12.8   |  
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|                                                                               | Other comprehensive income |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        | 30.4 |        |   |        |   | 
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|                                                                               |                            | Total comprehensive loss         |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        | $    | (0.7   | ) |        |   |  | 
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  
|Balance at September 30, 2003                                                  |                            | $                                | 1.0 |         |  | $            | 650.1 |            |  | $             | (33.7  | )        |  | $             | (0.8 | )     |  | $ | (8.7  | ) |  | $ | (352.2 | ) |  |   |        |      |        | $ | 255.7  |  
|                                                                               |                            |                                  |     |         |  |              |       |            |  |               |        |          |  |               |      |       |  |   |       |   |  |   |        |   |  |   |        |      |        |   |        |  

See Notes to Consolidated Financial Statements.

55



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##### Table of Contents



JACUZZI BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1  Basis of
Presentation

We manufacture and distribute a broad range of
consumer and industrial products through our three business
segments  Bath Products, Plumbing Products and
Rexair. Please refer to Note 12 regarding our
business segments. In April 2003, our Board of Directors
authorized a change in the name of our company to Jacuzzi
Brands, Inc., which was approved by stockholders on June 4,
2003.

We operate on a 52- or 53-week fiscal year ending
on the Saturday nearest to September 30. The fiscal year
periods presented in our consolidated financial statements
consist of the 52 weeks ending on September 27, 2003,
September 28, 2002, and September 29, 2001, but are
presented as of September 30 in each of those years for
convenience. Businesses over which we had the ability to
exercise significant influence, but are not consolidated into
our results, were accounted for using the equity method. In
March 2000, we completed the disposition of a majority equity
interest in our Diversified businesses to Strategic
Industries LLC (Strategic). We accounted for
our retained interest in Strategic under the equity method of
accounting from March 2000 until January 2002, when we sold all
remaining interests in that company. We eliminate inter-company
balances and transactions when consolidating the account
balances of the subsidiaries.

Any potential variable interest entity
(VIE) created after January 31, 2003 in which
we hold a variable interest has been assessed to determine
whether the VIE should be consolidated into our results based on
criteria established by Financial Accounting Standards Board
(FASB) Interpretation Number 46,
Consolidation of Variable Interest Entities
(FIN 46). As of September 30, 2003, we do
not hold any variable interests in any VIEs. See further
discussion under New Accounting Pronouncements in
Note 2.

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

Note 2  Accounting
Policies

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

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

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

Restricted Cash Collateral Accounts:At September 30, 2002, we held
restricted cash, which was comprised of escrow deposits required
under the terms of the debt facilities for the benefit of the
holders of our senior notes and certain other creditors. These
debt facilities were refinanced on July 15, 2003, and the
restricted cash was used in the redemption of the senior notes
and debt facilities outstanding at that time (see
Note 6).

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

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 2  Accounting Policies
(Continued)


We operate in the U.S., Europe and, to a lesser
extent, in other regions of the world. We perform periodic
credit evaluations of our customers financial condition
and generally do not require collateral. We encounter a certain
amount of credit risk as a result of a concentration of
receivables among a few significant customers. Our Bath Products
segment has one customer, Home Depot, which accounted for 8%,
10% and 15% of our total sales in 2003, 2002 and 2001,
respectively. Credit losses have not been significant and have
been within managements expectations.

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

Inventories:Our
inventories are stated at the lower of cost or market value. We
used the first-in-first-out (FIFO) method for determining
the cost of approximately 55.6% of our inventories in 2003 and
approximately 54.6% of our inventories in 2002, and the
last-in-first-out (LIFO) method for the remainder of our
inventories. The carrying value of our LIFO method inventories
approximate their FIFO cost value at September 30, 2003 and
2002. The FIFO method approximates replacement cost. Our
inventories are categorized as follows:

|                    |  |                  |       |      |  |   |       | 
|------------------- |  | ---------------- | ----- | ---- |  | - | ----- | 
|                    |  |                 
|                    |  | At September 30,
|                    |  |                 
|                    |  | 2003             |       | 2002
|                    |  |                  |       |     
|                    |  |                 
|                    |  | (in millions)   
|Finished products   |  | $                | 103.3 |      |  | $ | 101.8 | 
|In-process products |  |                  | 13.0  |      |  |   | 13.3  | 
|Raw materials       |  |                  | 48.7  |      |  |   | 48.6  | 
|                    |  |                  |       |      |  |   |       | 
|                    |  | $                | 165.0 |      |  | $ | 163.7 | 
|                    |  |                  |       |      |  |   |       | 

Other Current Assets and Other Non-current
Assets:Included in other current
assets is a $3.5 million note, and included in other
non-current assets is a $5.0 million note, both of which we
received from the buyer when we sold our swimming pool &
equipment business in May 2003. The $5.0 million, 6% note
is convertible, at our option, into 598,802 shares of the
buyers common stock anytime after March 31, 2004 and
through the due date of March 31, 2009. The market value of
the note issuers common stock on September 27, 2003
was $10.15 per share. The value of the $3.5 million, 8%
note is subject to adjustment after calculation of the final
purchase price.

Also included in other non-current assets is an
equity investment in the common shares of the buyer of Spear
& Jackson, Inc. of $22.0 million and capitalized debt
issuance costs of $19.4 million. We are subject to
restrictions on the voting and disposition of the common shares
and have no involvement in the management or operations of the
buyer. The investment was recorded at its fair value of
$1.0 million at September 30, 2002 based on an
independent valuation. At that date, the investment was
accounted for under the cost method due to restrictions on our
ability to sell the shares before September 2004. As of
September 30, 2003, the investment is classified as
available for sale in accordance with SFAS No. 115 and has
been adjusted to its market value at that date. Debt issuance
costs are related to the notes ($11.1 million, net of
amortization) and debt facility ($8.3 million, net of
amortization) financing transactions completed on July 15,
2003 (see Note 6).

Property, Plant and Equipment:We record our property, plant and
equipment at cost. We record depreciation and amortization in a
manner that recognizes the cost of our depreciable assets in
operations over their estimated useful lives using the
straight-line method. We estimate the useful lives of our
depreciable assets to be 20-50 years for buildings and
1-15 years for machinery, equipment and furniture.

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 2  Accounting Policies
(Continued)


Leasehold improvements are amortized over the
shorter of the terms of the underlying leases, including
probable renewal periods, or the estimated useful lives of the
improvements.

Property, plant and equipment consist of:

|                                          |  |                  |        |      |  |   |        |  
|----------------------------------------- |  | ---------------- | ------ | ---- |  | - | ------ | -
|                                          |  |                 
|                                          |  | At September 30,
|                                          |  |                 
|                                          |  | 2003             |        | 2002
|                                          |  |                  |        |     
|                                          |  |                 
|                                          |  | (in millions)   
|Land and buildings                        |  | $                | 75.7   |      |  | $ | 71.6   |  
|Machinery, equipment and furniture        |  |                  | 185.2  |      |  |   | 170.3  |  
|Accumulated depreciation and amortization |  |                  | (131.2 | )    |  |   | (110.9 | )
|                                          |  |                  |        |      |  |   |        |  
|                                          |  | $                | 129.7  |      |  | $ | 131.0  |  
|                                          |  |                  |        |      |  |   |        |  

Depreciation and
Amortization:Depreciation and
amortization consist of:

|                                               |  |                            |      |      |  |      |      |  |  |   |      | 
|---------------------------------------------- |  | -------------------------- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                               |  |                           
|                                               |  | For the Fiscal Years Ended
|                                               |  | September 30,             
|                                               |  |                           
|                                               |  | 2003                       |      | 2002 |  | 2001
|                                               |  |                            |      |      |  |     
|                                               |  |                           
|                                               |  | (in millions)             
|Depreciation                                   |  | $                          | 22.8 |      |  | $    | 22.6 |  |  | $ | 23.6 | 
|Amortization of intangible assets and goodwill |  |                            | 1.2  |      |  |      | 1.2  |  |  |   | 9.6  | 
|Amortization of unearned restricted stock      |  |                            | 0.6  |      |  |      | 2.3  |  |  |   | 2.8  | 
|                                               |  |                            |      |      |  |      |      |  |  |   |      | 
|                                               |  | $                          | 24.6 |      |  | $    | 26.1 |  |  | $ | 36.0 | 
|                                               |  |                            |      |      |  |      |      |  |  |   |      | 

Goodwill and Other Intangible Assets:We adopted SFAS No. 142,
Goodwill and Other Intangible Assets,on October 1,
2001. Upon the adoption of SFAS No. 142, goodwill and
intangible assets deemed to have indefinite lives are no longer
amortized, but are subject to annual impairment tests.
Finite-lived intangible assets are amortized over their useful
lives and are subject to impairment evaluation under SFAS
No. 144.

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

Goodwill by reporting unit is as follows:

|                  |  |                  |       |      |  |   |       | 
|----------------- |  | ---------------- | ----- | ---- |  | - | ----- | 
|                  |  |                 
|                  |  | At September 30,
|                  |  |                 
|                  |  | 2003             |       | 2002
|                  |  |                  |       |     
|                  |  |                 
|                  |  | (in millions)   
|Bath Products     |  | $                | 104.8 |      |  | $ | 103.8 | 
|Plumbing Products |  |                  | 125.8 |      |  |   | 125.8 | 
|Rexair            |  |                  | 52.5  |      |  |   | 52.5  | 
|                  |  |                  |       |      |  |   |       | 
|                  |  | $                | 283.1 |      |  | $ | 282.1 | 
|                  |  |                  |       |      |  |   |       | 

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 2  Accounting Policies
(Continued)


The goodwill balances were allocated to each
reporting unit in April 2003 based on their relative fair
values, as determined by a third party at the time we redefined
our business segments (see Note 12). An interim
impairment test was performed in accordance with SFAS
No. 142 when the segments were redefined. No impairment was
indicated as a result of such test.

In connection with our decision to dispose of our
swimming pool & equipment, hearth and water systems
businesses, which were included in our previously defined
Bath & Plumbing segment (see Note 4), we
performed an interim impairment test in March 2003 for the
remaining goodwill within that reporting unit in accordance with
SFAS No. 142. No impairment was indicated as a result of
such test.

We perform an annual impairment test of our
goodwill and indefinite-lived intangible assets in the fourth
quarter of each fiscal year. In 2003 and 2002, the fair values
of each of our reporting units exceeded their respective
carrying values. Consequently, no impairment of our goodwill was
indicated. In 2003 and 2002, the fair value of our
indefinite-lived intangible assets exceeded their carrying
values, thus no impairment was indicated.

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

|                                  |                                      |                       |      |                       |  |                |     |              |  |   |      |      |  |   |     |     | 
|--------------------------------- | ------------------------------------ | --------------------- | ---- | --------------------- |  | -------------- | --- | ------------ |  | - | ---- | ---- |  | - | --- | --- | 
|                                  |                                      |                       |      |                      
|                                  |                                      | At September 30, 2003 |      | At September 30, 2002
|                                  |                                      |                       |      |                      
|                                  |                                      | Gross Carrying        |      | Accumulated           |  | Gross Carrying |     | Accumulated 
|                                  |                                      | Amount                |      | Amortization          |  | Amount         |     | Amortization
|                                  |                                      |                       |      |                       |  |                |     |             
|                                  |                                      |                      
|                                  |                                      | (in millions)        
|Finite-lived intangible assets    |                                      | $                     | 38.6 |                       |  | $              | 2.5 |              |  | $ | 38.6 |      |  | $ | 1.3 |    
|Indefinite-lived intangible asset |                                      |                       | 24.7 |                       |  |                |    |              |  |   | 24.7 |      |  |   |    |    
|                                  |                                      |                       |      |                       |  |                |     |              |  |   |      |      |  |   |     |    
|                                  | Total identifiable intangible assets |                       | $    | 63.3                  |  |                | $   | 2.5          |  |   | $    | 63.3 |  |   | $   | 1.3 | 
|                                  |                                      |                       |      |                       |  |                |     |              |  |   |      |      |  |   |     |    

Finite-lived intangible assets include patented
technology of $2.6 million and a distributor network of
$36.0 million, which are being amortized over their
estimated lives of 10 years and 40 years,
respectively. Amortization expense should be approximately
$1.2 million per year through 2011 and $0.9 million
per year thereafter through 2041. The indefinite-lived
intangible asset consists of a trade name.

The following table presents a reconciliation of
our reported net loss for the fiscal year ended
September 30, 2001 to our adjusted net loss as if SFAS
No. 142 had been applied that year (in millions).

|                        |                                                 |                                 |   |        |        |  
|----------------------- | ----------------------------------------------- | ------------------------------- | - | ------ | ------ | -
|Net loss:               |                                                 |                                 |   |       
|                        | Reported net loss                               |                                 | $ | (507.2 | )     
|                        | Add back: Goodwill amortization  after
    tax |                                 |   | 12.1   |       
|                        |                                                 |                                 |   |       
|                        |                                                 | Adjusted net loss               |   | $      | (495.1 | )
|                        |                                                 |                                 |   |       
|Loss per basic share:   |                                                 |                                 |   |       
|                        | Reported loss per basic share                   |                                 | $ | (6.85  | )     
|                        | Add back: Goodwill amortization per share       |                                 |   | 0.16   |       
|                        |                                                 |                                 |   |       
|                        |                                                 | Adjusted loss per basic share   |   | $      | (6.69  | )
|                        |                                                 |                                 |   |       
|Loss per diluted share: |                                                 |                                 |   |       
|                        | Reported loss per diluted share                 |                                 | $ | (6.85  | )     
|                        | Add back: Goodwill amortization per share       |                                 |   | 0.16   |       
|                        |                                                 |                                 |   |       
|                        |                                                 | Adjusted loss per diluted share |   | $      | (6.69  | )
|                        |                                                 |                                 |   |       

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 2  Accounting Policies
(Continued)


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

|                     |  |                  |       |      |  |   |       | 
|-------------------- |  | ---------------- | ----- | ---- |  | - | ----- | 
|                     |  |                 
|                     |  | At September 30,
|                     |  |                 
|                     |  | 2003             |       | 2002
|                     |  |                  |       |     
|                     |  |                 
|                     |  | (in millions)   
|Compensation related |  | $                | 26.4  |      |  | $ | 21.8  | 
|Insurance            |  |                  | 9.1   |      |  |   | 6.6   | 
|Customer incentives  |  |                  | 24.2  |      |  |   | 17.6  | 
|Interest             |  |                  | 1.2   |      |  |   | 14.9  | 
|Warranty             |  |                  | 18.3  |      |  |   | 11.2  | 
|Other                |  |                  | 57.0  |      |  |   | 56.0  | 
|                     |  |                  |       |      |  |   |       | 
|                     |  | $                | 136.2 |      |  | $ | 128.1 | 
|                     |  |                  |       |      |  |   |       | 

We record a reserve for future warranty costs
based on current unit sales, historical experience and
managements judgment regarding anticipated rates of
warranty claims and cost per claim. The adequacy of the recorded
warranty reserves is assessed each quarter and adjustments are
made as necessary. The specific terms and conditions of the
warranties vary depending on the products sold and the countries
in which we do business. Changes in our warranty reserves, a
portion of which are classified as long-term on our consolidated
balance sheets, during 2003 and 2002 are as follows:

|                  |                  |                  |      |       |   |   |      |       |  
|----------------- | ---------------- | ---------------- | ---- | ----- | - | - | ---- | ----- | -
|                  |                  |                 
|                  |                  | At September 30,
|                  |                  |                 
|                  |                  | 2003             |      | 2002 
|                  |                  |                  |      |      
|                  |                  |                 
|                  |                  | (in millions)   
|Beginning balance |                  | $                | 12.0 |       |   | $ | 9.0  |      
|                  | Warranty accrual |                  |      | 18.0  |   |   |      | 15.3  |  
|                  | Cash payments    |                  |      | (11.3 | ) |   |      | (11.8 | )
|                  | Translation      |                  |      | 0.3   |   |   |      | (0.5  | )
|                  |                  |                  |      |       |   |   |      |      
|Ending balance    |                  | $                | 19.0 |       |   | $ | 12.0 |      
|                  |                  |                  |      |       |   |   |      |      

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

Short-term Assets and
Liabilities:The fair values of our
cash and cash equivalents, trade receivables and accounts
payable approximate their carrying values because of their
short-term nature.

Long-term Debt:The
fair values of our senior notes were determined by reference to
quoted market prices. The fair value of our remaining debt is
determined by discounting the cash flows using current interest
rates for financial instruments with similar characteristics and
maturities. The fair value of our remaining debt approximates
its carrying value as of September 30, 2003 and 2002.

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 2  Accounting Policies
(Continued)


There were no other significant differences as of
September 30, 2003 and 2002 between the carrying value and
fair value of our financial instruments except as disclosed
below:

|                    |  |                       |       |                       |  |          |       |       |  |   |       |  |  |   |       | 
|------------------- |  | --------------------- | ----- | --------------------- |  | -------- | ----- | ----- |  | - | ----- |  |  | - | ----- | 
|                    |  |                       |       |                      
|                    |  | At September 30, 2003 |       | At September 30, 2002
|                    |  |                       |       |                      
|                    |  | Carrying              |       | Fair                  |  | Carrying |       | Fair 
|                    |  | Amount                |       | Value                 |  | Amount   |       | Value
|                    |  |                       |       |                       |  |          |       |      
|                    |  |                      
|                    |  | (in millions)        
|9.625% Senior Notes |  | $                     | 380.0 |                       |  | $        | 394.3 |       |  | $ |      |  |  | $ |      | 
|7.125% Senior Notes |  |                       |      |                       |  |          |      |       |  |   | 249.5 |  |  |   | 227.5 | 
|7.25% Senior Notes  |  |                       |      |                       |  |          |      |       |  |   | 124.1 |  |  |   | 107.5 | 
|                    |  |                       |       |                       |  |          |       |       |  |   |       |  |  |   |       | 
|                    |  | $                     | 380.0 |                       |  | $        | 394.3 |       |  | $ | 373.6 |  |  | $ | 335.0 | 
|                    |  |                       |       |                       |  |          |       |       |  |   |       |  |  |   |       | 

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

Management uses significant judgment in
estimating sales returns, considering numerous factors such as
current overall and industry-specific economic conditions and
historical sales return rates. Although we consider our sales
return reserves to be adequate and proper, changes in historical
customer patterns could require adjustments to the reserves. We
also record reductions to our revenues for customer and
distributor programs and incentive offerings including special
pricing agreements, promotions and other volume-based
incentives. We may take actions to increase customer incentive
offerings possibly resulting in an incremental reduction of
revenue at the time the incentive is offered.

We adopted Emerging Issues Task Force
(EITF) 01-09, Accounting for Consideration
Given by a Vendor to a Customer (Including a Reseller of the
Vendors Products),in 2002. As required by this
guidance, we account for sales incentives, such as discounts,
rebates and volume incentives, as a reduction of revenue at the
later of 1) the date that the related revenue is recognized
or 2) the date when the sales incentive is offered. In the
case of volume incentives, we recognize the reduction of revenue
ratably over the period of the underlying transactions that
result in progress by the customer toward earning the incentive.
We record free product given to customers as a sales incentive
in cost of products sold.

Accounting Change:In December 1999, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in
Financial Statements, which, along with other guidance,
clarified the SECs views on various revenue recognition
and reporting matters. As a result, we changed the method of
accounting for certain sales transactions. Historically, we
recognized revenue upon shipment of products to the customer
because, even though some products were shipped FOB destination,
we used a common carrier and thus gave up substantially all the
risks of ownership. Under the new accounting method adopted
retroactive to October 1, 2000, we recognize revenue when
title passes. The net effect of the accounting change was not
material to the results for the year ended September 30,
2001.

Net sales for the year ended September 30,
2001 includes $3.8 million of net sales that, prior to the
accounting change, had been recognized through
September 30, 2000. The pro forma amounts, had the new
revenue recognition method been applied retroactively to prior
periods, were not materially different

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 2  Accounting Policies
(Continued)


from the amounts shown in our consolidated
statement of income for the year ended September 30, 2000.
Therefore, these amounts have not been presented.

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

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

|                              |  |                            |      |      |  |      |      |  |  |   |      |  
|----------------------------- |  | -------------------------- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | -
|                              |  |                           
|                              |  | For the Fiscal Years Ended
|                              |  | September 30,             
|                              |  |                           
|                              |  | 2003                       |      | 2002 |  | 2001
|                              |  |                            |      |      |  |     
|                              |  |                           
|                              |  | (in millions)             
|Keller Ladder expenses        |  | $                          | 3.7  |      |  | $    | 5.2  |  |  | $ | 4.3  |  
|Debt restructuring costs      |  |                            | 2.3  |      |  |      | 9.2  |  |  |   | 23.6 |  
|Debt refinancing costs        |  |                            | 19.2 |      |  |      |     |  |  |   |     |  
|Impairment of Strategic notes |  |                            |     |      |  |      |     |  |  |   | 45.1 |  
|LCA spin-off costs            |  |                            |     |      |  |      |     |  |  |   | 8.1  |  
|Other, net                    |  |                            | 1.3  |      |  |      | 1.1  |  |  |   | (1.3 | )
|                              |  |                            |      |      |  |      |      |  |  |   |      |  
|                              |  | $                          | 26.5 |      |  | $    | 15.5 |  |  | $ | 79.8 |  
|                              |  |                            |      |      |  |      |      |  |  |   |      |  

We retained certain obligations related to our
Keller Ladder operations when we sold them in October 1999. We
continue to incur expenses related to those obligations. Debt
restructuring costs are associated with the restructuring of our
debt in August 2001, the senior note exchange in November 2002
and the extension of our facilities in October 2002, while the
debt refinancing costs are associated with the refinancing of
our debt in July 2003 (see Note 6).

Advertising Costs:Advertising costs are charged to expense when incurred.
Advertising expense totaled $25.7 million,
$19.2 million and $28.6 million in 2003, 2002 and
2001, respectively.

Research and Development
Costs:Research and development costs
are expensed as incurred. Such amounts totaled
$5.5 million, $3.9 million and $4.8 million in
2003, 2002 and 2001, respectively.

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

Stock-based Compensation:We account for stock-based
compensation under the intrinsic value method in accordance with
the provisions of APB Opinion No. 25 and related
interpretations. Compensation cost recorded for our Stock Plans
(as defined in Note 9) approximated $1.7 million,
$2.8 million and $2.9 million in 2003, 2002 and 2001,
respectively. No other compensation costs have been recognized
under our stock-based compensation plans. Had compensation cost
for awards under our stock-based compensation plans been
determined using the fair value method prescribed by SFAS
No. 123,

62



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 2  Accounting Policies
(Continued)


Accounting for Stock-Based
Compensation,our net income
(loss) and income (loss) per share would have been
reduced to the pro forma amounts presented below:

|                               |                                                                                                    |                                |       |       |   |      |      |      |   |   |        |       |  
|------------------------------ | -------------------------------------------------------------------------------------------------- | ------------------------------ | ----- | ----- | - | ---- | ---- | ---- | - | - | ------ | ----- | -
|                               |                                                                                                    |                               
|                               |                                                                                                    | For the Fiscal Years Ended    
|                               |                                                                                                    | September 30,                 
|                               |                                                                                                    |                               
|                               |                                                                                                    | 2003                           |       | 2002  |   | 2001
|                               |                                                                                                    |                                |       |       |   |     
|                               |                                                                                                    |                               
|                               |                                                                                                    | (in millions, except per share
|                               |                                                                                                    | amounts)                      
|Net (loss) income, as reported |                                                                                                    | $                              | (31.1 | )     |   | $    | 40.9 |      |   | $ | (507.2 | )    
|                               | Stock-based employee compensation expense, net of
    tax                                          |                                |       | 1.0   |   |      |      | 1.8  |   |   |        | 1.9   |  
|                               | Total stock-based employee compensation expense
    determined under fair value method, net of tax |                                |       | (2.5  | ) |      |      | (3.7 | ) |   |        | (3.9  | )
|                               |                                                                                                    |                                |       |       |   |      |      |      |   |   |        |      
|Pro forma net (loss) income    |                                                                                                    | $                              | (32.6 | )     |   | $    | 39.0 |      |   | $ | (509.2 | )    
|(Loss) income per share:       |                                                                                                    |                                |       |       |   |      |      |      |   |   |        |      
|                               | Basic  as reported                                                                                |                                | $     | (0.42 | ) |      | $    | 0.55 |   |   | $      | (6.85 | )
|                               | Basic  pro forma                                                                                  |                                |       | (0.44 | ) |      |      | 0.53 |   |   |        | (6.87 | )
|                               | Diluted  as reported                                                                              |                                | $     | (0.42 | ) |      | $    | 0.55 |   |   | $      | (6.85 | )
|                               | Diluted  pro forma                                                                                |                                |       | (0.44 | ) |      |      | 0.53 |   |   |        | (6.87 | )

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

Comprehensive Income
(Loss):Comprehensive income
(loss) represents the change in stockholders equity
from transactions and other events and circumstances arising
from non-stockholder sources. Our comprehensive income
(loss) consists of net income (loss), foreign currency
translation adjustments, fair value of derivatives adjustments,
minimum pension liability adjustments and adjustments to net
unrealized gains on investments, all net of applicable income
taxes.

Accumulated other comprehensive income
(loss) consists of the following:

|                      |  |               |       |                |  |               |      |                |  |               |       |   |  |   |      |  |  |   |       |  
|--------------------- |  | ------------- | ----- | -------------- |  | ------------- | ---- | -------------- |  | ------------- | ----- | - |  | - | ---- |  |  | - | ----- | -
|                      |  |               |       |                |  |               |      | Adjustment     |  | Accumulated  
|                      |  |               |       |                |  | Minimum       |      | to Net         |  | Other        
|                      |  | Foreign       |       | Fair Value     |  | Pension       |      | Unrealized     |  | Comprehensive
|                      |  | Currency      |       | of Derivatives |  | Liability     |      | Gains on       |  | Income       
|                      |  | Translation   |       | Adjustment     |  | Adjustment(1) |      | Investments(2) |  | (Loss)       
|                      |  |               |       |                |  |               |      |                |  |              
|                      |  |              
|                      |  | (in millions)
|At September 30, 2000 |  | $             | (42.6 | )              |  | $             |     |                |  | $             | (2.4  | ) |  | $ |     |  |  | $ | (45.0 | )
|Fiscal 2001 change    |  |               | 14.2  |                |  |               | (1.4 | )              |  |               | 1.4   |   |  |   |     |  |  |   | 14.2  |  
|                      |  |               |       |                |  |               |      |                |  |               |       |   |  |   |      |  |  |   |       |  
|At September 30, 2001 |  |               | (28.4 | )              |  |               | (1.4 | )              |  |               | (1.0  | ) |  |   |     |  |  |   | (30.8 | )
|Fiscal 2002 change    |  |               | 3.4   |                |  |               | 1.4  |                |  |               | (13.1 | ) |  |   |     |  |  |   | (8.3  | )
|                      |  |               |       |                |  |               |      |                |  |               |       |   |  |   |      |  |  |   |       |  
|At September 30, 2002 |  |               | (25.0 | )              |  |               |     |                |  |               | (14.1 | ) |  |   |     |  |  |   | (39.1 | )
|Fiscal 2003 change    |  |               | 21.4  |                |  |               |     |                |  |               | (3.8  | ) |  |   | 12.8 |  |  |   | 30.4  |  
|                      |  |               |       |                |  |               |      |                |  |               |       |   |  |   |      |  |  |   |       |  
|At September 30, 2003 |  | $             | (3.6  | )              |  | $             |     |                |  | $             | (17.9 | ) |  | $ | 12.8 |  |  | $ | (8.7  | )
|                      |  |               |       |                |  |               |      |                |  |               |       |   |  |   |      |  |  |   |       |  



---



|    |                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The minimum pension liability adjustment is net
    of an estimated tax benefit of $2.1 million,
    $7.6 million and $0.5 million in 2003, 2002 and 2001,
    respectively.                                            
|   
|(2) | The net unrealized gains on investments are
    primarily related to our equity investment in the buyer of
    Spear & Jackson, which is classified as available for
    sale at September 30, 2003. As of September 30,

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 2  Accounting Policies
(Continued)




| |                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2003, we adjusted this investment to its market
    value and, as a result, recorded an unrealized gain of
    $12.8 million, net of $8.2 million of taxes. The
    remaining adjustments relate to changes in the value of other
    investments classified as available for sale in accordance with
    SFAS No. 115.

Income (Loss) Per
Share:Net income (loss) per
basic share is based on the weighted average number of shares
outstanding during each period, excluding the weighted average
of restricted shares outstanding during each period (see
Note 9). Net income (loss) per diluted share further
assumes that, under the treasury stock method, any dilutive
stock options are exercised, restricted stock awards are vested
and any other dilutive equity instruments are converted.

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

|                                                                  |  |                      |      |      |  |      |      |  |  |  |      | 
|----------------------------------------------------------------- |  | -------------------- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                                                                  |  |                     
|                                                                  |  | For the Fiscal Years
|                                                                  |  | Ended September 30, 
|                                                                  |  |                     
|                                                                  |  | 2003                 |      | 2002 |  | 2001
|                                                                  |  |                      |      |      |  |     
|                                                                  |  |                     
|                                                                  |  | (in millions)       
|Basic weighted average number of common shares
    outstanding    |  |                      | 74.6 |      |  |      | 73.8 |  |  |  | 74.0 | 
|                                                                  |  |                      |      |      |  |      |      |  |  |  |      | 
|Shares issued upon assumed exercise of dilutive
    stock options |  |                      | 0.1  |      |  |      |     |  |  |  |     | 
|                                                                  |  |                      |      |      |  |      |      |  |  |  |      | 
|Diluted weighted average number of common shares
    outstanding  |  |                      | 74.7 |      |  |      | 73.8 |  |  |  | 74.0 | 
|                                                                  |  |                      |      |      |  |      |      |  |  |  |      | 

Options to purchase 3.7 million,
4.7 million and 6.1 million shares in the years ended
September 30, 2003, 2002 and 2001, respectively, were not
included in the computation of earnings per share because the
exercise prices of these options exceeded the average market
price of the common shares during the respective periods.

New Accounting
Pronouncements:In December 2002, the
FASB issued Statement No. 148, Accounting for
Stock-Based Compensation  Transition and
Disclosure  an amendment of FASB Statement
No. 123. This Statement provides alternative methods of
transition for an entity that voluntarily changes to the fair
value based method of accounting for stock-based employee
compensation. Those methods include the Prospective Method, the
Modified Prospective Method or the Retroactive Restatement
Method. The statement also amends Accounting Principles Board
(APB) Opinion No. 28,Interim Financial
Reporting, to require disclosure about the effects on
reported net income of an entitys accounting policy
decisions with respect to stock-based employee compensation in
interim financial information.

We do not plan to adopt SFAS No. 123 under
the guidelines set forth in SFAS No. 148. We cannot
determine, with any accuracy, the effect the adoption of the
fair value method of accounting for stock-based compensation
would have on our future operating results since the amount to
be recorded as compensation expense is dependent on a number of
unknown variables including the number of options that will be
granted during the year, the volatility of our stock in the
future and the option price at the time of the grant.

In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities. This
interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, addresses
consolidation by business enterprises of variable interest
entities. Under current practice, two enterprises generally have
been included in consolidated financial statements because one
enterprise controls the other through voting interests. FIN 46
defines the concept of variable interests and
requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiaries if the entities
do not effectively disperse risks among the parties involved.
This interpretation applies immediately to variable interest
entities created after January 31, 2003. It applies as of
the end of the first fiscal year or interim

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 2  Accounting Policies
(Continued)

period ending after December 15, 2003, to
variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003.
The interpretation may be applied prospectively with a
cumulative-effect adjustment as of the date on which it is first
applied or by restating previously issued financial statements
for one or more years with a cumulative-effect adjustment as of
the beginning of the first year restated. We have completed our
assessment of the impact FIN 46 has on us immediately and have
determined that we do not have an interest in any VIEs
established after January 31, 2003. We do not have any
special purpose entities. We are in the process of evaluating
our interests to determine if they meet the characteristics of
interests that would qualify as variable interest entities based
on the Interpretation.

In April 2003, the FASB issued Statement
No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities.This Statement amends
and clarifies financial accounting and reporting for derivative
instruments and for hedging activities under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities.Effective October 1, 2000, we adopted SFAS
No. 133, as amended, which requires that all derivative
instruments be reported on the balance sheet at fair value and
establishes criteria for designation and effectiveness of
hedging relationships. The adoption of this new guidance did not
have an impact on our financial position or results of
operations.

In May 2003, the FASB issued Statement
No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify
a financial instrument within its scope as a liability (or an
asset in some circumstances). Many of those instruments were
previously classified as equity. This Statement is effective for
financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003.
The adoption of this Statement did not have an impact on our
financial position or results of operations.

Note 3  Acquisition of
Business

In connection with our sale of a 75% interest in
Rexair to Strategic in March 2000, we guaranteed Rexairs
$200 million credit facility (Rexair
Guarantee). This guarantee required us to maintain certain
credit rating levels. In response to a downgrade of our credit
ratings in March 2001, we obtained waivers of the ratings
default from Rexairs lenders while we pursued the
re-acquisition of Rexair from Strategic and the restructuring of
our debt. On August 15, 2001, we re-acquired the 75% equity
interest in Rexair previously sold to Strategic. The purchase
consideration included the return to Strategic of
$27.4 million in face value of notes due from Strategic
(Strategic Notes) and the assumption of borrowings
outstanding under Rexairs $200 million credit
facility.

In connection with the re-acquisition, we reduced
our basis in Rexair by our previously deferred gain of
$69.6 million and our previously recorded share of
Rexairs net liabilities of $29.3 million and
increased our basis by $17.4 million in deferred
transaction costs related to the original sale of Rexair in
March 2000. The allocation of the purchase consideration
(adjusted by the deferred gain, the carrying value of the
retained liabilities and the deferred transaction costs) to the
assets acquired and liabilities assumed resulted in goodwill of
$52.5 million and other intangible assets of approximately
$63.3 million. Finite-lived intangible assets include
patented technology of $2.6 million and a distributor network of
$36.0 million that are being amortized over their useful
lives of 10 years and 40 years, respectively. The
balance of the intangible assets is related to a trade name,
which has an indefinite life. The results of Rexair have been
included in the Rexair segment from the date of re-acquisition.
We accounted for Rexair under the equity method of accounting
during the time period from March 24, 2000 to
August 15, 2001 when we held only a 25% interest.

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 4  Dispositions and
Discontinued Operations

In November 2000, we sold our European HVAC
business for proceeds of $7.5 million, which approximated
its carrying value.

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

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

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

Each of these disposal plans qualified for
treatment as discontinued operations. The assets and liabilities
of these businesses are included in assets held for sale and
liabilities associated with assets held for sale, respectively,
for all periods presented through their respective sale date.
Thus, included in these balances at September 30, 2003 are
the assets and liabilities of our water systems business, and
included in these balances at September 30, 2002 are the
assets and liabilities of SiTeco and our swimming pools &
equipment, hearth and water systems businesses.

The major classes of assets and liabilities
classified as held for sale are as follows:

|                                   |                                                  |                  |     |      |  |   |      |       | 
|---------------------------------- | ------------------------------------------------ | ---------------- | --- | ---- |  | - | ---- | ----- | 
|                                   |                                                  |                 
|                                   |                                                  | At September 30,
|                                   |                                                  |                 
|                                   |                                                  | 2003             |     | 2002
|                                   |                                                  |                  |     |     
|                                   |                                                  |                 
|                                   |                                                  | (in millions)   
|Cash                               |                                                  | $                |    |      |  | $ | 16.7 |      
|Trade receivables, net             |                                                  |                  | 5.0 |      |  |   | 65.7 |      
|Inventories                        |                                                  |                  | 6.3 |      |  |   | 52.8 |      
|Other current assets               |                                                  |                  | 0.1 |      |  |   | 5.5  |      
|Property, plant and equipment, net |                                                  |                  | 5.4 |      |  |   | 70.2 |      
|Other assets                       |                                                  |                  |    |      |  |   | 14.3 |      
|Goodwill                           |                                                  |                  |    |      |  |   | 19.3 |      
|                                   |                                                  |                  |     |      |  |   |      |      
|                                   | Assets held for sale                             |                  | $   | 16.8 |  |   | $    | 244.5 | 
|                                   |                                                  |                  |     |      |  |   |      |      
|Trade accounts payable             |                                                  | $                | 2.6 |      |  | $ | 16.1 |      
|Other current liabilities          |                                                  |                  | 3.9 |      |  |   | 28.3 |      
|Other liabilities                  |                                                  |                  | 2.2 |      |  |   | 35.1 |      
|                                   |                                                  |                  |     |      |  |   |      |      
|                                   | Liabilities associated with assets held for sale |                  | $   | 8.7  |  |   | $    | 79.5  | 
|                                   |                                                  |                  |     |      |  |   |      |      

Included in assets held for sale under the
classification of property, plant and equipment are properties
being held for sale of $5.4 million at September 30,
2003 and $6.7 million at September 30, 2002. These
properties are currently being marketed for sale and meet all of
the criteria for classification as held for

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 4  Dispositions and
Discontinued Operations (Continued)

sale at September 30, 2003 as required by
SFAS No. 144,Accounting for
the Impairment or Disposal of Long-Lived
Assets. The properties are recorded at
the lower of their carrying value or fair value less cost to
sell.

We sold Ames True Temper in January 2002,
Lighting Corporation of America in April 2002, Selkirk in June
2002, Spear & Jackson in September 2002 and SiTeco in
October 2002. We sold the swimming pool & equipment
business in May 2003, the hearth business in June 2003 and the
water systems business in October 2003.

The estimated 2002 operating income of the
businesses in the 2001 Disposal Plan were included in our
expected loss on disposal of $232.6 million, net of tax,
which was recorded in 2001 and adjusted in 2002 in accordance
with APB No. 30. The expected operating income of the
businesses in the 2003 Disposal Plan was not included in our
loss on disposal of $39.9 million, net of tax. Instead, the
results of operations were recorded as income (loss) from
discontinued operations in the period in which they occurred in
accordance with SFAS No. 144.

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

|                        |  |                            |      |      |  |      |       |  |  |   |         |  
|----------------------- |  | -------------------------- | ---- | ---- |  | ---- | ----- |  |  | - | ------- | -
|                        |  |                           
|                        |  | For the Fiscal Years Ended
|                        |  | September 30,             
|                        |  |                           
|                        |  | 2003                       |      | 2002 |  | 2001
|                        |  |                            |      |      |  |     
|                        |  |                           
|                        |  | (in millions)             
|Net sales               |  | $                          | 66.9 |      |  | $    | 807.3 |  |  | $ | 1,460.3 |  
|Operating (loss) income |  |                            | (0.7 | )    |  |      | 34.7  |  |  |   | (51.2   | )

Included in operating income (loss) in 2001
are goodwill impairment charges of $121.4 million. In June
2001, we evaluated the recoverability of the goodwill based on a
fair value methodology, leading us to record the charge at that
time. In accordance with EITF 87-24, we allocated a portion
of our interest expense to discontinued operations. Amounts
allocated reflect the interest expense on the estimated amount
of debt that was repaid as a result of the disposal
transactions. Amounts reclassified were $1.0 million in
2003, $1.0 million in 2002 and $1.3 million in 2001.

Note 5  Impairment,
Restructuring and Other Charges

The principal components of impairment,
restructuring and other charges, including $0.9 million
recorded in cost of products sold in 2003, are:

|                                        |       |                            |      |      |  |      |     |     |  |   |       |       | 
|--------------------------------------- | ----- | -------------------------- | ---- | ---- |  | ---- | --- | --- |  | - | ----- | ----- | 
|                                        |       |                           
|                                        |       | For the Fiscal Years Ended
|                                        |       | September 30,             
|                                        |       |                           
|                                        |       | 2003                       |      | 2002 |  | 2001
|                                        |       |                            |      |      |  |     
|                                        |       |                           
|                                        |       | (in millions)             
|Impairment of goodwill                  |       | $                          |     |      |  | $    |    |     |  | $ | 100.2 |      
|Impairment of other assets              |       |                            | 9.2  |      |  |      |    |     |  |   |      |      
|Lease obligations and other commitments |       |                            | (1.7 | )    |  |      | 4.1 |     |  |   |      |      
|Severance and related costs             |       |                            | 12.4 |      |  |      | 3.1 |     |  |   |      |      
|                                        |       |                            |      |      |  |      |     |     |  |   |       |      
|                                        | Total |                            | $    | 19.9 |  |      | $   | 7.2 |  |   | $     | 100.2 | 
|                                        |       |                            |      |      |  |      |     |     |  |   |       |      
|Cash charges                            |       | $                          | 7.4  |      |  | $    | 6.4 |     |  | $ |      |      
|Non-cash charges                        |       |                            | 12.5 |      |  |      | 0.8 |     |  |   | 100.2 |      
|                                        |       |                            |      |      |  |      |     |     |  |   |       |      
|                                        | Total |                            | $    | 19.9 |  |      | $   | 7.2 |  |   | $     | 100.2 | 
|                                        |       |                            |      |      |  |      |     |     |  |   |       |      

67



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 5  Impairment,
Restructuring and Other Charges (Continued)


Below is a summary of the charges we incurred in
2003 associated with initiatives we launched in 2003. Charges
are recorded when a liability is incurred in accordance with
SFAS No. 146 and SFAS No. 144 or other applicable
guidance.

|                                          |       |                              |     |                   |     |         |      |       |     |   |     |      |      |   |      |      |      | 
|----------------------------------------- | ----- | ---------------------------- | --- | ----------------- | --- | ------- | ---- | ----- | --- | - | --- | ---- | ---- | - | ---- | ---- | ---- | 
|                                          |       |                              |     |                   |     |        
|                                          |       |                              |     | Impairment,       |     |        
|                                          |       |                              |     | Restructuring and |     |        
|                                          |       |                              |     | Other Charges     |     |        
|                                          |       |                              |     |                   |     |        
|                                          |       |                              |     | Restructuring     |     | Plant   |      |      
|                                          |       | Cost of                      |     | and Severance     |     | Closure |      |      
|                                          |       | Products Sold                |     | Charges           |     | Costs   |      | Total
|                                          |       |                              |     |                   |     |         |      |      
|                                          |       |                             
|                                          |       | (in millions)               
|Bath Products:                            |       |                              |     |                   |     |         |      |       |     |   |     |      |      |   |      |     
|Closure of Salem, OH facility             |       | $                            | 0.9 |                   |     | $       |     |       |     | $ | 8.5 |      |      | $ | 9.4  |     
|Closure of Plant City, FL facility        |       |                              |    |                   |     |         |     |       |     |   | 3.9 |      |      |   | 3.9  |     
|Consolidation of administrative functions |       |                              |    |                   |     |         | 0.4  |       |     |   |    |      |      |   | 0.4  |     
|Dismissal of wholesale sales force        |       |                              |    |                   |     |         | 0.9  |       |     |   |    |      |      |   | 0.9  |     
|                                          |       |                              |     |                   |     |         |      |       |     |   |     |      |      |   |      |     
|                                          |       | Sub-total Bath Products      |     |                   | 0.9 |         |      |       | 1.3 |   |     |      | 12.4 |   |      |      | 14.6 | 
|                                          |       |                              |     |                   |     |         |      |       |     |   |     |      |      |   |      |     
|Corporate Expenses:                       |       |                              |     |                   |     |         |      |       |     |   |     |      |      |   |      |     
|Adjustment of estimated lease obligation  |       |                              |    |                   |     |         | (3.2 | )     |     |   |    |      |      |   | (3.2 | )   
|Corporate headquarters restructuring      |       |                              |    |                   |     |         | 8.5  |       |     |   |    |      |      |   | 8.5  |     
|                                          |       |                              |     |                   |     |         |      |       |     |   |     |      |      |   |      |     
|                                          |       | Sub-total Corporate Expenses |     |                   |    |         |      |       | 5.3 |   |     |      |     |   |      |      | 5.3  | 
|                                          |       |                              |     |                   |     |         |      |       |     |   |     |      |      |   |      |     
|                                          | Total |                              | $   | 0.9               |     |         | $    | 6.6   |     |   | $   | 12.4 |      |   | $    | 19.9 |     
|                                          |       |                              |     |                   |     |         |      |       |     |   |     |      |      |   |      |     

In 2003, management initiated a plan to close the
Salem, OH plant and will exit the facility by the end of fiscal
2004. We have recorded a $9.4 million charge associated
with the closure of the plant, including $0.9 million
charged to cost of products sold related to inventory on hand at
September 30, 2003 that is expected to be scrapped. Also,
we performed a recoverability test of the long-lived assets and
determined that an impairment charge of $5.2 million was
required to reduce the carrying value of these long-lived assets
to their estimated fair value. The estimated fair value of the
plant was determined based on the value of comparable plants in
the area. We also recorded a pension and post-employment benefit
curtailment charge of $3.0 million and a $0.3 million
charge for other commitments related to exiting the facility. As
a result of this plant closing, approximately 253 employees will
be terminated.

Management also approved a plan to close our
Plant City, FL plant, which was closed in November 2003. During
fiscal 2003, we recorded a $3.9 million charge associated
with the closure of this facility. As a result of our decision
to close the plant, we performed a recoverability test of the
long-lived assets and determined that an impairment charge of
$3.1 million was required to reduce the carrying value of
the property, plant and equipment to their estimated fair value.
The estimated fair value of the plant was determined based on
the value of comparable plants in the area plus the book value
of the equipment that was transferred to our Chino facility.
Approximately 120 employees were terminated as a result of this
plant closing.

In fiscal 2003, management approved the
consolidation of a number of administrative functions into a
shared services operations center. These functions are presently
being performed by our domestic whirlpool bath, spa and sanitary
bath operations in multiple locations. The shared service center
will occupy a portion of the unused office space in Dallas, TX
that has remained vacant since our closing of the Zurn
Industries, Inc. (Zurn) corporate office in 2000. We
incurred severance charges of $0.4 million in 2003
associated with this initiative. Approximately 44 employees will
be terminated as a result of this plan. A

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 5  Impairment,
Restructuring and Other Charges (Continued)


favorable adjustment of $3.2 million was
recorded in 2003 to reduce the associated restructuring reserves
for the space that will be occupied by the shared services
center discussed above. The restructuring reserves for the Zurn
corporate lease obligation were initially established in 2000
and later adjusted in 2002.

Management also approved a plan to replace our
entire domestic sanitary bath wholesale sales force with
independent manufacturer representatives to market our
ELJER® brand products to the wholesale channel on a
commission basis. We incurred $0.9 million in severance
costs in 2003 related to the dismissal of 26 employees in the
first quarter of fiscal 2004.

In April 2003, management initiated a
restructuring and consolidation of the corporate headquarters
that included a number of management changes and the relocation
and consolidation of the Jacuzzi headquarters in Walnut Creek,
CA into our principal offices in West Palm Beach, FL. This
resulted in the termination of 17 employees from California and
3 from Florida. All but one of the employees has been terminated
as of September 2003. Upon approval of our Board and
stockholders, we also changed our name from U.S. Industries,
Inc. to Jacuzzi Brands, Inc. We incurred charges of
$8.5 million during 2003 primarily for employee severance,
lease termination costs, relocation expenses and other related
exit costs.

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

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

Operating results at a number of our subsidiaries
declined during 2001. In 2001, we evaluated the recoverability
of the goodwill of these subsidiaries based on a fair value
methodology. This evaluation indicated that the carrying value
of the goodwill of certain of our subsidiaries was impaired. As
a result, we recorded goodwill impairment charges totaling
$100.2 million in the Bath Products segment.

All 2002 and 2001 charges are classified as
impairment, restructuring and other charges in our consolidated
statement of operations.

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 5  Impairment,
Restructuring and Other Charges (Continued)


As of September 30, 2003, we had remaining
accruals of $11.5 million for restructuring costs. The
activity in the restructuring liability accounts by cost
category is as follows:

|                      |                               |               |     |             |   |       |     |      |   |   |      |      |  
|--------------------- | ----------------------------- | ------------- | --- | ----------- | - | ----- | --- | ---- | - | - | ---- | ---- | -
|                      |                               | Lease and     |     |             |   |      
|                      |                               | Contract      |     | Severance   |   |      
|                      |                               | Related       |     | and Related |   | Total
|                      |                               | Costs         |     | Costs       |   | Costs
|                      |                               |               |     |             |   |      
|                      |                               |              
|                      |                               | (in millions)
|At September 30, 2001 |                               | $             | 6.8 |             |   | $     | 0.3 |      |   | $ | 7.1  |     
|                      | Fiscal 2002 charges           |               |     | 4.1         |   |       |     | 2.3  |   |   |      | 6.4  |  
|                      | Cash payments                 |               |     | (2.1        | ) |       |     | (2.0 | ) |   |      | (4.1 | )
|                      |                               |               |     |             |   |       |     |      |   |   |      |     
|At September 30, 2002 |                               |               | 8.8 |             |   |       | 0.6 |      |   |   | 9.4  |     
|                      | Fiscal 2003 (credits) charges |               |     | (1.7        | ) |       |     | 9.1  |   |   |      | 7.4  |  
|                      | Cash payments                 |               |     | (1.6        | ) |       |     | (3.7 | ) |   |      | (5.3 | )
|                      |                               |               |     |             |   |       |     |      |   |   |      |     
|At September 30, 2003 |                               | $             | 5.5 |             |   | $     | 6.0 |      |   | $ | 11.5 |     
|                      |                               |               |     |             |   |       |     |      |   |   |      |     

Approximately $6.9 million of the reserves
are included in the balance sheet caption Accrued expenses
and other current liabilities, while the remaining
$4.6 million are recorded in the balance sheet caption
Other liabilities. We expect the remaining accruals
to be paid with cash over the periods provided by the severance
and lease agreements over the next four years.

Note 6  Long-term
Debt

Long-term debt consists of the following:

|                         |                          |                  |       |       |  |  |        |       | 
|------------------------ | ------------------------ | ---------------- | ----- | ----- |  |  | ------ | ----- | 
|                         |                          |                 
|                         |                          | At September 30,
|                         |                          |                 
|                         |                          | 2003             |       | 2002 
|                         |                          |                  |       |      
|                         |                          |                 
|                         |                          | (in millions)   
|Senior Notes Payable:    |                          |                  |       |       |  |  |        |      
|                         | 7.125% Senior Notes, net |                  | $     |      |  |  | $      | 249.5 | 
|                         | 7.25% Senior Notes, net  |                  |       |      |  |  |        | 124.1 | 
|                         | 9.625% Senior Notes, net |                  |       | 380.0 |  |  |        |      | 
|Bank Facilities:         |                          |                  |       |       |  |  |        |      
|                         | Asset-based facility     |                  |       | 23.9  |  |  |        |      | 
|                         | Term loan                |                  |       | 65.0  |  |  |        |      | 
|Restructured Facilities: |                          |                  |       |       |  |  |        |      
|                         | Jacuzzi Brands, Inc      |                  |       |      |  |  |        | 317.5 | 
|                         | Rexair                   |                  |       |      |  |  |        | 92.8  | 
|Other Long-term Debt     |                          |                  | 7.7   |       |  |  | 8.9    |      
|                         |                          |                  |       |       |  |  |        |      
|                         |                          |                  | 476.6 |       |  |  | 792.8  |      
|Less: Current Maturities |                          |                  | (25.2 | )     |  |  | (275.9 | )    
|                         |                          |                  |       |       |  |  |        |      
|                         | Long-term Debt           |                  | $     | 451.4 |  |  | $      | 516.9 | 
|                         |                          |                  |       |       |  |  |        |      



| |            
| | -----------
| | Refinancing

On July 15, 2003, we completed a
comprehensive re-financing of our corporate debt by closing on
the issuance of $380.0 million in aggregate principal
amount of 9.625% senior secured notes (the New

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 6  Long-term Debt
(Continued)


Notes), as well as a new five year
$200.0 million asset based revolving credit facility and a
five-year $65.0 million term loan (collectively the
Bank Facilities). The net proceeds from the New
Notes, together with the initial borrowings under the Bank
Facilities were used to repay the outstanding debt under our
Restructured Facilities (as defined later in this note) and fund
the redemption of the Old Notes (also defined later in this
note).

The Restructured Facilities were paid down
simultaneously with the closing of the Bank Facilities and New
Notes, on July 15, 2003. Funds required for the redemption
of the Old Notes were placed into an escrow account on
July 15, 2003. These funds, totaling $243.2 million,
were used for the redemption of the Old Notes on August 14,
2003. The amount deposited reflected the principal, accrued
interest and redemption premium payable to the Old Note holders.
The redemption premium, as well as all unamortized fees and
discounts associated with the Old Notes and the Restructured
Facilities, were expensed in the fourth quarter of 2003,
resulting in a charge of $19.2 million.

The net cash proceeds from the New Notes were
approximately $368.6 million after transaction fees.
Transaction fees were capitalized and are being amortized over
the seven year term of the New Notes. The New Notes, which are
due July 1, 2010 and pay interest semiannually on
January 1 and July 1 of each year, are subject to
registration with the Securities and Exchange Commission
pursuant to a registration rights agreement.

Under the five year asset-based revolving credit
facility, we can borrow up to $200.0 million subject to a
borrowing base consisting of eligible accounts receivable and
eligible inventory, plus eligible trademarks. The initial amount
of eligible trademarks of $20.0 million is being amortized
evenly over the first two years of the facility as a reduction
of the borrowing base. The interest rate under the facility is
currently 2.25% over LIBOR or 0.25% over Prime. This rate will
reset each quarter based on our Consolidated Leverage Ratio as
defined in the agreement, and could range from 2.0% to 2.5% over
LIBOR (Applicable LIBOR Margin). The weighted
average interest rate for fiscal 2003 was 3.8%. We paid
$74.4 million, $76.3 million and $85.0 million of
interest in 2003, 2002 and 2001, respectively.

The $65.0 million term loan matures
July 15, 2008 along with the asset-based facility and
carries an interest rate of 5.0% over Prime with a minimum rate
of 9.25%. Mandatory prepayments of $10.0 million are
required on the term loan annually beginning in September 2005,
which are amortized evenly over each twelve month period.
Additional prepayments are required for asset sale proceeds as
well as an annual prepayment equal to 25% of our annual
consolidated excess cash flow, as determined in the agreement.
Prepayments under each of these circumstances would, in most
cases, first be applied to the term loan facility.

We incurred approximately $8.7 million in
transaction and professional fees associated with the completion
of the Bank Facilities deal. These costs were capitalized and
are being amortized over the five year term of the Bank
Facilities. The Bank Facilities require us to maintain certain
consolidated fixed charged coverage, interest coverage and
leverage ratios; comply with maximum annual capital expenditure
limits and comply with other customary affirmative and negative
covenants. There are also several fees including an unused
commitment fee of 0.5%, a letter of credit fee equal to the
Applicable LIBOR Margin and a fronting fee of 0.125% on all
outstanding letters of credit.

Certain of our existing and future domestic
restricted subsidiaries guarantee the New Notes, jointly and
severally, on a senior basis. The New Notes are secured by a
first-priority lien on and security interest in substantially
all our domestic real property, plant and equipment (referred to
as Notes Collateral). The New Notes are also secured by a
second-priority lien on and security interests in the Bank
Collateral which consists of existing and future domestic
subsidiaries and 65% of the capital stock of, or other equity
interest in, existing and future first-tier foreign subsidiaries
and substantially all of the other assets (other

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 6  Long-term Debt
(Continued)


than the assets that constitute Notes
Collateral), in each case that are held by Jacuzzi Brands, Inc.
or any of our subsidiary guarantors. Obligations under the Bank
Facilities are secured by a first priority lien on the Bank
Collateral and a second priority lien on the Notes Collateral.

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

|           |  |   |       | 
|---------- |  | - | ----- | 
|2004       |  | $ | 25.2  | 
|2005       |  |   | 2.2   | 
|2006       |  |   | 11.5  | 
|2007       |  |   | 11.7  | 
|2008       |  |   | 46.0  | 
|Thereafter |  |   | 380.0 | 
|           |  |   |       | 
|           |  | $ | 476.6 | 
|           |  |   |       | 



| |                                          
| | -----------------------------------------
| | Debt Structure Prior to July 15,
    2003

In October 1998, Jacuzzi Brands, Inc. (then known
as U.S. Industries, Inc.) and USI American Holdings, Inc.
(USIAH), issued $250.0 million aggregate
principal amount of senior notes due October 15, 2003,
which bore interest at 7.125%, payable semiannually
(7.125% Notes). The net cash proceeds were
$247.7 million after transaction fees and discounts. On
September 9, 2002, we commenced an Exchange Offer to
exchange cash and notes with an interest rate of 11.25% payable
December 31, 2005 (11.25% Notes) for all
outstanding 7.125% Notes.

On November 4, 2002, we announced that we
had accepted for payment all 7.125% Notes validly tendered in
the exchange offer. Approximately $238.2 million or 95% of
the 7.125% Notes were tendered for exchange. All Note holders
who tendered their 7.125% Notes received an amount of cash and
principal amount of 11.25% Notes that together equaled the
principal amount of the 7.125% Notes tendered. The transaction
resulted in the payment of $104.8 million in cash and the
issuance of $133.4 million of 11.25% Notes, leaving a gross
balance of $11.8 million payable to the 7.125% Note holders
who did not tender their Notes for exchange.

A consent payment of $15 per $1,000 principal
amount of the 11.25% Notes issued was paid out of our general
working capital to all holders who delivered their consents,
resulting in an additional payment to tendering note holders of
approximately $2.0 million.

In 1997, USIAH issued $125.0 million
aggregate principal amount of senior notes due December 1,
2006, which bore interest at 7.25%, payable semiannually
(7.25% Notes). The net cash proceeds were
$123.0 million after transaction fees and discounts. On
October 24, 2002, we offered to redeem a portion of each
outstanding 7.25% Note up to an aggregate principal amount of
$54.8 million. Virtually all of the 7.25% Notes were
tendered and accepted for redemption. The transaction resulted
in $54.8 million paid to the Note holders from the 7.25%
Notes restricted cash collateral account. The restricted cash
collateral account was set up when we restructured our debt on
August 15, 2001 and funded through asset sales (see further
details below).

The 7.25% Notes, 7.125% Notes and 11.25% Notes
(collectively, the Old Notes) were guaranteed by USI
Atlantic. The Old Notes were redeemed on August 14, 2003,
soon after the completion of our debt refinancing on
July 15, 2003. In connection with the redemption of the Old
Notes, we paid a redemption premium of $14.2 million.

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 6  Long-term Debt
(Continued)

During 2001, we had a $300 million 364-day
credit facility (the Credit Facility) scheduled to
expire on October 26, 2001. We also had a five-year
revolving line of credit, which had original availability of
$500 million (the Credit Agreement), scheduled
to terminate on December 12, 2001. The Credit Facility and
Credit Agreement (together, the Revolving
Facilities) were restructured on August 15, 2001. We
completed the re-acquisition of Rexair and restructured the
Rexair Credit Facilities on the same date. The amended
facilities (including the Rexair Credit Facility, the
Restructured Facilities) extended the final maturity
date of our debt under the Revolving Facilities to
November 30, 2002. On October 21, 2002, we announced
that we had obtained an amendment to our Restructured
Facilities, providing for an extension of the maturity date to
October 2004.

Under the Restructured Facilities, substantially
all proceeds from the sale of assets were required to be applied
to reduce our funded and unfunded senior debt, including, in
certain circumstances, the Old Notes. Proceeds allocable to the
Old Notes and other defined obligations were required to be
deposited in restricted cash collateral accounts for the benefit
of the relevant holders.



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

Below is a summary of our standby letters of
credit, bankers acceptances and commercial letters of
credit as of September 30, 2003. All but $2.3 million
of these commitments reduced our availability for borrowings
under our Bank Facilities (in millions).

|                             |       |   |      |      | 
|---------------------------- | ----- | - | ---- | ---- | 
|Standby letters of credit    |       | $ | 48.5 |     
|Bankers acceptances         |       |   | 2.3  |     
|Commercial letters of credit |       |   | 0.6  |     
|                             |       |   |      |     
|                             | Total |   | $    | 51.4 | 
|                             |       |   |      |     

At September 30, 2003, we had approximately
$154.1 million committed under the asset-based facility, of
which we had utilized approximately $73.0 million
(including $49.1 million of letters of credit), leaving
$81.1 million available for additional borrowings.

Note 7  Pension and Retirement
Plans



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

We sponsor a number of non-contributory defined
benefit pension plans covering the majority of our U.S.
employees. The benefits under these plans are based primarily on
years of credited service and/or compensation as defined under
the respective plan provisions. Our 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 we may
determine to be appropriate from time to time.

We also sponsor a number of defined contribution
plans. Contributions relating to defined contribution plans are
made based upon the respective plans provisions.

Additionally, we provide health care and life
insurance benefits to certain groups of retirees with most
retirees contributing a portion of our costs. These other
post-employment benefit plans are presented as Other
Plans in the tables that follow.

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 7  Pension and Retirement
Plans (Continued)


The assumptions used for the calculation of net
periodic (income) expense of our defined benefit plans covering
employees in the U.S. are presented below:

|             |                                   |                      |  |                      |   |      |  |      |   |      |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|------------ | --------------------------------- | -------------------- |  | -------------------- | - | ---- |  | ---- | - | ---- |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|             |                                   |                      |  |                     
|             |                                   | Pension Plans        |  | Other Plans         
|             |                                   | for the Fiscal Years |  | for the Fiscal Years
|             |                                   | Ended September 30,  |  | Ended September 30, 
|             |                                   |                      |  |                     
|             |                                   | 2003                 |  | 2002                 |   | 2001 |  | 2003 |   | 2002 |  | 2001
|             |                                   |                      |  |                      |   |      |  |      |   |      |  |     
|Assumptions: |                                   |                      |  |                      |   |      |  |      |   |      |  |      |   |  |  |      |   |  |  |      |   |  |  |     
|             | Discount rate                     |                      |  | 6.00                 | % |      |  | 6.75 | % |      |  | 7.50 | % |  |  | 6.00 | % |  |  | 6.75 | % |  |  | 7.50 | %
|             | Rate of compensation increases    |                      |  | 3.25                 | % |      |  | 3.25 | % |      |  | 4.50 | % |  |  |     |   |  |  |     |   |  |  |     |  
|             | Expected rate of return on assets |                      |  | 8.75                 | % |      |  | 8.75 | % |      |  | 9.50 | % |  |  |     |   |  |  |     |   |  |  |     |  

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

|                                              |                                                                 |                               |       |                      |      |      |       |       |       |      |       |       |       |   |     |     |     |   |      |     |     |   |      |     |     | 
|--------------------------------------------- | --------------------------------------------------------------- | ----------------------------- | ----- | -------------------- | ---- | ---- | ----- | ----- | ----- | ---- | ----- | ----- | ----- | - | --- | --- | --- | - | ---- | --- | --- | - | ---- | --- | --- | 
|                                              |                                                                 |                               |       |                     
|                                              |                                                                 | Pension Plans                 |       | Other Plans         
|                                              |                                                                 | for the Fiscal Years          |       | for the Fiscal Years
|                                              |                                                                 | Ended September 30,           |       | Ended September 30, 
|                                              |                                                                 |                               |       |                     
|                                              |                                                                 | 2003                          |       | 2002                 |      | 2001 |       | 2003  |       | 2002 |       | 2001 
|                                              |                                                                 |                               |       |                      |      |      |       |       |       |      |       |      
|                                              |                                                                 |                              
|                                              |                                                                 | (in millions)                
|Service cost                                  |                                                                 | $                             | 6.7   |                      |      | $    | 8.5   |       |       | $    | 9.4   |       |       | $ | 0.7 |     |     | $ | 0.3  |     |     | $ | 0.3  |    
|Interest cost                                 |                                                                 |                               | 17.6  |                      |      |      | 19.1  |       |       |      | 20.4  |       |       |   | 3.4 |     |     |   | 2.5  |     |     |   | 2.3  |    
|Expected return on plan assets                |                                                                 |                               | (32.3 | )                    |      |      | (40.8 | )     |       |      | (46.4 | )     |       |   |    |     |     |   |     |     |     |   |     |    
|Prior service cost                            |                                                                 |                               | 0.6   |                      |      |      | 1.0   |       |       |      | 1.5   |       |       |   |    |     |     |   | (0.1 | )   |     |   |     |    
|Amortization of unrecognized transition asset |                                                                 |                               |      |                      |      |      |      |       |       |      | (0.1  | )     |       |   |    |     |     |   |     |     |     |   |     |    
|Net actuarial loss (gain)                     |                                                                 |                               | 0.1   |                      |      |      | (1.9  | )     |       |      | (4.6  | )     |       |   | 0.6 |     |     |   | (1.3 | )   |     |   | (1.9 | )  
|Curtailments/settlements                      |                                                                 |                               | 2.9   |                      |      |      | 58.3  |       |       |      |      |       |       |   | 0.4 |     |     |   |     |     |     |   |     |    
|                                              |                                                                 |                               |       |                      |      |      |       |       |       |      |       |       |       |   |     |     |     |   |      |     |     |   |      |    
|                                              | Periodic (income) expense of defined benefit
    plans          |                               |       | (4.4                 | )    |      |       | 44.2  |       |      |       | (19.8 | )     |   |     | 5.1 |     |   |      | 1.4 |     |   |      | 0.7 |    
|                                              | Net reclassification adjustment for discontinued
    operations |                               |       | 0.1                  |      |      |       | (56.0 | )     |      |       | 7.4   |       |   |     |    |     |   |      |    |     |   |      |    |    
|                                              |                                                                 |                               |       |                      |      |      |       |       |       |      |       |       |       |   |     |     |     |   |      |     |     |   |      |    
|Net periodic (income) expense:                |                                                                 |                               |       |                      |      |      |       |       |       |      |       |       |       |   |     |     |     |   |      |     |     |   |      |    
|                                              | Defined benefit plans                                           |                               |       | (4.3                 | )    |      |       | (11.8 | )     |      |       | (12.4 | )     |   |     | 5.1 |     |   |      | 1.4 |     |   |      | 0.7 |    
|                                              | Defined contribution plans                                      |                               |       | 1.4                  |      |      |       | 0.9   |       |      |       | 1.0   |       |   |     |    |     |   |      |    |     |   |      |    |    
|                                              |                                                                 |                               |       |                      |      |      |       |       |       |      |       |       |       |   |     |     |     |   |      |     |     |   |      |    
|                                              |                                                                 | Net periodic (income) expense |       | $                    | (2.9 | )    |       | $     | (10.9 | )    |       | $     | (11.4 | ) |     | $   | 5.1 |   |      | $   | 1.4 |   |      | $   | 0.7 | 
|                                              |                                                                 |                               |       |                      |      |      |       |       |       |      |       |       |       |   |     |     |     |   |      |     |     |   |      |    

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JACUZZI BRANDS, 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, fair value of plan
assets and the funded status of our defined benefit pension and
other post-employment benefit plans to the amounts recorded in
our balance sheets at September 30:

|                                            |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |       |       |  
|------------------------------------------- | --------------------------------------------------------------------- | ---------------------------------------- | - | ---------------- | ----- | ---- | - | ------ | ----- |  | - | ----- | ----- | - | - | ----- | ----- | -
|                                            |                                                                       |                                          |   |                 
|                                            |                                                                       | Pension Plans                            |   | Other Plans     
|                                            |                                                                       | at September 30,                         |   | at September 30,
|                                            |                                                                       |                                          |   |                 
|                                            |                                                                       | 2003                                     |   | 2002             |       | 2003 |   | 2002  
|                                            |                                                                       |                                          |   |                  |       |      |   |       
|                                            |                                                                       |                                         
|                                            |                                                                       | (in millions)                           
|Change in projected benefit
    obligation: |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|                                            | Benefit obligation at beginning of year                               |                                          | $ | 267.2            |       |      | $ | 308.4  |       |  | $ | 45.3  |       |   | $ | 34.7  |      
|                                            | Service cost                                                          |                                          |   | 6.7              |       |      |   | 8.5    |       |  |   | 0.7   |       |   |   | 0.3   |      
|                                            | Interest cost                                                         |                                          |   | 17.6             |       |      |   | 19.1   |       |  |   | 3.4   |       |   |   | 2.5   |      
|                                            | Plan amendments                                                       |                                          |   | 0.7              |       |      |   | 5.3    |       |  |   | (4.3  | )     |   |   |      |      
|                                            | Actuarial losses                                                      |                                          |   | 29.5             |       |      |   | 22.8   |       |  |   | 28.3  |       |   |   | 12.5  |      
|                                            | Benefits paid                                                         |                                          |   | (15.8            | )     |      |   | (18.4  | )     |  |   | (4.8  | )     |   |   | (4.7  | )    
|                                            | Curtailments                                                          |                                          |   | 1.1              |       |      |   |       |       |  |   | (2.1  | )     |   |   |      |      
|                                            | Divestitures                                                          |                                          |   |                 |       |      |   | (78.5  | )     |  |   |      |       |   |   |      |      
|                                            |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|                                            |                                                                       | Benefit obligation at end of year        |   | $                | 307.0 |      |   | $      | 267.2 |  |   | $     | 66.5  |   |   | $     | 45.3  |  
|                                            |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|Change in fair value of plan assets:        |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|                                            | Fair value of plan assets at beginning of year                        |                                          | $ | 299.9            |       |      | $ | 454.5  |       |  | $ |      |       |   | $ |      |      
|                                            | Actual return on plan assets                                          |                                          |   | 57.1             |       |      |   | (18.8  | )     |  |   |      |       |   |   |      |      
|                                            | Contributions                                                         |                                          |   | 1.3              |       |      |   | 2.0    |       |  |   | 4.8   |       |   |   | 4.7   |      
|                                            | Benefits paid                                                         |                                          |   | (15.8            | )     |      |   | (18.4  | )     |  |   | (4.8  | )     |   |   | (4.7  | )    
|                                            | Divestitures                                                          |                                          |   |                 |       |      |   | (119.4 | )     |  |   |      |       |   |   |      |      
|                                            |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|                                            |                                                                       | Fair value of plan assets at end of year |   | $                | 342.5 |      |   | $      | 299.9 |  |   | $     |      |   |   | $     |      |  
|                                            |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|Funded status of plans:                     |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|                                            | Plan assets in excess of (less than) projected
    benefit obligation |                                          | $ | 35.5             |       |      | $ | 32.7   |       |  | $ | (66.5 | )     |   | $ | (45.3 | )    
|                                            | Unrecognized net actuarial losses                                     |                                          |   | 91.1             |       |      |   | 87.7   |       |  |   | 29.4  |       |   |   | 3.7   |      
|                                            | Unrecognized prior service (income) cost                              |                                          |   | 4.9              |       |      |   | 5.4    |       |  |   | (4.9  | )     |   |   | (0.1  | )    
|                                            |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|                                            |                                                                       | Total recognized                         |   | $                | 131.5 |      |   | $      | 125.8 |  |   | $     | (42.0 | ) |   | $     | (41.7 | )
|                                            |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|Amounts recorded in the balance
    sheets: |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|                                            | Prepaid benefits                                                      |                                          | $ | 146.4            |       |      | $ | 139.1  |       |  | $ |      |       |   | $ |      |      
|                                            | Accrued benefits                                                      |                                          |   | (24.4            | )     |      |   | (19.7  | )     |  |   | (42.0 | )     |   |   | (41.7 | )    
|                                            | Intangible assets                                                     |                                          |   | 1.9              |       |      |   | 1.2    |       |  |   |      |       |   |   |      |      
|                                            | Accumulated other comprehensive income                                |                                          |   | 7.6              |       |      |   | 5.2    |       |  |   |      |       |   |   |      |      
|                                            |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|                                            |                                                                       | Total recognized                         |   |                  | 131.5 |      |   |        | 125.8 |  |   |       | (42.0 | ) |   |       | (41.7 | )
|                                            | Net reclassification adjustment for discontinued
    operations       |                                          |   |                 |       |      |   | (4.3   | )     |  |   |      |       |   |   |      |      
|                                            |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      
|                                            |                                                                       | Total recorded                           |   | $                | 131.5 |      |   | $      | 121.5 |  |   | $     | (42.0 | ) |   | $     | (41.7 | )
|                                            |                                                                       |                                          |   |                  |       |      |   |        |       |  |   |       |       |   |   |      

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 7  Pension and Retirement
Plans (Continued)


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
$39.8 million and $12.3 million, respectively, in 2003
and $33.3 million and $10.3 million, respectively, in
2002.

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
$36.6 million and $12.3 million, respectively, in 2003
and $29.8 million and $10.3 million, respectively, in
2002.

The assets for our domestic plans are included in
a master trust which principally invests in listed stocks and
bonds, including our common stock. At both September 30,
2003 and 2002, 1,333,100 shares of our common stock,
representing $8.3 million of the master trusts assets
as of September 30, 2003, were included in plan assets.

The weighted average annual assumed rate of
increase in the per capita cost of covered benefits (i.e., the
health care cost trend rate) for the other post-employment
benefit plans was 7.5% for 2003. The rate used as of
September 30, 2003 was 10% and is assumed to decrease 0.5%
a year to 5.0%. A one-percentage-point change in the assumed
health care cost trend rate would have had the following effects
as of and for the year ended September 30, 2003 (in
millions):

|                                                                   |                                                |                     |   |      |  
|------------------------------------------------------------------ | ---------------------------------------------- | ------------------- | - | ---- | -
|                                                                   |                                                | Increase (Decrease)
|                                                                   |                                                | Costs/Obligations  
|                                                                   |                                                |                    
|Effect of a 1% increase in the health care cost
    trend rate on: |                                                |                     |   |     
|                                                                   | Service cost plus interest cost                |                     | $ | 0.3  |  
|                                                                   | Accumulated post-employment benefit obligation |                     |   | 4.5  |  
|Effect of a 1% decrease in the health care cost
    trend rate on: |                                                |                     |   |     
|                                                                   | Service cost plus interest cost                |                     | $ | (0.3 | )
|                                                                   | Accumulated post-employment benefit obligation |                     |   | (4.1 | )

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



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

Our foreign defined benefit pension plan covers
the salaried employees of Spring Ram. The assumptions used for
the calculation of net periodic (income) expense of our defined
benefit plan covering those employees are presented below:

|             |                                   |                      |  |      |   |      |  |      |   |  |  |      |  
|------------ | --------------------------------- | -------------------- |  | ---- | - | ---- |  | ---- | - |  |  | ---- | -
|             |                                   |                     
|             |                                   | For the Fiscal Years
|             |                                   | Ended September 30, 
|             |                                   |                     
|             |                                   | 2003                 |  | 2002 |   | 2001
|             |                                   |                      |  |      |   |     
|Assumptions: |                                   |                      |  |      |   |      |  |      |   |  |  |     
|             | Discount rate                     |                      |  | 5.75 | % |      |  | 5.75 | % |  |  | 6.25 | %
|             | Rate of compensation increases    |                      |  | 3.25 | % |      |  | 3.00 | % |  |  | 3.25 | %
|             | Expected rate of return on assets |                      |  | 7.50 | % |      |  | 7.50 | % |  |  | 7.50 | %

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 7  Pension and Retirement
Plans (Continued)


The components of net periodic expense
(income) for our foreign defined benefit plan are presented
below:

|                                             |                                |                              |   |      |     |      |   |      |   |  |   |      |      |  
|-------------------------------------------- | ------------------------------ | ---------------------------- | - | ---- | --- | ---- | - | ---- | - |  | - | ---- | ---- | -
|                                             |                                |                             
|                                             |                                | For the Fiscal Years        
|                                             |                                | Ended September 30,         
|                                             |                                |                             
|                                             |                                | 2003                         |   | 2002 |     | 2001
|                                             |                                |                              |   |      |     |     
|                                             |                                |                             
|                                             |                                | (in millions)               
|Components of net periodic expense (income): |                                |                              |   |      |     |      |   |      |   |  |   |     
|                                             | Service cost                   |                              | $ | 1.1  |     |      | $ | 0.8  |   |  | $ | 0.5  |     
|                                             | Interest cost                  |                              |   | 2.5  |     |      |   | 2.5  |   |  |   | 2.1  |     
|                                             | Expected return on plan assets |                              |   | (3.4 | )   |      |   | (3.4 | ) |  |   | (3.5 | )   
|                                             | Net actuarial loss             |                              |   |     |     |      |   | 0.1  |   |  |   |     |     
|                                             |                                |                              |   |      |     |      |   |      |   |  |   |     
|                                             |                                | Net periodic expense (income |   | $    | 0.2 |      |   | $    |  |  |   | $    | (0.9 | )
|                                             |                                |                              |   |      |     |      |   |      |   |  |   |     

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JACUZZI BRANDS, 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, the fair value of
plan assets and the funded status of our foreign defined benefit
pension plan with the amounts recognized on our balance sheets
as of September 30:

|                                            |                                                    |                                          |   |       |      |  |   |       |      | 
|------------------------------------------- | -------------------------------------------------- | ---------------------------------------- | - | ----- | ---- |  | - | ----- | ---- | 
|                                            |                                                    |                                         
|                                            |                                                    | At September 30,                        
|                                            |                                                    |                                         
|                                            |                                                    | 2003                                     |   | 2002 
|                                            |                                                    |                                          |   |      
|                                            |                                                    |                                         
|                                            |                                                    | (in millions)                           
|Change in projected benefit
    obligation: |                                                    |                                          |   |       |      |  |   |      
|                                            | Benefit obligation at beginning of year            |                                          | $ | 42.5  |      |  | $ | 38.6  |     
|                                            | Service cost                                       |                                          |   | 1.1   |      |  |   | 0.8   |     
|                                            | Interest cost                                      |                                          |   | 2.5   |      |  |   | 2.5   |     
|                                            | Employee contributions                             |                                          |   | 0.4   |      |  |   | 0.4   |     
|                                            | Foreign currency exchange rate changes             |                                          |   | 2.9   |      |  |   | 2.3   |     
|                                            | Actuarial losses (gains)                           |                                          |   | 2.6   |      |  |   | (1.2  | )   
|                                            | Benefits paid                                      |                                          |   | (1.4  | )    |  |   | (0.9  | )   
|                                            |                                                    |                                          |   |       |      |  |   |      
|                                            |                                                    | Benefit obligation at end of year        |   | $     | 50.6 |  |   | $     | 42.5 | 
|                                            |                                                    |                                          |   |       |      |  |   |      
|Change in fair value of plan assets:        |                                                    |                                          |   |       |      |  |   |      
|                                            | Fair value of plan assets at beginning of year     |                                          | $ | 28.0  |      |  | $ | 38.4  |     
|                                            | Actual return on plan assets                       |                                          |   | 4.3   |      |  |   | (12.7 | )   
|                                            | Foreign currency exchange rate changes             |                                          |   | 1.9   |      |  |   | 2.2   |     
|                                            | Employer contributions                             |                                          |   | 1.6   |      |  |   | 0.6   |     
|                                            | Employee contributions                             |                                          |   | 0.4   |      |  |   | 0.4   |     
|                                            | Benefits paid                                      |                                          |   | (1.4  | )    |  |   | (0.9  | )   
|                                            |                                                    |                                          |   |       |      |  |   |      
|                                            |                                                    | Fair value of plan assets at end of year |   | $     | 34.8 |  |   | $     | 28.0 | 
|                                            |                                                    |                                          |   |       |      |  |   |      
|Funded status of plans:                     |                                                    |                                          |   |       |      |  |   |      
|                                            | Plan assets less than projected benefit obligation |                                          | $ | (15.8 | )    |  | $ | (14.5 | )   
|                                            | Unrecognized net actuarial losses                  |                                          |   | 24.3  |      |  |   | 21.1  |     
|                                            |                                                    |                                          |   |       |      |  |   |      
|                                            |                                                    | Total recognized                         |   | $     | 8.5  |  |   | $     | 6.6  | 
|                                            |                                                    |                                          |   |       |      |  |   |      
|Amounts recorded in the balance
    sheets: |                                                    |                                          |   |       |      |  |   |      
|                                            | Accrued benefits                                   |                                          | $ | (12.5 | )    |  | $ | (10.0 | )   
|                                            | Accumulated other comprehensive income             |                                          |   | 21.0  |      |  |   | 16.6  |     
|                                            |                                                    |                                          |   |       |      |  |   |      
|                                            |                                                    | Total recorded                           |   | $     | 8.5  |  |   | $     | 6.6  | 
|                                            |                                                    |                                          |   |       |      |  |   |      

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 8  Income
Taxes

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

|              |  |                            |       |      |  |      |       |   |  |   |        |  
|------------- |  | -------------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ------ | -
|              |  |                           
|              |  | For the Fiscal Years Ended
|              |  | September 30,             
|              |  |                           
|              |  | 2003                       |       | 2002 |  | 2001
|              |  |                            |       |      |  |     
|              |  |                           
|              |  | (in millions)             
|United States |  | $                          | (17.8 | )    |  | $    | (15.1 | ) |  | $ | (126.3 | )
|Foreign       |  |                            | 13.9  |      |  |      | 23.9  |   |  |   | (46.8  | )
|              |  |                            |       |      |  |      |       |   |  |   |        |  
|              |  | $                          | (3.9  | )    |  | $    | 8.8   |   |  | $ | (173.1 | )
|              |  |                            |       |      |  |      |       |   |  |   |        |  

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

|         |         |                            |       |       |   |      |       |     |  |   |      |       |  
|-------- | ------- | -------------------------- | ----- | ----- | - | ---- | ----- | --- |  | - | ---- | ----- | -
|         |         |                           
|         |         | For the Fiscal Years Ended
|         |         | September 30,             
|         |         |                           
|         |         | 2003                       |       | 2002  |   | 2001
|         |         |                            |       |       |   |     
|         |         |                           
|         |         | (in millions)             
|Current: |         |                            |       |       |   |      |       |     |  |   |      |      
|         | Federal |                            | $     | (14.3 | ) |      | $     |    |  |   | $    | (11.8 | )
|         | State   |                            |       | 1.7   |   |      |       | 3.2 |  |   |      | 3.5   |  
|         | Foreign |                            |       | 7.3   |   |      |       | 8.5 |  |   |      | 3.6   |  
|Deferred |         |                            | (8.7  | )     |   |      | (34.8 | )   |  |   | (2.7 | )    
|         |         |                            |       |       |   |      |       |     |  |   |      |      
|         |         | $                          | (14.0 | )     |   | $    | (23.1 | )   |  | $ | (7.4 | )    
|         |         |                            |       |       |   |      |       |     |  |   |      |      

We are able to carry back net operating losses in
2002 for which we had previously established a valuation
allowance in 2001 as a result of a change in tax law under the
Job Creation and Workers Assistance Act of 2002. We had
established the valuation allowance in 2001 to reflect the
uncertainty of the future realization of losses recognized in
connection with the 2001 Disposal Plan (see Note 4).

In August 2001, we recorded a deferred tax
liability of $24.7 million for purchased intangibles,
increasing the excess purchase price, and thus goodwill, by the
same amount. The deferred tax liability is being reversed and a
deferred tax benefit is being recognized over the amortization
period of the intangible assets.

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 8  Income Taxes
(Continued)


The components of deferred income tax assets and
liabilities consisted of the following:

|                          |                                                                       |                                |   |       |       |   |   |       |       |  
|------------------------- | --------------------------------------------------------------------- | ------------------------------ | - | ----- | ----- | - | - | ----- | ----- | -
|                          |                                                                       |                               
|                          |                                                                       | At September 30,              
|                          |                                                                       |                               
|                          |                                                                       | 2003                           |   | 2002 
|                          |                                                                       |                                |   |      
|                          |                                                                       |                               
|                          |                                                                       | (in millions)                 
|Deferred tax assets:      |                                                                       |                                |   |       |       |   |   |      
|                          | Accruals and allowances                                               |                                | $ | 36.3  |       |   | $ | 52.4  |      
|                          | Post-employment benefits                                              |                                |   | 8.2   |       |   |   | 7.9   |      
|                          | Foreign tax credits                                                   |                                |   | 11.4  |       |   |   | 8.2   |      
|                          | Expected benefit from Disposal Plans &
    capital loss carryforwards |                                |   | 70.1  |       |   |   | 42.8  |      
|                          |                                                                       |                                |   |       |       |   |   |      
|                          |                                                                       | Gross deferred tax assets      |   |       | 126.0 |   |   |       | 111.3 |  
|                          | Valuation allowance                                                   |                                |   | (79.8 | )     |   |   | (65.9 | )    
|                          |                                                                       |                                |   |       |       |   |   |      
|                          |                                                                       | Total deferred tax assets      |   |       | 46.2  |   |   |       | 45.4  |  
|                          |                                                                       |                                |   |       |       |   |   |      
|Deferred tax liabilities: |                                                                       |                                |   |       |       |   |   |      
|                          | Property, plant and equipment                                         |                                |   | 5.9   |       |   |   | 10.6  |      
|                          | Inventory                                                             |                                |   | 2.8   |       |   |   | 3.5   |      
|                          | Net pension assets                                                    |                                |   | 12.2  |       |   |   | 13.4  |      
|                          | Deductible goodwill                                                   |                                |   | 3.2   |       |   |   | 2.9   |      
|                          | Purchased intangibles                                                 |                                |   | 24.2  |       |   |   | 24.2  |      
|                          | Mark-to-market investments                                            |                                |   | 8.2   |       |   |   |      |      
|                          | Other                                                                 |                                |   | 0.4   |       |   |   | 1.4   |      
|                          |                                                                       |                                |   |       |       |   |   |      
|                          |                                                                       | Total deferred tax liabilities |   |       | 56.9  |   |   |       | 56.0  |  
|                          |                                                                       |                                |   |       |       |   |   |      
|                          |                                                                       | Net deferred tax liability     |   | $     | (10.7 | ) |   | $     | (10.6 | )
|                          |                                                                       |                                |   |       |       |   |   |      

We have established a valuation allowance
principally related to deferred tax assets resulting from the
losses recognized in connection with the 2001 Disposal Plan,
reflecting the uncertainty of the future realization of these
assets.

During the first quarter 2003, the IRS completed
its examination of our federal income tax returns for 1995
through 1997. As a result of the audit settlement, a tax benefit
of $13.6 million was recorded. The IRS did not include an
interest calculation on the refund of taxes. Any interest income
will therefore be recorded at the time the amount is determined
by the IRS. In early November 2003, the IRS informed us that it
was ready to begin its audit of our returns for years after
1997. In addition, one of our subsidiaries is also under audit
by the IRS for 1997 and 1998, a period prior to our acquisition
of that subsidiary.

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

Subsequent to year-end, a law was passed in Italy
eliminating certain refunds of previously paid tax that would
have been available when our Italian subsidiary declared a
dividend. Under SFAS No. 109, this $3 million dollar
charge with an anticipated corresponding foreign tax credit will
be included in income in our fiscal year ending in September
2004.

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 8  Income Taxes
(Continued)


At September 30, 2003, we had approximately
$200.2 million in capital loss carryforwards for which we
have established a valuation allowance. These capital losses
expire in 2005 and 2007. We also have foreign tax credit
carryforwards of $11.4 million, a substantial portion of
which will expire in 2006.

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

|                        |                             |                  |       |       |   |   |       |       |  
|----------------------- | --------------------------- | ---------------- | ----- | ----- | - | - | ----- | ----- | -
|                        |                             |                 
|                        |                             | At September 30,
|                        |                             |                 
|                        |                             | 2003             |       | 2002 
|                        |                             |                  |       |      
|                        |                             |                 
|                        |                             | (in millions)   
|Current assets          |                             | $                | 18.3  |       |   | $ | 34.4  |      
|Current liabilities     |                             |                  | (2.8  | )     |   |   | (3.4  | )    
|                        |                             |                  |       |       |   |   |       |      
|                        | Net current assets          |                  |       | 15.5  |   |   |       | 31.0  |  
|                        |                             |                  |       |       |   |   |       |      
|Non-current assets      |                             |                  | 29.4  |       |   |   | 11.0  |      
|Non-current liabilities |                             |                  | (55.6 | )     |   |   | (52.6 | )    
|                        |                             |                  |       |       |   |   |       |      
|                        | Net non-current liabilities |                  |       | (26.2 | ) |   |       | (41.6 | )
|                        |                             |                  |       |       |   |   |       |      
|                        | Net deferred tax liability  |                  | $     | (10.7 | ) |   | $     | (10.6 | )
|                        |                             |                  |       |       |   |   |       |      

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

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

|                                                                   |                           |                            |       |       |   |      |       |       |   |   |       |      |  
|------------------------------------------------------------------ | ------------------------- | -------------------------- | ----- | ----- | - | ---- | ----- | ----- | - | - | ----- | ---- | -
|                                                                   |                           |                           
|                                                                   |                           | For the Fiscal Years Ended
|                                                                   |                           | September 30,             
|                                                                   |                           |                           
|                                                                   |                           | 2003                       |       | 2002  |   | 2001
|                                                                   |                           |                            |       |       |   |     
|                                                                   |                           |                           
|                                                                   |                           | (in millions)             
|Federal tax (benefit) provision computed at
    the statutory rate |                           | $                          | (1.4  | )     |   | $    | 3.1   |       |   | $ | (60.6 | )   
|Foreign income tax differential                                    |                           |                            | 1.4   |       |   |      | 2.0   |       |   |   | 1.3   |     
|State income taxes (net of federal benefit)                        |                           |                            | 1.1   |       |   |      | 2.1   |       |   |   | 2.3   |     
|Non-deductible goodwill amortization                               |                           |                            |      |       |   |      |      |       |   |   | 2.7   |     
|Non-deductible goodwill impairment charges                         |                           |                            |      |       |   |      |      |       |   |   | 35.1  |     
|Resolution of tax contingencies                                    |                           |                            | (13.6 | )     |   |      |      |       |   |   |      |     
|Other non-deductible items                                         |                           |                            |      |       |   |      | (0.7  | )     |   |   | (3.3  | )   
|Valuation allowance                                                |                           |                            | (1.7  | )     |   |      | (29.6 | )     |   |   | 14.9  |     
|Other, net                                                         |                           |                            | 0.2   |       |   |      |      |       |   |   | 0.2   |     
|                                                                   |                           |                            |       |       |   |      |       |       |   |   |       |     
|                                                                   | Benefit from income taxes |                            | $     | (14.0 | ) |      | $     | (23.1 | ) |   | $     | (7.4 | )
|                                                                   |                           |                            |       |       |   |      |       |       |   |   |       |     

Income taxes paid during 2003, 2002 and 2001 were
$18.0 million, $18.5 million and $22.9 million,
respectively.

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 9  Employee Benefit
Plans



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

We maintain stock incentive plans (the
Stock Plans) that provide for the grants of stock
options and restricted stock awards to our directors, officers
and key employees. As of September 30, 2003, there were
5,426,701 shares of common stock reserved for issuance to
directors, officers and key employees under our Stock Plans.
Under these Stock Plans, stock options must be granted at an
option price equal to the market value of the stock on the date
of the grant. Options granted under this plan become exercisable
over four years in equal annual installments after the date of
grant, provided that the individual is continuously employed by
our company. All options granted expire ten years from the date
of grant. We had authorization under the Stock Plan to grant
1,152,832 additional options at September 30, 2003.

We did not issue any shares of restricted stock
under our Stock Plans in fiscal 2003. Common stock issued in
prior years under the Stock Plans is restricted, with vesting
periods of seven years from the date of grant (either in
thirds  on the third year, fifth year and seventh
year  or solely at the end of the seventh year).
Although subject to certain restrictions and forfeiture
provisions, restricted stock is considered to be issued and
outstanding common stock of our company. Compensation expense is
recognized over the vesting period. Unamortized compensation
expense (unearned restricted stock) is included as a separate
component of stockholders equity. At September 30,
2003 and 2002, respectively, we had 236,499 and
237,665 shares of restricted stock outstanding.



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

We have two 401(k) retirement savings plans that
allow eligible employees to contribute up to 17% of their
salaries, commissions and bonuses, up to $12,000 annually, to
the plan on a pretax basis in accordance with the provisions of
Section 401(k) of the Internal Revenue Code. Matching
contributions of common stock or cash that are made into the
plan are equivalent to 50% of the first 6% of an employees
contributions. During 2003, $1.4 million was recognized as
compensation expense under these programs.



| |                                            
| | -------------------------------------------
| | Accounting for Stock-based
    Compensation

We apply Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for our stock-based
compensation plans. Thus, we use the intrinsic value method to
determine the compensation cost for our stock-based awards.

A summary of the status of and changes in our
stock option plans for the last three years is presented below:

|                           |         |           |           |           |  |           |       |          |  |           |            |           |  |  |       |       |  |  |           |           |  |  |       |       | 
|-------------------------- | ------- | --------- | --------- | --------- |  | --------- | ----- | -------- |  | --------- | ---------- | --------- |  |  | ----- | ----- |  |  | --------- | --------- |  |  | ----- | ----- | 
|                           |         |           |           |           |  |          
|                           |         | 2003      |           | 2002      |  | 2001     
|                           |         |           |           |           |  |          
|                           |         |           |           | Weighted  |  |           |       | Weighted |  |           |            | Weighted 
|                           |         |           |           | Average   |  |           |       | Average  |  |           |            | Average  
|                           |         | Number of |           | Exercise  |  | Number of |       | Exercise |  | Number of |            | Exercise 
|                           |         | Options   |           | Price     |  | Options   |       | Price    |  | Options   |            | Price    
|                           |         |           |           |           |  |           |       |          |  |           |            |          
|Outstanding at beginning   |         |           |           |           |  |           |       |          |  |           |            |           |  |  |       |       |  |  |           |           |  |  |       |      
|                           | of year |           |           | 5,202,796 |  |           | $     | 11.88    |  |           |            | 6,170,932 |  |  | $     | 13.57 |  |  |           | 6,812,418 |  |  | $     | 13.72 | 
|Granted                    |         |           | 849,250   |           |  |           | 3.39  |          |  |           | 731,500    |           |  |  | 3.73  |       |  |  | 240,000   |           |  |  | 8.04  |      
|Exercised                  |         |           | (875      | )         |  |           | 3.82  |          |  |           |           |           |  |  |      |       |  |  | (30,000   | )         |  |  | 9.42  |      
|Canceled/expired           |         |           | (860,969  | )         |  |           | 13.96 |          |  |           | (1,699,636 | )         |  |  | 14.52 |       |  |  | (851,486  | )         |  |  | 13.33 |      
|                           |         |           |           |           |  |           |       |          |  |           |            |           |  |  |       |       |  |  |           |           |  |  |       |      
|Outstanding at end of year |         |           | 5,190,202 |           |  |           | 9.97  |          |  |           | 5,202,796  |           |  |  | 11.88 |       |  |  | 6,170,932 |           |  |  | 13.57 |      
|                           |         |           |           |           |  |           |       |          |  |           |            |           |  |  |       |       |  |  |           |           |  |  |       |      
|Exercisable at end of year |         |           | 3,743,793 |           |  |           | 11.87 |          |  |           | 3,678,995  |           |  |  | 13.34 |       |  |  | 3,965,777 |           |  |  | 13.81 |      

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 9  Employee Benefit Plans
(Continued)


The following table summarizes the status of the
stock options outstanding and exercisable at September 30,
2003:

|                         |       |                     |           |                     |  |          |      |           |  |          |       |      |  |  |           |           |  |   |       |       | 
|------------------------ | ----- | ------------------- | --------- | ------------------- |  | -------- | ---- | --------- |  | -------- | ----- | ---- |  |  | --------- | --------- |  | - | ----- | ----- | 
|                         |       |                     |           |                    
|                         |       | Options Outstanding |           | Options Exercisable
|                         |       |                     |           |                    
|                         |       |                     |           | Weighted            |  |          |      |          
|                         |       |                     |           | Average             |  | Weighted |      |           |  | Weighted
|                         |       |                     |           | Remaining           |  | Average  |      |           |  | Average 
|                         |       | Number of           |           | Contractual         |  | Exercise |      | Number of |  | Exercise
|Range of Exercise Prices |       | Options             |           | Life (in years)     |  | Price    |      | Options   |  | Price   
|                         |       |                     |           |                     |  |          |      |           |  |         
|$2.20 to $5.49           |       |                     | 1,462,125 |                     |  |          | 8.4  |           |  | $        | 3.47  |      |  |  | 351,875   |           |  | $ | 3.48  |      
|$5.50 to $7.99           |       |                     | 47,500    |                     |  |          | 10.0 |           |  |          | 6.22  |      |  |  |          |           |  |   |      |      
|$8.00 to $13.19          |       |                     | 2,668,993 |                     |  |          | 3.7  |           |  |          | 10.87 |      |  |  | 2,380,334 |           |  |   | 10.87 |      
|$13.20 to $20.46         |       |                     | 861,645   |                     |  |          | 4.0  |           |  |          | 16.18 |      |  |  | 861,645   |           |  |   | 16.18 |      
|$20.47 to $28.88         |       |                     | 149,939   |                     |  |          | 2.7  |           |  |          | 22.76 |      |  |  | 149,939   |           |  |   | 22.76 |      
|                         |       |                     |           |                     |  |          |      |           |  |          |       |      |  |  |           |           |  |   |       |      
|                         | Total |                     |           | 5,190,202           |  |          |      | 5.1       |  |          |       | 9.97 |  |  |           | 3,743,793 |  |   |       | 11.87 | 
|                         |       |                     |           |                     |  |          |      |           |  |          |       |      |  |  |           |           |  |   |       |      

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



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | expected volatility rates of 66% for 2003, 58%
    for 2002, and 49% for 2001    
|
| |  | risk-free interest rates of 2.66% for 2003, 3.99%
    for 2002 and 4.88% for 2001
|
| |  | expected option lives of 4 years for all three
    years                         
|
| |  | expected dividend yield of 0% for 2003 and 2002
    and 2% for 2001              

The weighted average fair values of options
granted during 2003, 2002 and 2001 were $4.03, $1.80 and $2.94
per option, respectively.

Note 10  Capital Stock



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

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



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

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

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

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 10  Capital Stock
(Continued)


The Rights will expire on October 15, 2008
or 90 days following the date the Rights become exercisable,
whichever is earlier. The Board of Directors has agreed to
permit Southeastern Asset Management, Inc. and its managed funds
to purchase up to 19.9% of the outstanding voting securities
without causing the Rights to separate and become exercisable,
and we have entered into a standstill agreement with
Southeastern Asset Management containing limitations and
restrictions on the voting and transfer of shares of common
stock acquired in excess of 15%.



| |               
| | --------------
| | Treasury Stock

During October 1999, we entered into equity
instrument contracts to purchase 2.8 million shares of our
common stock. These contracts were settled during 2001 for
$43.1 million. During 1999 and 2000, our Board of Directors
authorized share repurchase programs aggregating $350 million.
Under these programs, we repurchased $331.8 million of our
common stock for treasury, of which $43.1 million was
purchased in 2001. The repurchase programs have been suspended
indefinitely.

Note 11  Commitments and
Contingencies



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

The table below shows our future minimum lease
payments due under non-cancelable leases as of
September 30, 2003. Certain of these leases contain stated
escalation clauses while others contain renewal options. These
minimum lease payments (presented in millions) do not include
facility leases that were accrued as restructuring costs (see
Note 5).

|           |                                                                                          |   |      |      | 
|---------- | ---------------------------------------------------------------------------------------- | - | ---- | ---- | 
|2004       |                                                                                          | $ | 8.5  |     
|2005       |                                                                                          |   | 7.5  |     
|2006       |                                                                                          |   | 6.1  |     
|2007       |                                                                                          |   | 4.7  |     
|2008       |                                                                                          |   | 3.0  |     
|Thereafter |                                                                                          |   | 12.8 |     
|           |                                                                                          |   |      |     
|           | Total (which has not been reduced by minimum
    sublease rental income of $1.8 million) |   | $    | 42.6 | 
|           |                                                                                          |   |      |     

Rent expense, including equipment rental, was
approximately $10.4 million, $11.0 million and
$13.4 million in 2003, 2002 and 2001, respectively.



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

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

Our subsidiaries have made capital and
maintenance expenditures over time to comply with these laws and
regulations. While the amount of expenditures in future years
will depend on legal and technological developments which cannot
be predicted at this time, these expenditures may progressively
increase if regulations become more stringent. In addition,
while future costs for compliance cannot be

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 11  Commitments and
Contingencies (Continued)


predicted with precision, no information
currently available reasonably suggests that these expenditures
will have a material adverse effect on our financial condition,
results of operations or cash flows.

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

As of September 30, 2003, we had accrued
approximately $8.5 million ($0.7 million accrued as
current liabilities and $7.8 million as non-current
liabilities), including $4.4 million for discontinued
operations, for environmental liabilities. These amounts have
not been discounted. We accrue an amount for each case when the
likelihood of an unfavorable outcome is probable and the amount
of loss associated with such unfavorable outcome is reasonably
estimable. We believe that the range of liability for these
matters could reach $14.9 million if it included cases
where the likelihood of an unfavorable outcome is only
reasonably possible. We cannot predict whether future
developments in laws and regulations concerning environmental
protection or unanticipated enforcement actions will require
material capital expenditures or otherwise affect our financial
condition, results of operations or cash flows in a materially
adverse manner, or whether our businesses will be successful in
meeting future demands of regulatory agencies in a manner which
will not have a material adverse effect on our financial
condition, results of operations or cash flows.



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

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

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

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

As of September 30, 2003, the number of
asbestos claims pending against Zurn was approximately 59,000.
These 59,000 claims were included in approximately 5,600
lawsuits, in which Zurn and an average of 100 other companies
are named as defendants, and in which cumulatively allege
damages of approximately $12 billion against all
defendants. Asbestos claims pending against Zurn as of

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 11  Commitments and
Contingencies (Continued)


September 30, 2002 and September 30,
2001 were approximately 65,000 and 52,000, respectively.
Asbestos claims filed against Zurn, and settled unfiled claims
treated as if filed, for the years ended September 30,
2003, 2002 and 2001 were approximately 32,400, 31,000 and
33,500, respectively.

Since Zurn received its first asbestos claim in
the 1980s, Zurn has settled, agreed to settle or otherwise
disposed of approximately 84,000 asbestos claims including
dismissals of approximately 6,400 of such claims through
September 30, 2003. During the fiscal year ended
September 30, 2003 and as of such date, settlements paid
and/or pending payment amounted to approximately
45,000 claims and approximately 3,000 claims were
dismissed and/ or pending dismissal. During the fiscal year
ended September 30, 2002 and as of such date, settlements
paid and/ or pending payment amounted to approximately
20,000 claims (including approximately 4,000 unfiled
claims) and approximately 3,000 claims were dismissed and/
or pending dismissal. Finally, during the fiscal year ended
September 30, 2001 and as of such date, settlements paid
and/ or pending payment amounted to approximately
17,000 claims and approximately 1,000 claims were
dismissed and/ or pending dismissal. Zurns insurers have
paid or have agreed to pay all settlement costs relating to
these claims. Defense costs are currently being paid by
Zurns insurers without eroding the coverage amounts of its
insurance policies, although a few policies that will be
accessed in the future may count defense costs toward aggregate
limits.

At September 30, 2003, Zurn and its
actuarial consultant estimated that its potential liability for
asbestos claims pending against it and for claims estimated to
be filed through 2013 is approximately $160 million. This
accrual comprises (i) approximately $8 million in
claims that had been settled but unpaid as of September 30,
2003; (ii) approximately $36 million in proposed
settlements of pending and future claims; and
(iii) approximately $116 million for other future
claims. At September 30, 2002, it was estimated that
Zurns potential liability for asbestos claims pending
against it and for claims estimated to be filed through 2012 was
approximately $145 million. This estimate was comprised of
(i) $10 million in claims that had been settled but
unpaid as of September 30, 2002; (ii) $58 million
in proposed settlements of pending and future claims; and
(iii) $77 million for other future claims. These
estimates are based on the current and anticipated number of
future asbestos claims, the timing and amounts of asbestos
payments, the status of ongoing litigation and the potential
impact of defense strategies and settlement initiatives.
However, there are inherent uncertainties involved in estimating
both the number of future asbestos claims as well as future
settlement costs, and the actual liability could exceed
Zurns estimate due to changes in law and other factors
beyond their control.

Zurns present estimate of its asbestos
liability assumes (i) its recent vigorous defense strategy
will enable it to reduce both its claim frequency and claim
severity in the future; (ii) approximately 178,000 other
future asbestos claims; and (iii) its insurers will
continue to pay defense costs without eroding the coverage
amounts of its insurance policies. While Zurn believes there is
evidence, in recent claims settlements, for such an impact of a
successful defense strategy, if the defense strategy ultimately
is not successful, to the extent assumed by Zurn, the severity
and frequency of asbestos claims could increase substantially
above Zurns estimates. Further, while Zurns current
asbestos liability is based on an estimate of claims through
2013, such liability may continue beyond 2013, and such
liability could be substantial.

Zurns analysis of its available insurance
to cover its potential asbestos liability as of
September 30, 2003 is approximately $314 million. This
total includes the remaining limits of $68 million in
insurance coverage under certain excess policies which were a
subject of a settlement of an action commenced by Zurn in the
U.S. District Court of the Western District of Pennsylvania
which sought, among other things, a declaration that the
insurance coverage limits of certain excess policies provided
$68 million in coverage. As part of the settlement, Zurn
agreed to pay its insurer $5.0 million over four years. The
first payment in

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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 11  Commitments and
Contingencies (Continued)


the sum of $1.25 million was paid in March
2003, and we have secured the balance of the obligation with a
letter of credit in the amount of $1.25 million.

Zurn believes, based on its experience in
defending and dismissing such claims and the approximately
$314 million of insurance coverage available, that it has
sufficient insurance to cover the pending and reasonably
estimable future claims. This conclusion was reached after
considering Zurns experience in asbestos litigation, the
insurance payments made to date by Zurns insurance
carriers, existing insurance policies, the industry ratings of
the insurers and the advice of insurance coverage counsel with
respect to applicable insurance coverage law relating to the
terms and conditions of those policies. However, there is no
assurance that this amount of insurance will ultimately be
available or that Zurns asbestos liabilities will not
ultimately exceed this amount. Factors that could cause a
decrease in the amount of available coverage include
insolvencies of one or more of Zurns carriers, changes in
law governing the policies and potential disputes with the
carriers on the scope of coverage. After review of the foregoing
with Zurn and its consultants, we believe that the resolution of
Zurns pending and reasonably estimable asbestos claims
will not have a material adverse effect on our financial
condition, results of operations or cash flows.

Note 12  Segment
Information

With the completion of our 2001 and 2003 Disposal
Plans, which eliminated the Lighting and Lawn & Garden
segments, we have largely completed our transformation into an
operating company. We redefined our business segments in 2003 to
reflect changes made to our management structure and the way we
evaluate our businesses. We currently operate as three business
segments, consisting of a Bath Products segment, a Plumbing
Products segment and a Rexair segment. Our Bath Products segment
manufactures whirlpool baths, spas, showers, sanitary ware,
including sinks and toilets, and bathtubs for the residential
construction and remodeling markets. Our Plumbing Products
segment manufactures professional grade drainage, water control,
commercial brass and PEX piping products for the commercial and
institutional construction, renovation and facilities
maintenance markets. Our Rexair segment manufactures premium
vacuum cleaner systems that are sold in the direct sales retail
channel. The Bath Products segment and Plumbing Products segment
were previously reported by management as the Bath &
Plumbing segment. Prior period results have been restated to
reflect these changes in our segments, as well as the
discontinuance of the businesses in the 2003 Disposal Plan.

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

87



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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 12  Segment Information
(Continued)


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

|                               |         |               |   |          |   |        |   |           |  |              |   |       |  |  |   |       |   |  |   |         |  
|------------------------------ | ------- | ------------- | - | -------- | - | ------ | - | --------- |  | ------------ | - | ----- |  |  | - | ----- | - |  | - | ------- | -
|                               |         | Bath          |   | Plumbing |   |        |   |           |  | Consolidated
|                               |         | Products      |   | Products |   | Rexair |   | Corporate |  | Total       
|                               |         |               |   |          |   |        |   |           |  |             
|                               |         |              
|                               |         | (in millions)
|Net Sales                      |         |               |   |          |   |        |   |           |  |              |   |       |  |  |   |       |   |  |   |        
|                               | 2003    |               | $ | 813.9    |   |        | $ | 276.6     |  |              | $ | 102.1 |  |  | $ |      |   |  | $ | 1,192.6 |  
|                               | 2002    |               |   | 711.9    |   |        |   | 257.8     |  |              |   | 98.6  |  |  |   |      |   |  |   | 1,068.3 |  
|                               | 2001(3) |               |   | 721.5    |   |        |   | 272.4     |  |              |   | 13.3  |  |  |   |      |   |  |   | 1,007.2 |  
|Operating Income
    (Loss)(1) |         |               |   |          |   |        |   |           |  |              |   |       |  |  |   |       |   |  |   |        
|                               | 2003    |               | $ | 7.4      |   |        | $ | 62.1      |  |              | $ | 26.6  |  |  | $ | (14.9 | ) |  | $ | 81.2    |  
|                               | 2002    |               |   | 26.7     |   |        |   | 51.3      |  |              |   | 27.4  |  |  |   | (11.0 | ) |  |   | 94.4    |  
|                               | 2001(3) |               |   | (75.7    | ) |        |   | 48.7      |  |              |   | 2.9   |  |  |   | (5.5  | ) |  |   | (29.6   | )
|Capital Expenditures           |         |               |   |          |   |        |   |           |  |              |   |       |  |  |   |       |   |  |   |        
|                               | 2003    |               | $ | 14.5     |   |        | $ | 1.7       |  |              | $ | 2.9   |  |  | $ | 0.1   |   |  | $ | 19.2    |  
|                               | 2002    |               |   | 11.6     |   |        |   | 2.1       |  |              |   | 1.3   |  |  |   |      |   |  |   | 15.0    |  
|                               | 2001    |               |   | 16.8     |   |        |   | 3.0       |  |              |   | 0.2   |  |  |   | 0.3   |   |  |   | 20.3    |  
|Depreciation and Amortization  |         |               |   |          |   |        |   |           |  |              |   |       |  |  |   |       |   |  |   |        
|                               | 2003    |               | $ | 14.5     |   |        | $ | 5.8       |  |              | $ | 3.5   |  |  | $ | 0.8   |   |  | $ | 24.6    |  
|                               | 2002    |               |   | 14.0     |   |        |   | 5.4       |  |              |   | 4.2   |  |  |   | 2.5   |   |  |   | 26.1    |  
|                               | 2001(3) |               |   | 20.4     |   |        |   | 12.0      |  |              |   | 0.5   |  |  |   | 3.1   |   |  |   | 36.0    |  
|Assets(2)                      |         |               |   |          |   |        |   |           |  |              |   |       |  |  |   |       |   |  |   |        
|                               | 2003    |               | $ | 612.5    |   |        | $ | 163.9     |  |              | $ | 156.6 |  |  | $ | 403.8 |   |  | $ | 1,336.8 |  
|                               | 2002    |               |   | 475.7    |   |        |   | 284.9     |  |              |   | 158.2 |  |  |   | 763.8 |   |  |   | 1,682.6 |  



---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Operating income (loss) for the Bath
    Products segment includes restructuring, impairment and other
    charges of $14.6 million, $2.5 million, and
    $100.2 million in 2003, 2002 and 2001, respectively (see
    Note 5). Operating income (loss) for the
    Plumbing Products segment includes restructuring and other
    charges of $1.3 million, and $4.8 million in 2002 and
    2001, respectively (see Note 5) and
    $8.6 million in sales in 2003 related to the sale of a
    license for certain technology that had been the subject of
    patent litigation.
|
| | (2) | Corporate assets include assets held for sale of
    $16.8 million and $244.5 million for 2003 and 2002,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (3) | Rexair was re-acquired on August 15, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Aside from the operating income
(loss) amounts noted above, our income from continuing
operations includes interest income and expense, other income
and expense items and income taxes, none of which are included
in our measurement of segment operating profit. Corporate
includes pension income of $13.4 million,
$17.1 million and $17.0 million for 2003, 2002 and
2001, respectively. Corporate assets consist primarily of real
property, assets held for sale, escrow deposits, cash and cash
equivalents and other investments.

Our operations are principally located in North
America and Europe and to a lesser extent, in other regions of
the world. Our country of domicile is the United States. Export
sales represented 8%, 7% and

88



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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 12  Segment Information
(Continued)


4% of total sales for 2003, 2002 and 2001,
respectively. Principal international markets served include
Europe, South America, Canada and Asia.

The following table presents summarized financial
information by geographic area:

|                                  |                |                               |   |       |         |      |   |       |         |  |   |       |         |  
|--------------------------------- | -------------- | ----------------------------- | - | ----- | ------- | ---- | - | ----- | ------- |  | - | ----- | ------- | -
|                                  |                |                              
|                                  |                | For the Fiscal Years Ended   
|                                  |                | September 30,                
|                                  |                |                              
|                                  |                | 2003                          |   | 2002  |         | 2001
|                                  |                |                               |   |       |         |     
|                                  |                |                              
|                                  |                | (in millions)                
|Net Sales                         |                |                               |   |       |         |      |   |       |         |  |   |      
|                                  | United States  |                               | $ | 884.0 |         |      | $ | 802.8 |         |  | $ | 761.4 |        
|                                  | United Kingdom |                               |   | 191.0 |         |      |   | 154.8 |         |  |   | 126.7 |        
|                                  | Other foreign  |                               |   | 117.6 |         |      |   | 110.7 |         |  |   | 119.1 |        
|                                  |                |                               |   |       |         |      |   |       |         |  |   |      
|                                  |                | Total Net Sales               |   | $     | 1,192.6 |      |   | $     | 1,068.3 |  |   | $     | 1,007.2 |  
|                                  |                |                               |   |       |         |      |   |       |         |  |   |      
|Operating Income
    (Loss)(1)    |                |                               |   |       |         |      |   |       |         |  |   |      
|                                  | United States  |                               | $ | 48.2  |         |      | $ | 63.6  |         |  | $ | 2.0   |        
|                                  | United Kingdom |                               |   | 11.2  |         |      |   | 6.6   |         |  |   | (59.1 | )      
|                                  | Other foreign  |                               |   | 21.8  |         |      |   | 24.2  |         |  |   | 27.5  |        
|                                  |                |                               |   |       |         |      |   |       |         |  |   |      
|                                  |                | Total Operating Income (Loss) |   | $     | 81.2    |      |   | $     | 94.4    |  |   | $     | (29.6   | )
|                                  |                |                               |   |       |         |      |   |       |         |  |   |      
|Long-lived Assets (at period end) |                |                               |   |       |         |      |   |       |         |  |   |      
|                                  | United States  |                               | $ | 374.7 |         |      | $ | 381.7 |         |  |   |       |        
|                                  | United Kingdom |                               |   | 88.6  |         |      |   | 84.3  |         |  |   |       |        
|                                  | Other foreign  |                               |   | 10.3  |         |      |   | 9.1   |         |  |   |       |        
|                                  |                |                               |   |       |         |      |   |       |         |  |   |      
|                                  |                | Total Long-lived Assets       |   | $     | 473.6   |      |   | $     | 475.1   |  |   |       |         |  
|                                  |                |                               |   |       |         |      |   |       |         |  |   |      



---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Operating income for the year ended
    September 30, 2003 includes impairment, restructuring and
    other charges of $19.9 million, all of which relate to
    operations in the United States. Also included in 2003 are
    $8.6 million of sales related to the sale of a license for
    certain technology that had been the subject of patent
    litigation. Operating income for the year ended
    September 30, 2002 includes restructuring and other charges
    of $7.2 million related to operations in the United States.
    The operating loss for the year ended September 30, 2001
    includes goodwill impairment charges of $100.2 million, of
    which $60.8 million relates to operations in the U.K. and
    $39.4 million relates to operations in the United States.
    Corporate expenses are included in the United States.

89



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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 13  Quarterly Financial
Data (Unaudited)

Summarized quarterly financial information for
the fiscal years ended September 30, 2003 and 2002 is as
follows (in millions, except per share amounts):

|                                         |  |                                    |       |                                    |  |         |       |          |  |         |       |          |  |         |       |          |  |   |       |   |  |   |       |  |  |   |       |  |  |   |       | 
|---------------------------------------- |  | ---------------------------------- | ----- | ---------------------------------- |  | ------- | ----- | -------- |  | ------- | ----- | -------- |  | ------- | ----- | -------- |  | - | ----- | - |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                         |  |                                    |       |                                   
|                                         |  | For the Fiscal 2003 Quarters Ended |       | For the Fiscal 2002 Quarters Ended
|                                         |  |                                    |       |                                   
|                                         |  | Dec. 31                            |       | March 31                           |  | June 30 |       | Sept. 30 |  | Dec. 31 |       | March 31 |  | June 30 |       | Sept. 30
|                                         |  |                                    |       |                                    |  |         |       |          |  |         |       |          |  |         |       |         
|Net sales                                |  | $                                  | 265.9 |                                    |  | $       | 283.8 |          |  | $       | 315.5 |          |  | $       | 327.4 |          |  | $ | 237.8 |   |  | $ | 254.4 |  |  | $ | 289.9 |  |  | $ | 286.2 | 
|Gross profit                             |  |                                    | 81.0  |                                    |  |         | 90.9  |          |  |         | 94.1  |          |  |         | 92.2  |          |  |   | 72.0  |   |  |   | 79.5  |  |  |   | 95.3  |  |  |   | 89.6  | 
|Income (loss) from continuing operations |  |                                    | 14.3  |                                    |  |         | 5.7   |          |  |         | 5.5   |          |  |         | (15.4 | )        |  |   | (5.2  | ) |  |   | 2.0   |  |  |   | 4.5   |  |  |   | 30.6  | 
|Net income (loss)                        |  |                                    | 13.5  |                                    |  |         | (33.4 | )        |  |         | 5.1   |          |  |         | (16.3 | )        |  |   | (7.2  | ) |  |   | 2.9   |  |  |   | 21.8  |  |  |   | 23.4  | 
|Income (loss) per basic common share:    |  |                                    |       |                                    |  |         |       |          |  |         |       |          |  |         |       |          |  |   |       |   |  |   |       |  |  |   |       |  |  |   |       | 
|Continuing operations                    |  | $                                  | 0.19  |                                    |  | $       | 0.08  |          |  | $       | 0.07  |          |  | $       | (0.21 | )        |  | $ | (0.07 | ) |  | $ | 0.03  |  |  | $ | 0.06  |  |  | $ | 0.41  | 
|Net income (loss)                        |  |                                    | 0.18  |                                    |  |         | (0.45 | )        |  |         | 0.07  |          |  |         | (0.22 | )        |  |   | (0.10 | ) |  |   | 0.04  |  |  |   | 0.29  |  |  |   | 0.31  | 
|Income (loss) per diluted common share:  |  |                                    |       |                                    |  |         |       |          |  |         |       |          |  |         |       |          |  |   |       |   |  |   |       |  |  |   |       |  |  |   |       | 
|Continuing operations                    |  | $                                  | 0.19  |                                    |  | $       | 0.08  |          |  | $       | 0.07  |          |  | $       | (0.21 | )        |  | $ | (0.07 | ) |  | $ | 0.03  |  |  | $ | 0.06  |  |  | $ | 0.41  | 
|Net income (loss)                        |  |                                    | 0.18  |                                    |  |         | (0.45 | )        |  |         | 0.07  |          |  |         | (0.22 | )        |  |   | (0.10 | ) |  |   | 0.04  |  |  |   | 0.29  |  |  |   | 0.31  | 

The quarter ended March 31, 2003 includes a
$39.9 million charge to reduce the carrying value of our
swimming pool & equipment, hearth and water systems
businesses to their net realizable value pursuant to our 2003
Disposal Plan. It also includes after tax revenues of
$5.3 million related to the sale of a license for certain
technology that had been the subject of patent litigation. The
quarter ended September 30, 2003 includes debt issuance and
other financing costs of $11.7 million, after tax. It also
includes impairment, restructuring and other charges of
$7.1 million, after tax. The results for the quarter ended
June 30, 2002 includes income from discontinued operations
of $15.0 million, as we decreased the estimated loss on
disposal related to our 2001 Disposal Plan. The results for the
quarter ended September 30, 2002 includes a net tax benefit
of $27.1 million largely attributable to benefits realized
from completion of certain asset sales and changes in the tax
laws regarding the utilization of loss carrybacks as well as a
charge to discontinued operations of $7.2 million as a
result of reduced proceeds from the sale of SiTeco.

Note 14  Supplemental Joint
Issuer and Guarantor Financial Information

The following represents the supplemental
consolidating condensed financial statements of Jacuzzi Brands,
Inc. (JBI), which is the issuer of our New Notes,
the subsidiaries which are guarantors of the New Notes and our
subsidiaries which are not guarantors of the New Notes as of
September 30, 2003 and September 30, 2002 and for each
of the three years in the period ended September 30, 2003.
Certain of our existing and future domestic restricted
subsidiaries guarantee the New Notes, jointly and severally, on
a senior basis. The New Notes are secured by a first-priority
lien on and security interest in substantially all of our
domestic real property, plant and equipment (referred to as
Notes Collateral). The New Notes are also secured by a
second-priority lien on and security interest in the Bank
Collateral (see Note 6). Separate consolidated
financial statements of each guarantor are not presented, as we
have determined that they would not be material to investors.

90



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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 14  Supplemental Joint
Issuer and Guarantor Financial Information (Continued)

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

91



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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 14  Supplemental Joint
Issuer and Guarantor Financial Information (Continued)


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

92



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 14  Supplemental Joint
Issuer and Guarantor Financial Information (Continued)


|                                                                                                          |                                              |                                              |        |              |       |               |        |              |      |              |        |       |       |   |       |      |   |   |         |       |       |  
|--------------------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ------ | ------------ | ----- | ------------- | ------ | ------------ | ---- | ------------ | ------ | ----- | ----- | - | ----- | ---- | - | - | ------- | ----- | ----- | -
|                                                                                                          |                                              |                                             
|                                                                                                          |                                              | For the Fiscal Year Ended September 30, 2001
|                                                                                                          |                                              |                                             
|                                                                                                          |                                              |                                              |        | Combined     |       | Combined      |        |             
|                                                                                                          |                                              |                                              |        | Guarantor    |       | Non-Guarantor |        |             
|                                                                                                          |                                              | JBI                                          |        | Subsidiaries |       | Subsidiaries  |        | Eliminations |      | Consolidated
|                                                                                                          |                                              |                                              |        |              |       |               |        |              |      |             
|                                                                                                          |                                              |                                             
|                                                                                                          |                                              | (in millions)                               
|Net sales                                                                                                 |                                              | $                                            |       |              |       | $             | 782.3  |              |      | $            | 229.6  |       |       | $ | (4.7  | )    |   | $ | 1,007.2 |      
|Operating costs and expenses:                                                                             |                                              |                                              |        |              |       |               |        |              |      |              |        |       |       |   |       |      |   |   |         |      
|                                                                                                          | Cost of products sold                        |                                              |        |             |       |               |        | 566.7        |      |              |        | 148.7 |       |   |       | (4.7 | ) |   |         | 710.7 |      
|                                                                                                          | Selling, general and administrative expenses |                                              |        | 22.1         |       |               |        | 152.1        |      |              |        | 51.7  |       |   |       |     |   |   |         | 225.9 |      
|                                                                                                          | Impairment, restructuring and other charges  |                                              |        |             |       |               |        | 39.4         |      |              |        | 60.8  |       |   |       |     |   |   |         | 100.2 |      
|                                                                                                          |                                              |                                              |        |              |       |               |        |              |      |              |        |       |       |   |       |      |   |   |         |      
|                                                                                                          |                                              | Operating (loss) income                      |        |              | (22.1 | )             |        |              | 24.1 |              |        |       | (31.6 | ) |       |      |  |   |         |       | (29.6 | )
|Interest expense                                                                                          |                                              |                                              | (43.3  | )            |       |               | (43.3  | )            |      |              | (0.9   | )     |       |   |      |      |   |   | (87.5   | )    
|Interest income                                                                                           |                                              |                                              | 23.3   |              |       |               | 0.6    |              |      |              | 1.3    |       |       |   |      |      |   |   | 25.2    |      
|Intercompany interest (expense) income, net                                                               |                                              |                                              | (28.0  | )            |       |               | 41.0   |              |      |              | (13.0  | )     |       |   |      |      |   |   |        |      
|Management fee income (expense)                                                                           |                                              |                                              | 72.3   |              |       |               | (72.3  | )            |      |              |       |       |       |   |      |      |   |   |        |      
|Equity in (losses) earnings of investees, net                                                             |                                              |                                              | (11.0  | )            |       |               | (53.3  | )            |      |              |       |       |       |   | 62.9  |      |   |   | (1.4    | )    
|Minority interest income (expense)                                                                        |                                              |                                              | (61.6  | )            |       |               | 61.6   |              |      |              |       |       |       |   |      |      |   |   |        |      
|Other expense, net                                                                                        |                                              |                                              | (74.4  | )            |       |               | (4.9   | )            |      |              | (0.5   | )     |       |   |      |      |   |   | (79.8   | )    
|                                                                                                          |                                              |                                              |        |              |       |               |        |              |      |              |        |       |       |   |       |      |   |   |         |      
|(Loss) income before income taxes, discontinued
    operations and cumulative effect of accounting change |                                              |                                              | (144.8 | )            |       |               | (46.5  | )            |      |              | (44.7  | )     |       |   | 62.9  |      |   |   | (173.1  | )    
|(Provision for) benefit from income taxes                                                                 |                                              |                                              | (21.6  | )            |       |               | 35.8   |              |      |              | (6.8   | )     |       |   |      |      |   |   | 7.4     |      
|                                                                                                          |                                              |                                              |        |              |       |               |        |              |      |              |        |       |       |   |       |      |   |   |         |      
|(Loss) income from continuing operations                                                                  |                                              |                                              | (166.4 | )            |       |               | (10.7  | )            |      |              | (51.5  | )     |       |   | 62.9  |      |   |   | (165.7  | )    
|(Loss) income from discontinued operations                                                                |                                              |                                              | (340.8 | )            |       |               | (340.8 | )            |      |              | (67.6  | )     |       |   | 408.4 |      |   |   | (340.8  | )    
|Cumulative effect of accounting change, net                                                               |                                              |                                              |       |              |       |               | (0.3   | )            |      |              | (0.4   | )     |       |   |      |      |   |   | (0.7    | )    
|                                                                                                          |                                              |                                              |        |              |       |               |        |              |      |              |        |       |       |   |       |      |   |   |         |      
|Net (loss) income                                                                                         |                                              | $                                            | (507.2 | )            |       | $             | (351.8 | )            |      | $            | (119.5 | )     |       | $ | 471.3 |      |   | $ | (507.2  | )    
|                                                                                                          |                                              |                                              |        |              |       |               |        |              |      |              |        |       |       |   |       |      |   |   |         |      

93



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 14  Supplemental Joint
Issuer and Guarantor Financial Information (Continued)

|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |       |         | 
|--------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------ | ----- | ------------ | ----- | ------------- | ------- | ------------ | ------- | ------------ | ----- | ---- | ----- |  | -------- | - | -------- | - | ----- | ----- | ------- | 
|                                                                      |                                                  |                                           
|                                                                      |                                                  | At September 30, 2003                     
|                                                                      |                                                  |                                           
|                                                                      |                                                  |                                            |       | Combined     |       | Combined      |         |             
|                                                                      |                                                  |                                            |       | Guarantor    |       | Non-Guarantor |         |             
|                                                                      |                                                  | JBI                                        |       | Subsidiaries |       | Subsidiaries  |         | Eliminations |         | Consolidated
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |             
|                                                                      |                                                  |                                           
|                                                                      |                                                  | (in millions)                             
|ASSETS                                                               
|Current assets:                                                       |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      | Cash and cash equivalents                        |                                            | $     | 0.2          |       |               | $       | 2.9          |         |              | $     | 28.1 |       |  | $        |  |          |   | $     | 31.2  |        
|                                                                      | Trade receivables, net                           |                                            |       |             |       |               |         | 143.9        |         |              |       | 85.7 |       |  |          |  |          |   |       | 229.6 |        
|                                                                      | Inventories                                      |                                            |       |             |       |               |         | 127.6        |         |              |       | 37.4 |       |  |          |  |          |   |       | 165.0 |        
|                                                                      | Deferred income taxes                            |                                            |       | 27.9         |       |               |         | (12.4        | )       |              |       |     |       |  |          |  |          |   |       | 15.5  |        
|                                                                      | Assets held for sale                             |                                            |       |             |       |               |         | 11.9         |         |              |       | 4.9  |       |  |          |  |          |   |       | 16.8  |        
|                                                                      | Other current assets                             |                                            |       | 3.2          |       |               |         | 12.0         |         |              |       | 14.9 |       |  |          |  |          |   |       | 30.1  |        
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total current assets                       |       |              | 31.3  |               |         |              | 285.9   |              |       |      | 171.0 |  |          |   |         |   |       |       | 488.2   | 
|Property, plant and equipment, net                                    |                                                  |                                            | 0.5   |              |       |               | 84.3    |              |         |              | 44.9  |      |       |  |         |   |          |   | 129.7 |      
|Pension assets                                                        |                                                  |                                            | 148.3 |              |       |               |        |              |         |              |      |      |       |  |         |   |          |   | 148.3 |      
|Insurance for asbestos claims                                         |                                                  |                                            |      |              |       |               | 160.0   |              |         |              |      |      |       |  |         |   |          |   | 160.0 |      
|Goodwill                                                              |                                                  |                                            |      |              |       |               | 229.2   |              |         |              | 53.9  |      |       |  |         |   |          |   | 283.1 |      
|Other intangibles, net                                                |                                                  |                                            |      |              |       |               | 60.8    |              |         |              |      |      |       |  |         |   |          |   | 60.8  |      
|Other non-current assets                                              |                                                  |                                            | 28.7  |              |       |               | 37.9    |              |         |              | 0.1   |      |       |  |         |   |          |   | 66.7  |      
|Investment in subsidiaries/Intercompany
    receivable (payable), net |                                                  |                                            | 568.7 |              |       |               | 829.1   |              |         |              | 160.6 |      |       |  | (1,558.4 | ) |          |   |      |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total assets                               |       | $            | 777.5 |               |         | $            | 1,687.2 |              |       | $    | 430.5 |  |          | $ | (1,558.4 | ) |       | $     | 1,336.8 | 
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|LIABILITIES AND STOCKHOLDERS EQUITY                                 
|Current liabilities:                                                  |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      | Notes payable                                    |                                            | $     |             |       |               | $       |             |         |              | $     | 23.5 |       |  | $        |  |          |   | $     | 23.5  |        
|                                                                      | Current maturities of long-term debt             |                                            |       | 23.9         |       |               |         | 1.3          |         |              |       |     |       |  |          |  |          |   |       | 25.2  |        
|                                                                      | Trade accounts payable                           |                                            |       |             |       |               |         | 56.0         |         |              |       | 46.3 |       |  |          |  |          |   |       | 102.3 |        
|                                                                      | Income taxes payable                             |                                            |       | 2.2          |       |               |         | 8.0          |         |              |       | 0.6  |       |  |          |  |          |   |       | 10.8  |        
|                                                                      | Liabilities associated with assets held for sale |                                            |       |             |       |               |         | 6.4          |         |              |       | 2.3  |       |  |          |  |          |   |       | 8.7   |        
|                                                                      | Accrued expenses and other current liabilities   |                                            |       | 27.9         |       |               |         | 79.7         |         |              |       | 28.6 |       |  |          |  |          |   |       | 136.2 |        
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total current liabilities                  |       |              | 54.0  |               |         |              | 151.4   |              |       |      | 101.3 |  |          |   |         |   |       |       | 306.7   | 
|Long-term debt                                                        |                                                  |                                            | 445.0 |              |       |               | 6.4     |              |         |              |      |      |       |  |         |   |          |   | 451.4 |      
|Minority interest                                                     |                                                  |                                            |      |              |       |               | 91.5    |              |         |              |      |      |       |  | (91.5    | ) |          |   |      |      
|Deferred income taxes                                                 |                                                  |                                            | (6.2  | )            |       |               | 31.9    |              |         |              | 0.5   |      |       |  |         |   |          |   | 26.2  |      
|Asbestos claims                                                       |                                                  |                                            |      |              |       |               | 160.0   |              |         |              |      |      |       |  |         |   |          |   | 160.0 |      
|Other liabilities                                                     |                                                  |                                            | 29.0  |              |       |               | 89.0    |              |         |              | 18.8  |      |       |  |         |   |          |   | 136.8 |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total liabilities                          |       |              | 521.8 |               |         |              | 530.2   |              |       |      | 120.6 |  |          |   | (91.5    | ) |       |       | 1,081.1 | 
|Stockholders equity                                                  |                                                  |                                            | 255.7 |              |       |               | 1,157.0 |              |         |              | 309.9 |      |       |  | (1,466.9 | ) |          |   | 255.7 |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total liabilities and stockholders equity |       | $            | 777.5 |               |         | $            | 1,687.2 |              |       | $    | 430.5 |  |          | $ | (1,558.4 | ) |       | $     | 1,336.8 | 
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |       |      |       |  |          |   |          |   |       |      

94



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##### Table of Contents



JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 14  Supplemental Joint
Issuer and Guarantor Financial Information (Continued)


|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |        |       |       |  |          |   |          |   |       |       |         | 
|--------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------ | ----- | ------------ | ----- | ------------- | ------- | ------------ | ------- | ------------ | ------ | ----- | ----- |  | -------- | - | -------- | - | ----- | ----- | ------- | 
|                                                                      |                                                  |                                           
|                                                                      |                                                  | At September 30, 2002                     
|                                                                      |                                                  |                                           
|                                                                      |                                                  |                                            |       | Combined     |       | Combined      |         |             
|                                                                      |                                                  |                                            |       | Guarantor    |       | Non-Guarantor |         |             
|                                                                      |                                                  | JBI                                        |       | Subsidiaries |       | Subsidiaries  |         | Eliminations |         | Consolidated
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |             
|                                                                      |                                                  |                                           
|                                                                      |                                                  | (in millions)                             
|ASSETS                                                               
|Current assets:                                                       |                                                  |                                            |       |              |       |               |         |              |         |              |        |       |       |  |          |   |          |   |       |      
|                                                                      | Cash and cash equivalents                        |                                            | $     | 0.3          |       |               | $       | 11.0         |         |              | $      | 20.8  |       |  | $        |  |          |   | $     | 32.1  |        
|                                                                      | Restricted cash collateral accounts              |                                            |       | 142.9        |       |               |         |             |         |              |        |      |       |  |          |  |          |   |       | 142.9 |        
|                                                                      | Trade receivables, net                           |                                            |       |             |       |               |         | 130.6        |         |              |        | 79.2  |       |  |          |  |          |   |       | 209.8 |        
|                                                                      | Inventories                                      |                                            |       |             |       |               |         | 130.3        |         |              |        | 33.4  |       |  |          |  |          |   |       | 163.7 |        
|                                                                      | Deferred income taxes                            |                                            |       | 47.0         |       |               |         | (16.0        | )       |              |        |      |       |  |          |  |          |   |       | 31.0  |        
|                                                                      | Assets held for sale                             |                                            |       |             |       |               |         | 52.7         |         |              |        | 191.8 |       |  |          |  |          |   |       | 244.5 |        
|                                                                      | Income taxes receivable                          |                                            |       | 37.2         |       |               |         | 1.3          |         |              |        | (1.0  | )     |  |          |   |          |   |       | 37.5  |        
|                                                                      | Other current assets                             |                                            |       | 5.8          |       |               |         | 11.9         |         |              |        | 6.3   |       |  |          |  |          |   |       | 24.0  |        
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |        |       |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total current assets                       |       |              | 233.2 |               |         |              | 321.8   |              |        |       | 330.5 |  |          |   |         |   |       |       | 885.5   | 
|Restricted cash collateral accounts                                   |                                                  |                                            | 15.4  |              |       |               |        |              |         |              |       |       |       |  |         |   |          |   | 15.4  |      
|Property, plant and equipment, net                                    |                                                  |                                            | 0.6   |              |       |               | 90.0    |              |         |              | 40.4   |       |       |  |         |   |          |   | 131.0 |      
|Pension assets                                                        |                                                  |                                            | 70.9  |              |       |               | 65.1    |              |         |              |       |       |       |  |         |   |          |   | 136.0 |      
|Insurance for asbestos claims                                         |                                                  |                                            |      |              |       |               | 145.0   |              |         |              |       |       |       |  |         |   |          |   | 145.0 |      
|Goodwill                                                              |                                                  |                                            |      |              |       |               | 229.2   |              |         |              | 52.9   |       |       |  |         |   |          |   | 282.1 |      
|Other intangibles, net                                                |                                                  |                                            |      |              |       |               | 62.0    |              |         |              |       |       |       |  |         |   |          |   | 62.0  |      
|Other non-current assets                                              |                                                  |                                            | 5.8   |              |       |               | 13.8    |              |         |              | 6.0    |       |       |  |         |   |          |   | 25.6  |      
|Investment in subsidiaries/Intercompany
    receivable (payable), net |                                                  |                                            | 445.3 |              |       |               | 982.0   |              |         |              | (112.6 | )     |       |  | (1,314.7 | ) |          |   |      |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |        |       |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total assets                               |       | $            | 771.2 |               |         | $            | 1,908.9 |              |        | $     | 317.2 |  |          | $ | (1,314.7 | ) |       | $     | 1,682.6 | 
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |        |       |       |  |          |   |          |   |       |      
|LIABILITIES AND STOCKHOLDERS EQUITY                                 
|Current liabilities:                                                  |                                                  |                                            |       |              |       |               |         |              |         |              |        |       |       |  |          |   |          |   |       |      
|                                                                      | Notes payable                                    |                                            | $     |             |       |               | $       |             |         |              | $      | 15.3  |       |  | $        |  |          |   | $     | 15.3  |        
|                                                                      | Current maturities of long-term debt             |                                            |       | 198.0        |       |               |         | 77.9         |         |              |        |      |       |  |          |  |          |   |       | 275.9 |        
|                                                                      | Trade accounts payable                           |                                            |       |             |       |               |         | 55.9         |         |              |        | 38.8  |       |  |          |  |          |   |       | 94.7  |        
|                                                                      | Liabilities associated with assets held for sale |                                            |       |             |       |               |         | 4.7          |         |              |        | 74.8  |       |  |          |  |          |   |       | 79.5  |        
|Accrued expenses and other current liabilities                        |                                                  |                                            | 32.2  |              |       |               | 77.3    |              |         |              | 18.6   |       |       |  |         |   |          |   | 128.1 |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |        |       |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total current liabilities                  |       |              | 230.2 |               |         |              | 215.8   |              |        |       | 147.5 |  |          |   |         |   |       |       | 593.5   | 
|Long-term debt                                                        |                                                  |                                            | 241.0 |              |       |               | 275.9   |              |         |              |       |       |       |  |         |   |          |   | 516.9 |      
|Minority interest                                                     |                                                  |                                            |      |              |       |               | 153.1   |              |         |              |       |       |       |  | (153.1   | ) |          |   |      |      
|Deferred income taxes                                                 |                                                  |                                            | 5.2   |              |       |               | 34.9    |              |         |              | 1.5    |       |       |  |         |   |          |   | 41.6  |      
|Asbestos claims                                                       |                                                  |                                            |      |              |       |               | 145.0   |              |         |              |       |       |       |  |         |   |          |   | 145.0 |      
|Other liabilities                                                     |                                                  |                                            | 40.4  |              |       |               | 76.5    |              |         |              | 14.3   |       |       |  |         |   |          |   | 131.2 |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |        |       |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total liabilities                          |       |              | 516.8 |               |         |              | 901.2   |              |        |       | 163.3 |  |          |   | (153.1   | ) |       |       | 1,428.2 | 
|Stockholders equity                                                  |                                                  |                                            | 254.4 |              |       |               | 1,007.7 |              |         |              | 153.9  |       |       |  | (1,161.6 | ) |          |   | 254.4 |      
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |        |       |       |  |          |   |          |   |       |      
|                                                                      |                                                  | Total liabilities and stockholders equity |       | $            | 771.2 |               |         | $            | 1,908.9 |              |        | $     | 317.2 |  |          | $ | (1,314.7 | ) |       | $     | 1,682.6 | 
|                                                                      |                                                  |                                            |       |              |       |               |         |              |         |              |        |       |       |  |          |   |          |   |       |      

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 14  Supplemental Joint
Issuer and Guarantor Financial Information (Continued)


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

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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 14  Supplemental Joint
Issuer and Guarantor Financial Information (Continued)

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

97



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JACUZZI BRANDS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



Note 14  Supplemental Joint
Issuer and Guarantor Financial Information (Continued)


|                                                                 |  |                                              |          |              |  |               |        |              |  |              |       |   |  |   |       |   |  |   |          |  
|---------------------------------------------------------------- |  | -------------------------------------------- | -------- | ------------ |  | ------------- | ------ | ------------ |  | ------------ | ----- | - |  | - | ----- | - |  | - | -------- | -
|                                                                 |  |                                             
|                                                                 |  | For the Fiscal Year Ended September 30, 2001
|                                                                 |  |                                             
|                                                                 |  |                                              |          | Combined     |  | Combined      |        |             
|                                                                 |  |                                              |          | Guarantor    |  | Non-Guarantor |        |             
|                                                                 |  | JBI                                          |          | Subsidiaries |  | Subsidiaries  |        | Eliminations |  | Consolidated
|                                                                 |  |                                              |          |              |  |               |        |              |  |             
|                                                                 |  |                                             
|                                                                 |  | (in millions)                               
|NET CASH (USED IN) PROVIDED BY OPERATING
    ACTIVITIES          |  | $                                            | (4.0     | )            |  | $             | 82.9   |              |  | $            | 34.7  |   |  | $ |      |   |  | $ | 113.6    |  
|INVESTING ACTIVITIES:                                            |  |                                              |          |              |  |               |        |              |  |              |       |   |  |   |       |   |  |   |          |  
|Proceeds from sale of businesses                                 |  |                                              |         |              |  |               |       |              |  |              | 7.5   |   |  |   |      |   |  |   | 7.5      |  
|Purchases of property, plant and equipment                       |  |                                              | (0.3     | )            |  |               | (14.7  | )            |  |              | (5.3  | ) |  |   |      |   |  |   | (20.3    | )
|Proceeds from sale of property, plant and
    equipment          |  |                                              |         |              |  |               | 4.4    |              |  |              | 1.1   |   |  |   |      |   |  |   | 5.5      |  
|Proceeds from sale of excess real estate                         |  |                                              |         |              |  |               | 3.2    |              |  |              |      |   |  |   |      |   |  |   | 3.2      |  
|Other investing activities, net                                  |  |                                              |         |              |  |               | (0.7   | )            |  |              |      |   |  |   |      |   |  |   | (0.7     | )
|Net transfers with subsidiaries                                  |  |                                              | 45.8     |              |  |               | (20.7  | )            |  |              |      |   |  |   | (25.1 | ) |  |   |         |  
|                                                                 |  |                                              |          |              |  |               |        |              |  |              |       |   |  |   |       |   |  |   |          |  
|NET CASH PROVIDED BY (USED IN) INVESTING
    ACTIVITIES          |  |                                              | 45.5     |              |  |               | (28.5  | )            |  |              | 3.3   |   |  |   | (25.1 | ) |  |   | (4.8     | )
|FINANCING ACTIVITIES:                                            |  |                                              |          |              |  |               |        |              |  |              |       |   |  |   |       |   |  |   |          |  
|Proceeds from long-term debt                                     |  |                                              | 1,297.2  |              |  |               | 247.4  |              |  |              |      |   |  |   |      |   |  |   | 1,544.6  |  
|Repayment of long-term debt                                      |  |                                              | (1,265.3 | )            |  |               | (247.7 | )            |  |              | (1.9  | ) |  |   |      |   |  |   | (1,514.9 | )
|Deposits into restricted cash collateral accounts                |  |                                              | (4.4     | )            |  |               |       |              |  |              |      |   |  |   |      |   |  |   | (4.4     | )
|Payment of debt issuance and other financing costs               |  |                                              | (19.1    | )            |  |               |       |              |  |              |      |   |  |   |      |   |  |   | (19.1    | )
|Repayment of notes payable, net                                  |  |                                              |         |              |  |               |       |              |  |              | (13.4 | ) |  |   |      |   |  |   | (13.4    | )
|Payment of dividends                                             |  |                                              | (7.7     | )            |  |               |       |              |  |              |      |   |  |   |      |   |  |   | (7.7     | )
|Proceeds from exercise of stock options                          |  |                                              | 0.3      |              |  |               |       |              |  |              |      |   |  |   |      |   |  |   | 0.3      |  
|Purchase of treasury stock                                       |  |                                              | (43.1    | )            |  |               |       |              |  |              |      |   |  |   |      |   |  |   | (43.1    | )
|Other financing activities, net                                  |  |                                              |         |              |  |               | (0.9   | )            |  |              |      |   |  |   |      |   |  |   | (0.9     | )
|Net transfers with parent                                        |  |                                              |         |              |  |               | (45.8  | )            |  |              | 20.7  |   |  |   | 25.1  |   |  |   |         |  
|                                                                 |  |                                              |          |              |  |               |        |              |  |              |       |   |  |   |       |   |  |   |          |  
|NET CASH (USED IN) PROVIDED BY FINANCING
    ACTIVITIES          |  |                                              | (42.1    | )            |  |               | (47.0  | )            |  |              | 5.4   |   |  |   | 25.1  |   |  |   | (58.6    | )
|Effect of exchange rate changes on cash and cash
    equivalents |  |                                              | 0.2      |              |  |               |       |              |  |              | (9.9  | ) |  |   |      |   |  |   | (9.7     | )
|                                                                 |  |                                              |          |              |  |               |        |              |  |              |       |   |  |   |       |   |  |   |          |  
|(DECREASE) INCREASE IN CASH AND CASH
    EQUIVALENTS             |  |                                              | (0.4     | )            |  |               | 7.4    |              |  |              | 33.5  |   |  |   |      |   |  |   | 40.5     |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                   |  |                                              | 0.1      |              |  |               | 3.2    |              |  |              | 21.4  |   |  |   |      |   |  |   | 24.7     |  
|                                                                 |  |                                              |          |              |  |               |        |              |  |              |       |   |  |   |       |   |  |   |          |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                         |  | $                                            | (0.3     | )            |  | $             | 10.6   |              |  | $            | 54.9  |   |  | $ |      |   |  | $ | 65.2     |  
|                                                                 |  |                                              |          |              |  |               |        |              |  |              |       |   |  |   |       |   |  |   |          |  

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

None.






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

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




PART III






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

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

Information with respect to our directors is
incorporated herein by reference to the information
Election of Directors in our definitive proxy
statement to be filed with the Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in
connection with the 2004 Annual Meeting of Stockholders to be
held on February 11, 2004 (the Proxy Statement).

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

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

Information required by Item 406 of
Regulation S-K is incorporated herein by reference to the
information under the caption Code of Ethics in the
Proxy Statement.






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

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






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

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

99



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

None.






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

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




PART IV




Item 15. Exhibits, Financial Statement
Schedules and Reports on Form 8-K

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



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



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



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



| |     |                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Reports on
    Form 8-K.The following reports
    on Form 8-K were furnished during the fiscal quarter ended
    September 27, 2003:



| |    |                                                                                                                                                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | A Current Report on Form 8-K was furnished
    on July 1, 2003, responsive to Item 9 regarding the
    Companys discussion with the Securities and Exchange
    Commission regarding the accounting policy for Rexair
    distributor network
|
| | 2. | A Current Report on Form 8-K was furnished
    on August 13, 2003, responsive to Item 9 and
    Item 12 regarding the Companys financial results for
    the third quarter of fiscal 2003.                                                   

(c) Exhibits

100



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##### Table of Contents



INDEX TO EXHIBITS

|        |    |         |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | -- | ------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |        
|Number  |    | Exhibit
|        |    |        
|        | 3  | .1(a)   |  | Form of Amended and Restated Certificate of
    Incorporation (filed as part of our Registration Statement
    No. 333-47101 on Form S-4 (the 1998 S-4),
    as Appendix B-1 to the Joint Proxy Statement/Prospectus
    (the Merger Proxy) included therein)*                                                                                                                                          
|        | 3  | .1(b)   |  | Form of Certificate of Designations of
    Series A Junior Preferred Stock (filed as Exhibit (c)
    within the Rights Agreement filed as Exhibit (4) to our
    Report on Form 8-K filed October 16, 1998)*                                                                                                                                                                                                
|        | 3  | .2      |  | Amended and Restated By-laws of our company
    (filed as Exhibit 3(ii) to the Form 10-Q filed
    Feb 16, 1999)*                                                                                                                                                                                                                                                                                           
|        | 4  | .1      |  | Specimen form of certificate representing shares
    of Common Stock of U.S. Industries, Inc. (filed as
    Exhibit 4.1 to the Form 10 filed April 20, 1995
    (the Form 10))*                                                                                                                                                                                                                           
|        | 4  | .2      |  | Indenture dated July 15, 2003, between the
    Company as Issuer and Wilmington Trust Company as Trustee (filed
    as Exhibit 4.1 to our Report on Form 8-K filed on
    August 12, 2003)*                                                                                                                                                                                                                 
|        | 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      |  | Amended and Restated Securities Purchase
    Agreement, dated as of March 24, 2000, by and among
    U.S. Industries, Inc., JUSI Holdings, Inc., Strategic
    Industries, LLC and Automotive Interior Products LLC (filed as
    Exhibit 10.1 to our Report on Form 8-K filed
    April 10, 2000)*                                                                                                         
|        | 10 | .5      |  | Indemnification Agreement, dated as of
    March 24, 2000, by and among Strategic Industries, LLC,
    U.S. Industries, Inc. and JUSI Holdings, Inc. (filed as
    Exhibit 10.2 to our Report on Form 8-K filed
    April 10, 2000)*                                                                                                                                                                        
|        | 10 | .6      |  | Amended and Restated Subscription Agreement,
    dated as of March 24, 2000, by and among U.S. Industries, Inc.,
    JUSI Holdings, Inc., Strategic Industries, LLC, Strategic
    Industries, Inc. and Automotive Interior Products LLC (filed as
    Exhibit 10.3 to our Report on Form 8-K filed
    April 10, 2000)*                                                                                    
|        | 10 | .7      |  | Rexair Indemnification Agreement, dated as of
    March 24, 2000, by and among U.S. Industries, Inc., JUSI
    Holdings, Inc., Strategic Industries, LLC and Strategic
    Industries, Inc. (filed as Exhibit 10.4 to our Report on
    Form 8-K filed April 10, 2000)*                                                                                                                                     
|        | 10 | .8      |  | Amendment and Waiver dated as of
    February 16, 2001, by and among U.S. Industries, Inc., USI
    Global Corp., USI American Holdings, Inc., USI Atlantic Corp.,
    Bank of America Securities, LLC, Bank of America, N.A. and the
    several banks, financial institutions and other institutional
    lenders named therein (filed as Exhibit 10.1 to our Report
    on Form 10-Q filed May 15, 2001)*
|        | 10 | .9      |  | Amendment dated as of February 16, 2001, by
    and among U.S. Industries, Inc., USI Global Corp., USI American
    Holdings, Inc., USI Atlantic Corp. and Bank of America, N.A.
    (filed as Exhibit 10.2 to our Report on Form 10-Q
    filed May 15, 2001)*                                                                                                                                             
|        | 10 | .10(a)  |  | Employment Agreement dated February 22, 1995
    between our company and David H. Clarke (filed as
    Exhibit 10.9 to the Form 10)*                                                                                                                                                                                                                                                                        
|        | 10 | .10(b)  |  | First Amendment, dated June 12, 1995, to the
    Employment Agreement dated February 22, 1995 between our
    company and David H. Clarke (filed as Exhibit 10.19(b)
    to the 1995 10-K)*                                                                                                                                                                                                                 

101



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|        |    |         |  |                                                                                                                                                                                                                                                                                                                       
|------- | -- | ------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |        
|Number  |    | Exhibit
|        |    |        
|        | 10 | .11(a)  |  | Restated Employment Agreement dated June 17,
    1998 between our company and Dorothy E. Sander (filed as
    Exhibit 10.8 to the 1998 10-K)*                                                                                                                                                                         
|        | 10 | .11(b)  |  | Amendment dated September 1, 1999 to the
    Employment Agreement between our company and Dorothy E.
    Sander (filed as Exhibit 10.1 to our Report on Form 10-Q
    filed on May 7, 2003)*                                                                                                                          
|        | 10 | .12(a)  |  | Employment Agreement by and between our company
    and Allan D. Weingarten, dated as of January 23, 2001
    (filed as Exhibit 10.8 to our 10-Q filed May 15, 2001)*                                                                                                                                                 
|        | 10 | .12(b)  |  | Amendment dated June 5, 2002 to the
    Employment Agreement between our company and Allan D.
    Weingarten (filed as Exhibit 10.18(b) to our Form 10-K
    filed on December 24, 2002)*                                                                                                                             
|        | 10 | .13(a)  |  | Employment Agreement by and between our company
    and Francisco V. Puñal, dated as of December 15,
    2001 (filed as Exhibit 10.9 to our 10-Q filed May 15,
    2001)*                                                                                                                                             
|        | 10 | .13(b)  |  | Amendment dated May 1, 2001 to the
    Employment Agreement between our company and Francisco V.
    Puñal (filed as Exhibit 10.19(b) to our Form 10-K
    filed on December 24, 2002)*                                                                                                                               
|        | 10 | .14     |  | Letter Agreement dated July 23, 2001 by and
    between our company and James OLeary amending the Restated
    Employment Agreement dated September 1, 1999 (filed as
    Exhibit 10.1 to the Form 10-Q filed August 17,
    2001)*                                                                                  
|        | 10 | .15     |  | Amended U.S. Industries, Inc. Stock Option
    Plan, as restated June 11, 1998 (filed as Exhibit 10.9
    to the 1998 10-K)*                                                                                                                                                                                          
|        | 10 | .16     |  | U.S. Industries, Inc. Supplemental
    Retirement Plan (filed as Exhibit 10.14 to the
    Form 10)*                                                                                                                                                                                                                   
|        | 10 | .17     |  | U.S. Industries, Inc. Restricted Stock Plan, as
    restated June 11, 1998 (filed as Exhibit 10.11 to the
    1998 10-K)*                                                                                                                                                                                             
|        | 10 | .18     |  | U.S. Industries, Inc. Long-Term Incentive Plan
    (filed as Exhibit 10.15 to the Form 10)*                                                                                                                                                                                                                           
|        | 10 | .19     |  | Agreement and Plan of Merger, dated
    February 16, 1998, among U.S. Industries, Inc., USI
    Atlantic, Zurn Industries, Inc. and certain other parties named
    therein (included as Appendix A-1 to the Merger Proxy)*                                                                                           
|        | 10 | .20     |  | Rights Agreement dated as of October 15,
    1998 between our company and the Chase Manhattan Bank, as Rights
    Agent (filed as Exhibit (4) to our Report on Form 8-K
    filed October 16, 1998)*                                                                                                                  
|        | 10 | .21     |  | Employment Agreement, dated January 2, 2001
    between our company and Alan Schutzman (filed as
    Exhibit 10.31 to the 2001 10-K)*                                                                                                                                                                                 
|        | 10 | .22     |  | First Amendment, dated September 11, 2001 to
    the Employment Agreement dated January 2, 2001 between our
    company and Alan Schutzman (filed as Exhibit 10.32 to the
    2001 10-K)*                                                                                                                             
|        | 10 | .23     |  | Stock and Asset Purchase Agreement dated as of
    December 21, 2001, by and among JUSI Holdings, Inc.,
    Spear & Jackson plc, USI Global Corp., USI Canada Inc.,
    U.S. Industries, Inc. and ATT Acquisition Co. (filed as
    Exhibit 10.33 to the 2001 10-K)*                                                  
|        | 10 | .24(a)  |  | Employment Agreement, March 31, 2000, of
    Steven C. Barre (filed as Exhibit 10.12(a) to the 2000
    10-K)*                                                                                                                                                                                                        
|        | 10 | .24(b)  |  | Letter Agreement, dated November 3, 2000
    between our company and Steven C. Barre (filed as
    Exhibit 10.12(b) to the 2000 10-K)*                                                                                                                                                                                
|        | 10 | .24(c)  |  | First Amendment, dated September 11, 2001,
    to the Employment Agreement dated March 31, 2001 between
    our company and Steven C. Barre (filed as
    Exhibit 10.34(c) to the 2001 10-K)*                                                                                                                         
|        | 10 | .25     |  | Amendment No. 1 to the Stock and Asset
    Purchase Agreement dated as of January 14, 2002 among JUSI
    Holdings, Inc., Spear & Jackson plc, USI Global Corp.,
    USI Canada Inc., U.S. Industries, Inc. and ATT Acquisition
    Co (filed as Exhibit 2.2 of our Report on Form 8-K
    filed on January 18, 2002)*

102



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|        |    |         |  |                                                                                                                                                                                                                                                                                                                                                                                              
|------- | -- | ------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |        
|Number  |    | Exhibit
|        |    |        
|        | 10 | .26     |  | Securities Purchase Agreement dated as of
    January 15, 2002 among U.S. Industries, Inc., JUSI
    Holdings, Inc., USI Global Corp., Strategic Industries, Inc.,
    Strategic Finance Company, as agent, Strategic Finance, LLC, as
    agent, and other parties listed on the signature pages thereto
    (filed as Exhibit 2.3 of our Report on Form 8-K filed
    on January 18, 2002)*
|        | 10 | .27     |  | Securities Purchase Agreement dated as of
    January 15, 2002 among U.S. Industries, Inc.,
    Strategic Membership Company and Citicorp Venture Capital Equity
    Partners, L.P. (filed as Exhibit 2.4 of our Report on
    Form 8-K filed on January 18, 2002)*                                                                                                                          
|        | 10 | .28     |  | Stock and Asset Purchase Agreement dated as of
    March 19, 2002 among U.S. Industries, Inc., JUSI
    Holdings, Inc., USI Canada Inc. and Hubbell Incorporated (filed
    as Exhibit 2.1 of our Report on Form 8-K filed on
    May 10, 2002)*                                                                                                                                             
|        | 10 | .29     |  | Amendment No. 1 to Stock and Asset Purchase
    Agreement dated as of April 26, 2002 among JUSI Holdings,
    Inc. and Hubbell Incorporated (filed as Exhibit 2.2 of our
    Report on Form 8-K filed on May 10, 2002)*                                                                                                                                                                      
|        | 10 | .30     |  | Escrow Agreement dated as of April 26, 2002
    among U.S. Industries, Inc., JUSI Holdings, Inc. and
    Hubbell Incorporated (filed as Exhibit 2.3 of our Report on
    Form 8-K filed on May 10, 2002)*                                                                                                                                                                                    
|        | 10 | .31     |  | Tax Sharing and Indemnification Agreement
    effective as of March 19, 2002 among U.S. Industries,
    Inc., JUSI Holdings, Inc., USI Canada Inc. and Hubbell
    Incorporated (filed as Exhibit 2.4 of our Report on
    Form 8-K filed on May 10, 2002)*                                                                                                                                  
|        | 10 | .32     |  | Termination Agreement and General Release dated
    May 10, 2002 by and between our company and James
    OLeary (filed as Exhibit 10.1 to our 10-Q filed
    August 13, 2002)*                                                                                                                                                                                                             
|        | 10 | .33     |  | Amendment dated June 5, 2002 to the
    employment agreement dated as of January 23, 2001 by and
    between U.S. Industries, Inc. and Allan D. Weingarten
    (filed as Exhibit 10.2 to our 10-Q filed August 13,
    2002)*                                                                                                                                                                
|        | 10 | .34     |  | Stock and Asset Purchase Agreement dated as of
    May 17, 2002 by and among U.S. Industries, Inc., Eljer
    Plumbingware, Inc., Selkirk, Inc., Selkirk Canada U.S.A., Inc.,
    Selkirk Canada, Inc., Selkirk Acquisition Partners, L.P. and
    Tinicum Capital Partners, L.P (filed as Exhibit 10.4 to our
    10-Q filed August 13, 2002)*                                              
|        | 10 | .35(a)  |  | Share Purchase Agreement dated as of
    August 2, 2002 among JUSI Holdings, Inc.,
    U.S. Industries, Inc. and SiTeco Beteiligungs GmbH & Co
    KG (filed as Exhibit 2.1 to our Report on Form 8-K
    filed on October 24, 2002)*                                                                                                                                                        
|        | 10 | .35(b)  |  | Amendment Agreement dated as of August 2,
    2002 among JUSI Holdings, Inc., U.S. Industries, Inc. and
    SiTeco Beteilingungs GmbH & Co KG (filed as
    Exhibit 2.2 to our Report on Form 8-K filed on
    October 24, 2002)*                                                                                                                                                            
|        | 10 | .36(a)  |  | Stock Purchase Agreement dated as of
    August 23, 2002 among USI Mayfair Limited and MegaPro
    Tools, Inc. and S and J Acquisition Corp. (filed as
    Exhibit 10.47(a) to our Report on Form 10-K filed on
    December 24, 2002)*                                                                                                                                                      
|        | 10 | .36(b)  |  | Stockholders Agreement dated as of
    September 6, 2002 among MegaPro Tools, Inc. and the
    stockholders party thereto (filed as Exhibit 10.47(b) to
    our Report on Form 10-K filed on December 24, 2002)*                                                                                                                                                                             
|        | 10 | .37     |  | Standstill Agreement dated as of December 5,
    2002 between U.S. Industries, Inc., and Southeastern Asset
    Management, Inc. Subsidiaries of U.S. Industries, Inc.
    (filed as Exhibit 10.48 to our Report on Form 10-K
    filed on December 24, 2002)*                                                                                                                               
|        | 10 | .38     |  | Standstill Agreement dated as of December 5,
    2002 between U.S. Industries, Inc. and Southeastern Asset
    Management, Inc. (filed as Exhibit 10.48 to the
    Form 10-K filed on December 24, 2002)*                                                                                                                                                                                    
|        | 10 | .39     |  | Agreement and General Release dated
    February 21, 2003 by and between the Company and
    Dorothy E. Sander (filed as Exhibit 10.1 to the
    Form 10-Q filed on May 7, 2003)                                                                                                                                                                                                             

103



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|        |    |         |  |                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | ------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |        
|Number  |    | Exhibit
|        |    |        
|        | 10 | .40     |  | Registration Rights Agreement, dated
    July 15, 2003, among the Company, and Credit Suisse First
    Boston LLC, Fleet Securities, Inc., Banc One Capital Markets,
    Inc. and Jefferies & Company, Inc (filed as
    Exhibit 10.1 to the Form 10-Q filed on August 12,
    2003)*                                                                     
|        | 10 | .41     |  | Loan and Security Agreement dated July 15,
    2003, among the Company and other subsidiaries of the Company as
    party thereto as Loan Parties, Fleet Capital Corporation, Fleet
    Securities, Inc., Credit Suisse First Boston, Bank One, NA and
    Silver Point Finance LLC (filed as Exhibit 10.2 to the
    Form 10-Q filed on August 12, 2003)*
|        | 10 | .42     |  | Guaranty Agreement, dated July 15, 2003,
    among the Company and other subsidiaries of the Company as party
    thereto as Guarantors, Fleet Capital Corporation and Various
    Banks named therein (filed as Exhibit 10.3 to the
    Form 10-Q filed on August 12, 2003)*                                                                             
|        | 10 | .43     |  | Pledge Agreement, dated July 15, 2003, among
    the Company and other subsidiaries of the Company as party
    thereto as Pledgors, Fleet Capital Corporation and Various Banks
    named therein (filed as Exhibit 10.4 to the Form 10-Q
    filed on August 12, 2003)*                                                                                 
|        | 10 | .44     |  | Intercreditor Agreement, dated July 15,
    2003, by and among the Company and other subsidiaries of the
    Company as party thereto, Fleet Capital Corporation and Various
    Banks named therein and Wilmington Trust Company (filed as
    Exhibit 10.5 to the Form 10-Q filed on August 12,
    2003)*                                              
|        | 10 | .45     |  | Class A Collateral Agreement, dated
    July 15, 2003, among the Company and other subsidiaries of
    the Company as party thereto as Grantors and Wilmington Trust
    Company as Collateral Agent (filed as Exhibit 10.6 to the
    Form 10-Q filed on August 12, 2003)*                                                                               
|        | 10 | .46     |  | Class B Collateral Agreement, dated
    July 15, 2003, among the Company and other subsidiaries of
    the Company as party thereto as Grantors and Wilmington Trust
    Company as Collateral Agent (filed as Exhibit 10.7 to the
    Form 10-Q filed on August 12, 2003)*                                                                               
|        | 10 | .47     |  | Class B Pledge Agreement, dated
    July 15, 2003, among the Company and other subsidiaries of
    the Company as party thereto as Pledgors and Wilmington Trust
    Company as Collateral Agent (filed as Exhibit 10.8 to the
    Form 10-Q filed on August 12, 2003)*                                                                                   
|        | 10 | .48     |  | Collateral Agency Agreement, dated July 15,
    2003, among the Company and other subsidiaries of the Company as
    party thereto, the Representatives and Unrepresented Holders as
    party thereto and Wilmington Trust Company, as Trustee and as
    Collateral Agent (filed as Exhibit 10.9 to the
    Form 10-Q filed on August 12, 2003)*        
|        | 10 | .49     |  | Employment Agreement by and between the Company
    and Donald C. Devine dated April 21, 2003 (filed as
    Exhibit 10.10 to the Form 10-Q filed on
    August 12, 2003)*                                                                                                                                                                                 
|        | 10 | .50     |  | Employment Agreement by and between the Company
    and Jeffrey B. Park dated April 21, 2003 (filed as
    Exhibit 10.11 to the Form 10-Q filed on
    August 12, 2003)*                                                                                                                                                                                  
|        | 10 | .51     |  | Charge over Shares Agreement between Jacuzzi
    Brands, Inc. and Fleet Capital Corporation dated
    October 16, 2003                                                                                                                                                                                                                                    
|        | 10 | .52     |  | Charge over Shares Agreement between Jacuzzi
    Brands, Inc. and Wilmington Trust Company dated October 16.
    2003                                                                                                                                                                                                                                     
|        | 10 | .53     |  | First Amendment to Loan and Security Agreement
    among Jacuzzi Brands, Inc., the other borrowers named on the
    signature page thereto, Fleet Capital Corporation, Silver Point
    Finance LLC, the Revolving Credit Lenders named therein, and the
    Term Loan B Lenders named therein dated October 10,
    2003                                 
|        | 10 | .54     |  | Supplement and First Amendment to Pledge
    Agreement among JBI Holdings Limited, the Pledgors party to the
    Pledge Agreement and Fleet Capital Corporation dated
    October 16, 2003                                                                                                                                                                
|        | 10 | .55     |  | Supplement to Guaranty and Guarantor Security
    Agreement between JBI Holdings Limited and Fleet Capital
    Corporation dated October 16, 2003                                                                                                                                                                                                         

104



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|        |    |         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |        
|Number  |    | Exhibit
|        |    |        
|        | 10 | .56     |  | Supplement and First Amendment to Class B
    Pledge Agreement among JBI Holdings Limited, the Pledgors party
    to the Class B Pledge Agreement and Wilmington Trust
    Company dated October 16, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .57     |  | Supplement to Class B Collateral Agreement
    among JBI Holdings Limited, the Grantors party to the
    Class B Collateral Agreement and Wilmington Trust Company
    dated October 16, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .58     |  | Supplement indenture dated as of October 16,
    2003 among JBI Holdings Limited, the Subsidiary Guarantors and
    Wilmington Trust Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 21 | .1      |  | Subsidiaries of Jacuzzi Brands, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 23 | .1      |  | Consent of Ernst & Young LLP,
    Independent Certified Public Accountants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 25 | .1      |  | Separate Company Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |    |         |  | As described elsewhere herein, certain of our
    existing and future domestic restricted subsidiaries guarantee
    the 9.625% senior notes, jointly and severally, on a senior
    basis. These notes are secured by a first-priority lien on and
    security interest in substantially all of our domestic real
    property, plant and equipment (referred to as Notes Collateral).
    They are also secured by a second-priority lien on and security
    interest in the Bank Collateral, which consists of existing and
    future domestic subsidiaries and 65% of the capital stock of, or
    other equity interest in, existing and future first-tier foreign
    subsidiaries and substantially all of the other assets (other
    than the assets that constitute the Notes Collateral), in each
    case that are held by Jacuzzi Brands, Inc. or any of our
    subsidiary guarantors. Our legal structure utilizes subsidiary
    holding companies at various levels to hold the shares of its
    operating subsidiaries. The consolidated financial statements of
    five of our subsidiary holding companies are presented
    separately, as each entity constitutes a substantial
    portion of the collateral (within the meaning of the
    Security and Exchange Commissions Regulation S-X
    Rule 3-16) for our 9.625% senior notes. Accordingly, the
    consolidated financial statements of USI Global Corporation, USI
    Mayfair Limited, Rexair, Inc., Zurn Industries, Inc. and JUSI
    Holdings, Inc. are included herein
|        | 31 | .1      |  | Certification of principal executive officer
    required by Rule 13a  14a of the Exchange Act                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 31 | .2      |  | Certification of principal financial officer
    required by Rule 13a  14a of the Exchange Act                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 32 | .1      |  | Certification of Chief Executive Officer and
    Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



---



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

105



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on this 19th day of
December, 2003.



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



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

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

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

|                                                             |  |                                                                                    
|------------------------------------------------------------ |  | -----------------------------------------------------------------------------------
|Signature                                                    |  | Title                                                                              
|                                                             |  |                                                                                    
|/s/ DAVID H. CLARKEDavid H. Clarke                           |  | Chairman of the Board and Chief Executive Officer
    (Principal Executive Officer)
|                                                            
|/s/ BRIAN C. BEAZERBrian C. Beazer                           |  | Director                                                                           
|                                                            
|/s/ WILLIAM E. BUTLERWilliam E. Butler                       |  | Director                                                                           
|                                                            
|/s/ JOHN J. MCATEE, JR.John J. McAtee, Jr.                   |  | Director                                                                           
|                                                            
|/s/ THE HON. CHARLES H. PRICE IIThe Hon. Charles H. Price II |  | Director                                                                           
|                                                            
|/s/ SIR HARRY SOLOMONSir Harry Solomon                       |  | Director                                                                           
|                                                            
|/s/ ROYALL VICTOR IIIRoyall Victor III                       |  | Director                                                                           
|                                                            
|/s/ ROBERT R. WOMACKRobert R. Womack                         |  | Director                                                                           
|                                                            
|/s/ THOMAS B. WALDINThomas B. Waldin                         |  | Director                                                                           
|                                                            
|/s/ CLAUDIA E. MORFClaudia E. Morf                           |  | Director                                                                           
|                                                            
|/s/ JEFFREY B. PARKJeffrey B. Park                           |  | Senior Vice President and Chief Financial Officer
    (Principal Financial Officer)
|                                                            
|/s/ FRANCISCO V. PUÑALFrancisco V. Puñal                     |  | Vice President and Controller (Principal
    Accounting Officer)                   

106



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##### Table of Contents






SCHEDULE II

JACUZZI BRANDS, INC

VALUATION AND QUALIFYING ACCOUNTS

|                                 |      |               |   |             |  |                      |   |            |  |  |   |      |   |  |   |     | 
|-------------------------------- | ---- | ------------- | - | ----------- |  | -------------------- | - | ---------- |  |  | - | ---- | - |  | - | --- | 
|Column A                         |      | Column B      |   | Column C    |  | Column D             |   | Column E  
|                                 |      |               |   |             |  |                      |   |           
|                                 |      | Balance at    |   | Additions  |  | Deductions          |   | Balance at
|                                 |      | Beginning     |   | Charged to  |  | Write-offs, Payments |   | End of    
|Description                      |      | of Period     |   | Expense     |  | and Other            |   | Period    
|                                 |      |               |   |             |  |                      |   |           
|                                 |      |              
|                                 |      | (in millions)
|Allowance for doubtful accounts: |      |               |   |             |  |                      |   |            |  |  |   |      |   |  |   |    
|                                 | 2003 |               | $ | 8.4         |  |                      | $ | 5.8        |  |  | $ | (5.2 | ) |  | $ | 9.0 | 
|                                 | 2002 |               |   | 8.1         |  |                      |   | 3.3        |  |  |   | (3.0 | ) |  |   | 8.4 | 
|                                 | 2001 |               |   | 7.3         |  |                      |   | 2.6        |  |  |   | (1.8 | ) |  |   | 8.1 | 

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

107