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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------
 
                                   FORM 10-K
       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
    OF 1934
 
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 28, 1996
                                       OR
 
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934
 
              FOR THE TRANSITION PERIOD FROM _________ TO _________
 
Commission File Number 1-13736
 
                             U.S. INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                                 <C>
                     DELAWARE                                           22-3369326
         (State or other jurisdiction of                             (I.R.S. employer
          incorporation or organization)                          identification number)
 
              101 WOOD AVENUE SOUTH
                ISELIN, NEW JERSEY                                        08830
     (Address of principal executive offices)                           (Zip Code)
</TABLE>
 
                                 (908) 767-0700
              (Registrant's telephone number, including area code)
          Securities registered pursuant to Section 12(b) of the Act:
 
<TABLE>
<CAPTION>
                                                                             NAME OF EACH EXCHANGE
                   TITLE OF EACH CLASS                                        ON WHICH REGISTERED
---------------------------------------------------------  ---------------------------------------------------------
<S>                                                        <C>
         Common Stock, par value $.01 per share                             New York Stock Exchange
</TABLE>
 
        Securities registered pursuant to Section 12(g) of the Act: None
 
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past ninety days: Yes /x/  No __
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
 
    Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at November 1, 1996 (based on the last reported
sale price of such stock on the New York Stock Exchange on such date):
$1,348,564,086
 
    On November 1, 1996, the registrant had outstanding 50,865,816 shares of
Common Stock.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    Certain portions of the registrant's definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in connection with the
annual meeting of stockholders of the registrant to be held on February 6, 1997
are incorporated by reference into Part III of this Report.
 
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                               TABLE OF CONTENTS
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      ITEM                                                                                                           PAGE
-----------                                                                                                        ---------
<C>          <S>                                                                                                   <C>
 
<CAPTION>
 
                                                           PART I
<C>          <S>                                                                                                   <C>
 
             Disclosure Concerning Forward-Looking Statements....................................................          3
 
        1.   Business............................................................................................          3
 
        2.   Properties..........................................................................................         14
 
        3.   Legal Proceedings...................................................................................         15
 
        4.   Submission of Matters to a Vote of Security Holders.................................................         15
<CAPTION>
 
                                                          PART II
<C>          <S>                                                                                                   <C>
 
        5.   Market for Registrant's Common Equity and Related Shareholder Matters...............................         15
 
        6.   Selected Financial Data.............................................................................         16
 
        7.   Management's Discussion and Analysis of Financial Condition and Results of Operations...............         17
 
        8.   Financial Statements and Supplementary Data.........................................................         25
 
        9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................         54
<CAPTION>
 
                                                          PART III
<C>          <S>                                                                                                   <C>
 
       10.   Directors and Executive Officers of the Registrant..................................................         54
 
       11.   Executive Compensation..............................................................................         54
 
       12.   Security Ownership of Certain Beneficial Owners and Management......................................         54
 
       13.   Certain Relationships and Related Transactions......................................................         54
<CAPTION>
 
                                                          PART IV
<C>          <S>                                                                                                   <C>
 
       14.   Exhibits, Financial Statement Schedule and Reports on Form 8-K......................................         55
 
             Signatures..........................................................................................         58
</TABLE>
 
                                       2
<PAGE>
                                     PART I
 
DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
 
    All statements, other than statements of historical fact, included in the
Letter of the Chairman of the Board and Chief Executive Officer and President
included in the Annual Report to Stockholders and in this Form 10-K, including
without limitation the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business", are, or may be
deemed to be, forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934 (the "Exchange Act"). Various economic and
competitive factors could cause actual results to differ materially from those
discussed in such forward-looking statements, including factors which are
outside of the control of the Company, such as consumer spending patterns,
availability of and rates for consumer credit, levels of residential and
commercial construction, levels of automotive production and changes in raw
material costs, along with the other factors noted in this Form 10-K with
respect to the Company's businesses.
 
ITEM 1. BUSINESS
 
GENERAL
 
    U.S. Industries, Inc. (with its subsidiaries, the "Company") is engaged in
the manufacture and distribution of a broad range of consumer, building and
industrial products.
 
    The Company manages its businesses on a decentralized basis as independent
business units, subject to strict financial controls and performance-based
management incentives. The Company's long-term strategy is to enhance
shareholder value through internal growth, focused on developing its larger
businesses with major market positions and better recognized names, and through
selective acquisitions. In fiscal 1996, the Company acquired the assets of
Keller Industries, Inc. ("Keller") for $37 million to complement the Company's
Ames operations and acquired the assets of Haugh's Products Limited ("Haugh's")
for $24 million (including the assumption of debt) to complement the Company's
Jacuzzi operations. Keller is a leading manufacturer of ladders in the United
States, and Haugh's is a leading Canadian manufacturer of above-ground swimming
pools and equipment.
 
    The Company was incorporated in Delaware in February 1995 and has been
publicly owned since May 31, 1995, at which time Hanson PLC ("Hanson") paid a
dividend to its shareholders consisting of all of the then outstanding shares of
the Company's common stock (the "Common Stock"). Regular way trading in the
Common Stock commenced on the New York Stock Exchange (the "NYSE") on June 1,
1995. Prior to May 31, 1995, the Company was a wholly-owned subsidiary of
Hanson. Certain businesses, assets and liabilities were transferred to the
Company by Hanson pursuant to transactions consummated on May 31, 1995 and June
5, 1995 (collectively, the "Demerger"). For additional information concerning
the Demerger, see Note 1 to the Consolidated (Combined) Financial Statements.
 
    In connection with the Demerger, the Company was capitalized with
substantial bank debt, totalling $1.4 billion. One of the Company's principal
objectives since the Demerger has been to deleverage its balance sheet by
disposing of certain non-core businesses and assets. During the period from June
5, 1995 through November 30, 1995, the Company prepaid approximately $500
million of its then outstanding $900 million term loan using the proceeds of
dispositions and internally generated funds. In December 1995, the orginal bank
credit facility was refinanced and the Company entered into a new bank credit
facility with substantially lower borrowing spreads and a longer maturity. The
Company has continued to reduce its indebtedness using the proceeds of
dispositions and internally generated funds, offset in part by the cost of
acquisitions and the purchase of Common Stock for treasury. As of September 30,
1996, the Company had $620 million outstanding under its bank credit facility
and $75 million outstanding under its uncommitted short-term lines of credit.
For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
 
                                       3
<PAGE>
    The following table summarizes the gross consideration received from the
Company's principal dispositions since completion of the Demerger.
 
<TABLE>
<CAPTION>
                                   GROSS
DATE                           CONSIDERATION                                TRANSACTION
---------------------------  ------------------  -----------------------------------------------------------------
<S>                          <C>                 <C>
                                (DOLLARS IN
                                 MILLIONS)
FISCAL 1995:
 
June and August 1995                 44.7        Sale of equity interest in Beazer Homes USA, Inc.
June 1995                             0.8        Sale of equity interest in Richton International Corporation
July 1995                             7.2        Sale of real property in Henderson, Nevada
September 1995                      200.0        Sale of Bear Archery, Inc., Brown Moulding Company, Inc.,
                                                 Halkey-Roberts Corporation, MW Manufacturers, Inc., Teters Floral
                                                 Products, Inc. and Valley Recreation Products, Inc.
September 1995                       33.8        Sale of real property in Mountain View, California and Henderson,
                                                 Nevada
 
FISCAL 1996:
 
October 1995                          4.5        Sale of real property and office building in Atlanta, Georgia
October 1995                        159.0        Sale of Office Group America, Inc.
November 1995                        22.5        Sale of assets of Blue Mountain Industries
April 1996                           45.8        Sale of assets of Farberware, Inc.
April and May 1996                    6.3        Sale of assets of Spartus Electronics Corporation
July 1996                             7.9        Sale of assets of Universal Gym Equipment, Inc.
July 1996                             1.8        Sale of assets of Piedmont Moulding Corporation
July and September 1996              10.5        Sale of real property in Henderson, Nevada
August 1996                           5.5        Sale of real property in Ossining, New York
September 1996                        8.5        Sale of assets of Franklin Dyed Yarns
September 1996                        6.9        Sale of assets of Jade Holdings, Inc.
 
FISCAL 1997:
 
October 1996                         22.0        Sale of assets of Tubular Textile Machinery business
</TABLE>
 
    The Company also received payment on notes relating to pre-Demeger sales of
real estate and businesses totalling $14.7 million in fiscal 1995.
 
    In the first quarter of fiscal 1996, the Company conducted a program under
which stockholders who owned fewer than 100 shares were able to sell their
Common Stock to the Company on a commission-free basis. A program permitting the
Company to make open market and private purchases of up to $50 million of Common
Stock, inclusive of purchases made through the commission free selling program,
was conducted in the second quarter of fiscal 1996. In the fourth quarter of
fiscal 1996, the Company received authorization from its Board of Directors to
purchase an additional $50 million of Common Stock, increasing total authorized
purchases to $100 million. As of November 1, 1996, the Company had purchased a
total of 2,909,104 shares of Common Stock at a total cost of $60 million.
 
    References in this Report to a fiscal year are to the applicable fiscal year
ended on the Saturday nearest September 30 and reflect a 52-week period. This
Report includes trademarks of the Company such as JACUZZI, AMES, RAINBOW, ERTL,
KELLER, TOMMY ARMOUR and ODYSSEY, as well as other trade names and product
names.
 
    The Company's principal executive offices are located at 101 Wood Avenue
South, Iselin, New Jersey 08830; its telephone number at that address is (908)
767-0700. The Company also has executive offices located at 17 Mount Street,
Mayfair W1Y 5RA, London, England; its telephone number at that address is
(011)(44-171) 409-1776.
 
                                       4
<PAGE>
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
 
    The Company's operations are divided into three business segments: the
Consumer Group, the Building Products Group and the Industrial Group. See Note
14 to the Consolidated (Combined) Financial Statements.
 
CONSUMER GROUP
 
    The Consumer Group includes companies engaged in the manufacture and
distribution of products principally used in and around the home (the
"Housewares Operations"), products for recreational and leisure use (the
"Recreation and Leisure Products Operations"), and footwear, lace and tricot
products (the "Footwear and Textiles Operations"). The Consumer Group
contributed 42% of the Company's net sales in fiscal 1996, 42% in fiscal 1995
and 43% in fiscal 1994.
 
    HOUSEWARES OPERATIONS
 
    The Housewares Operations includes companies engaged in the manufacture and
distribution of lawn and garden tools, ladders and vacuum cleaners.
 
    GARDEN TOOLS AND LADDERS.  O. Ames Co., together with related subsidiaries
("Ames"), is a leading manufacturer and distributor of non-powered lawn, garden
and industrial hand tools and ladders for professional and residential use. Ames
sells its products under the brand names Ames, Eagle, Keller, Garant and, to a
lesser extent, various private labels.
 
    Ames offers products divided into four principal product lines: regular
tools (shovels, spades, forks, cutting tools, lawn and garden accessories and
garden tools); winter tools (snow shovels, pushers and scoops); wheelbarrows and
other wheeled goods; and special tools (primarily folding lightweight
entrenching tools produced for the United States Army). In addition, in July
1996, the Company purchased the assets of Keller, the second largest
manufacturer of ladders in the United States. Keller manufactures a full range
of wood, aluminum and fiberglass ladders for both the residential and commercial
markets.
 
    Ames manufactures and/or assembles its products at its facilities in
Parkersburg, West Virginia; Elyria and Cambridge, Ohio; Swainsboro, Georgia;
Merced, California; Milford, Virginia; and St. Francois, Canada.
 
    Ames' sales of tools are primarily concentrated in North America. Sales are
seasonal, with a substantial portion made in spring and fall, and thus weather
fluctuations can have a short-term impact on results. Ames distributes its
products through independent wholesale distributors, mass merchants, home center
chains, warehouse home centers and large buying groups including cooperatives.
Sales have become increasingly concentrated among mass merchants in recent
periods. While Ames' business would be adversely affected by the loss of any
major customers, management believes that Ames' relationship with each of them
is satisfactory.
 
    VACUUM CLEANERS.  Rexair Inc. ("Rexair") is one of the leading manufacturers
of premium vacuum cleaners. Its Rainbow vacuum cleaners collect dirt particles
by means of a combination water filtration and separator system rather than the
bag used in traditional vacuum cleaners.
 
    Rexair manufactures and/or packages its products exclusively at its
Cadillac, Michigan facility, although certain components (primarily electrical
cords and switches) are purchased on a finished basis. Rexair's marketing and
administrative functions are located at its facility in Troy, Michigan. Rexair
sells the Rainbow and its accessories exclusively to independent authorized
distributors.
 
    Rexair's proportion of international unit sales increased from 46% in fiscal
1995 to 56% in fiscal 1996. In fiscal 1996, Rexair sold its products in over 50
foreign countries and its principal international markets were Poland, Austria,
Japan and Italy. As discussed under "International Operations" below, export
sales are subject to the usual risks of doing business abroad.
 
                                       5
<PAGE>
    The direct sales vacuum cleaner industry is mature and competitive with
competition based on quality, sales technique, personnel, marketing and
distribution approaches. Rexair does not compete on the basis of price with
mass-market vacuum cleaners. Sales to consumers are made by distributors and
their subdistributors through in-the-home demonstrations typically set up by
referrals from other consumers. Substantially all of Rexair's sales to
distributors are for cash. However, the Company estimates that approximately 70%
of the distributors' and subdistributors' sales to consumers are financed by
third parties; thus, Rexair's business could be adversely affected by a
decreased availability of consumer credit or increased consumer finance rates.
 
    RECREATION AND LEISURE PRODUCTS OPERATIONS
 
    The Recreation and Leisure Products Operations include companies engaged in
the manufacture and distribution of collectible toys, model kits and golf
equipment.
 
    COLLECTIBLE TOYS AND MODEL KITS.  The Ertl Company, Inc. ("Ertl")
manufactures, markets and distributes a variety of agricultural toys, miniature
die-cast toys, collectible die-cast replicas and plastic model kits. Ertl's
agricultural toys consist primarily of die-cast scale model replicas of tractors
and other farm implements for children and adults, and include plastic toy farm
playsets sold under the names Farm Country and Big Farm and die-cast metal
pedal-powered riding tractors for children. Miniature die-cast toys include
die-cast metal products based on licensed characters which are targeted to young
children, including Thomas the Tank Engine, and collectible scale cars marketed
under the American Muscle brand, as well as die-cast replicas which are targeted
to adults. Ertl's model kits are currently marketed under the brand names AMT,
Snap Fast and Snap Fast Plus, the latter two lines being targeted for beginners.
 
    The sale of promotional toys was a significant part of Ertl's business in
and prior to fiscal 1996. Due to rapid changes in consumer preferences, even
successful promotional toys require heavy advertising expenditures and are
generally marketed for only one to three years. Ertl initiated its withdrawal
from this volatile market during fiscal 1996 and will complete its withdrawal
during fiscal 1997. Ertl plans to focus its efforts during fiscal 1997 on its
more stable, traditional product lines.
 
    Ertl's products are sold principally in the United States to toy retailers
and discount stores, such as Toys "R" Us and Wal-Mart. Agricultural toys are
also sold to original equipment manufacturers, such as John Deere and J.I. Case,
whose dealers resell them in dealer showrooms. Model kits are sold to mass
merchants, independent toy and hobby shops and to hobby distributors. Ertl
Collectibles consist of products which are customized for, and generally sold
directly to companies, for promotional purposes, or decorated with well-known
logos such as those of professional sports franchises, universities and major
corporations and sold directly to retailers. Sales to John Deere, Toys "R" Us
and Wal-Mart collectively accounted for approximately 28% of Ertl's fiscal 1996
sales.
 
    The toy industry, in general, and Ertl, in particular, experiences
significant seasonal fluctuations in results due to the heavy demand for toys
during the Christmas season. In recent years this seasonality was accentuated by
the prominence of promotional toys; however, due to Ertl's continuing withdrawal
from this market, the seasonal impact is expected to be slightly less pronounced
in future periods. During each of the last three fiscal years, over 60% of
Ertl's net sales and over 70% of its operating income have been realized during
its first and fourth fiscal quarters.
 
    In fiscal 1996, Ertl manufactured approximately 58% of its products at its
facilities in Dyersville, Iowa, and Tijuana, Mexico, and relied on affiliated
and unaffiliated parties in the Far East, principally in the People's Republic
of China ("China") and Macau, to manufacture the balance. A substantial portion
of its miniature die-cast and other products are manufactured by contract
manufacturers located in China and Macau. During fiscal 1996, Ertl transferred
production of its model kits and certain die-cast products from its Dyersville
facility to its Tijuana facility. As discussed under "International Operations"
below, foreign manufacturing and sourcing is subject to certain risks.
 
                                       6
<PAGE>
    A substantial amount of Ertl's products are manufactured under licenses.
Many are with original equipment vehicle manufacturers and permit Ertl to
manufacture and market die-cast replicas, as well as model kits, of the vehicles
and to use the brand and model names of the original equipment manufacturer.
These licenses may also permit the use of the manufacturer's name or trademark
on non-replica products, such as coin banks. These license agreements generally
are non-exclusive and have terms of one to five years. These license agreements
often require advances or guaranteed minimum royalties and, in certain cases,
the license agreements are terminable at will by the licensors.
 
    GOLF EQUIPMENT.  Tommy Armour Golf Company ("Tommy Armour") manufactures and
distributes a full line of men's and women's golf clubs, including its "Ti 100"
line of oversized titanium irons, which it introduced in August 1996. Odyssey
Sports, Inc. ("Odyssey") manufacturers and distributes a line of specialty
putters and wedges targeted to the high-end market under the Odyssey brand name.
 
    Tommy Armour and Odyssey products are sold primarily in the United States
through both off-course golf speciality outlets and golf pro-shops. Tommy Armour
also has operations in Canada and Scotland. In Scotland, products are assembled
and distributed for the United Kingdom and other European Union markets. In
other international areas, Tommy Armour sells through distributors and
licensees. In Canada, products are distributed through a wholly-owned
subsidiary. The primary shipping season for golf equipment is March through
June, and sales during these months generally represent over 50% of the annual
total.
 
    Golf clubs are produced at Tommy Armour's Morton Grove, Illinois facility
using clubheads, shafts and grips supplied by independent vendors. Research and
engineering and Odyssey marketing are conducted in Carlsbad, California.
 
    FOOTWEAR AND TEXTILES OPERATIONS
 
    The Footwear and Textiles Operations consist of companies engaged in the
manufacture, marketing and distribution of western, work, safety, outdoor and
children's footwear as well as lace and tricot products.
 
    Georgia Boot Inc. ("Georgia Boot") markets and distributes work, hiking,
hunting and western boots under the brand names Georgia Boot, Northlake and
Durango. Under the name Georgia Industrial, Georgia Boot markets a line of
protective footwear for various workplace environments. Boots and shoes sold
under the Northlake brand are marketed to the outdoor/sport consumer through
independent retailers and outdoor specialty stores. The Durango brand serves the
western work boot market, as well as the consumer desiring western-influenced
fashion footwear. Durango boots are sold at moderate price points and
distributed through farm and western stores, truck stops, shoe stores,
department stores and independent dealers. Georgia Boot's facilities in
Franklin, Tennessee house its sales, administration and distribution functions.
 
    Lehigh Safety Shoe Company ("Lehigh") markets and distributes a full line of
protective safety shoes that are generally purchased by industrial companies for
their employees. Lehigh distributes its products primarily through a network of
company-owned and independent shoe centers, often located near industrial sites,
and shoe-mobiles which visit industrial locations. A portion of Lehigh's sales
are derived from direct mail and telemarketing efforts.
 
    Trimfoot Co. ("Trimfoot") is a manufacturer, importer and marketer of
footwear products for infants and children. Trimfoot products are distributed
through major department stores, mass merchants and discount chains in the
United States.
 
    Native Textiles manufactures lace and tricot products. Sales are made to
bra, lingerie and active sportswear manufacturers primarily in the United
States.
 
                                       7
<PAGE>
BUILDING PRODUCTS GROUP
 
    The Building Products Group includes companies engaged in the manufacture
and distribution of bath products (the "Bath Products Operations") and indoor
and outdoor lighting products (the "Lighting Products and Systems Operations").
The Building Products Group contributed 38% of the Company's net sales in fiscal
1996, 37% in fiscal 1995, and 35% in fiscal 1994.
 
    BATH PRODUCTS OPERATIONS
 
    Jacuzzi Inc., together with related subsidiaries ("Jacuzzi"), is one of the
leading worldwide manufacturers and distributors of whirlpool bath products,
spas, shower systems and non-jetted baths. Jacuzzi also manufactures and
distributes swimming pool equipment and water systems products. In fiscal 1996,
whirlpool bath products, spas, shower systems and non-jetted baths accounted for
79% of Jacuzzi's total sales, with swimming pool equipment and water systems
accounting for the remainder of its total sales.
 
    Jacuzzi's whirlpool bath products are offered in three distinct lines: the
Designer Series, serving the top-end of the highly stylized luxury segment of
the market; the Builder Group, serving the mass residential and commercial
construction and home centers segment; and the Asteria Line, providing a more
basic private label product. Jacuzzi's products include a complete range of
sizes and shapes of non-jetted bath tubs, a variety of faucets and valves, and a
complete line of shower pans. Jacuzzi manufactures a variety of portable spas
for specialized dealers and home centers. Jacuzzi's shower products include the
J-Dream and J-Shower Tower/Bath combination family of shower systems which are
self-contained systems combining hydrotherapy, steam and other amenities.
 
    In April 1996, Jacuzzi purchased Haugh's Products Limited ("Haugh's"), a
leading Canadian manufacturer of above-ground swimming pools and equipment.
Jacuzzi also produces a complete line of pumps, filtration systems, pool
equipment systems and other parts for residential and commercial swimming pool
applications. Jacuzzi's water systems products include irrigation systems, as
well as submersible, centrifugal and jet water pumps.
 
    Jacuzzi's whirlpool bath, spa and shower product lines are sold to wholesale
distributors (which sell to plumbers, remodelers, builders, and retailers) and
to home centers. Jacuzzi's swimming pool equipment and water systems product
lines are sold to original equipment manufacturers, builders, retailers and
wholesale distributors, who sell to pool builders, retailers, contractors, well
drillers and service companies.
 
    International markets, including Europe, South America, the Middle East and
the Pacific Rim, accounted for approximately 46% of Jacuzzi's fiscal 1996 sales.
Jacuzzi Europe, located in Pordenone, Italy, produces a full range of whirlpool
and non-jetted baths, shower systems, water system products and swimming pool
equipment for the European market. Jacuzzi Europe is a leader in whirlpool
products in the Italian market and holds a large market share in Spain, France
and Sweden. Jacuzzi also has manufacturing and distribution affiliates in
Brazil, Chile and Canada. Jacuzzi intends to commence operations at a new
facility located in Singapore during fiscal 1997 to provide products
specifically designed for the Asian markets.
 
    LIGHTING PRODUCTS AND SYSTEMS OPERATIONS
 
    The Lighting Products and Systems Operations is one of North America's
leading manufacturers of indoor and outdoor lighting fixtures and lighting
controls. Its products are sold to the commercial, industrial, institutional and
residential markets in the United States and Canada. During fiscal 1996, sales
of commercial and residential products accounted for approximately 80% and 20%,
respectively, of the total revenues of the Lighting Products and Systems
Operations.
 
    Outdoor lighting products are sold under the Kim, Spaulding, Moldcast and
Architectural Area Lighting names, and include street, area, parking garage and
landscape lighting products, as well as floodlights. The majority of sales of
outdoor lighting products are made to electrical distributors, with the
 
                                       8
<PAGE>
remainder to national accounts and utility companies. National accounts include
service stations, automobile dealerships and fast food restaurants. Sales of
outdoor lighting products are seasonal to a minor degree, with inclement weather
affecting outdoor installation.
 
    Indoor commercial/industrial grade lighting products are sold under the
Columbia and Prescolite names and include standard and custom designed
parabolic-type and other fluorescent lighting fixtures, incandescent and high
intensity discharge lighting fixtures and lighting controls. The majority of
sales are made through electrical distributors, with the remainder to national
accounts and home centers.
 
    Residential lighting products are sold under the Progress name and include
chandeliers, hall and foyer sconces, pendants, bath and vanity, ceiling,
fluorescent, under-cabinet, track, and outdoor and landscape lighting.
Residential lighting products are sold principally in the United States and
Canada to lighting showrooms and electrical distributors, who in turn, sell to
builders, electrical contractors and consumers, however; sales to home centers
are becoming a more important portion of this business. Sales of residential
lighting products are seasonal to a degree, with inclement weather affecting
residential construction.
 
INDUSTRIAL GROUP
 
    The Industrial Group includes companies engaged in the manufacture of a
variety of products for United States and foreign automotive manufacturers (the
"Automotive Components Operations") and other industrial products (the "Other
Industrial Products"). The Industrial Group contributed 20% of the Company's net
sales in fiscal 1996, 21% in fiscal 1995, and 22% in fiscal 1994.
 
    AUTOMOTIVE COMPONENTS OPERATIONS
 
    The Automotive Components Operations includes companies engaged in the
manufacture and distribution of automotive leather, speciality metal products,
metal automotive components and plastic automotive components.
 
    AUTOMOTIVE LEATHER.  Garden State Tanning, Inc. ("Garden State Tanning") is
a leading U.S. manufacturer of high quality leather for installation as
automotive seating and trim. It historically has been the most significant
contributor to the Automotive Component Operations' net sales (contributing
approximately 48% in fiscal 1996). Garden State Tanning produces precision cut
"sets" that are shipped to automotive industry customers' facilities where they
are sewn and attached to automobile seats and other vehicle parts.
Specifications for automotive leather are more demanding than those for other
leather products requiring, for example, that automotive leather remain durable,
supple and color-fast when subjected to extreme temperature ranges. Hides
comprise approximately one-half of Garden State Tanning's finished leather
costs. Over two-thirds of the hides used in the production of finished leather
are purchased from one supplier.
 
    Approximately 91% of Garden State Tanning's total sales of finished leather
in fiscal year 1996 were to automotive original equipment manufacturers ("OEMs")
and their suppliers. Toyota, General Motors, Ford, BMW and Honda collectively
accounted for approximately 85% of its total sales in fiscal 1996.
 
    SPECIALTY METAL PRODUCTS.  SCM Metal Products, Inc. ("SCM Metals") produces
specialty ferrous and non-ferrous powders, copper oxides, solder pastes,
electrolytic iron and other specialty materials. The materials are sold globally
to manufacturers for end uses in over 40 different industries, the largest of
which is the automotive industry, with such applications approximating 50% of
SCM Metals' total sales. SCM Metals produces a diverse product mix useful in
various other industries, including the compacting, friction, antifouling paint
and silane catalyst markets. SCM Metals' copper manufacturing process depends
upon continued purchase of high purity copper scrap. Although the price of
copper historically has been volatile, it is normally available from many
sources. SCM Metals has, to date, been able to pass through
 
                                       9
<PAGE>
raw material cost increases to customers. SCM Metals is dependent upon an
outside extruder for processing of its patented GlidCop powder into rods and
other extruded products.
 
    METAL AUTOMOTIVE COMPONENTS.  Huron Inc. ("Huron") manufactures a number of
different metal products used in various automobile systems including screw
machine parts, tubular assemblies, dowels, fittings, shafts and air conditioning
and fuel manifolds. Huron supplies its precision metal products to domestic
automotive OEMs, foreign automobile manufacturers with United States assembly
plants and their suppliers located in North America and Europe.
 
    PLASTIC AUTOMOTIVE COMPONENTS.  Leon Plastics, Inc. ("Leon Plastics")
manufactures molded plastic parts and assemblies for automotive interiors,
including plastic interior sidewall, console and instrument panel trim
components such as armrests, assist handles, cupholders, glove box doors and
large interior trim panels. Leon Plastics also manufactures complete interior
assemblies, which include armrests, pull straps and other plastic components.
Leon Plastics distributes its products directly to automotive assembly plants
and automotive interior trim manufacturers. Automotive OEMs are pursuing a
strategy of reducing their supply base by having their largest suppliers assume
the responsibility of design and engineering and managing relationships with the
smaller automotive suppliers. Leon Plastics is responding to this trend by
establishing appropriate relationships with other suppliers.
 
    OTHER INDUSTRIAL PRODUCTS
 
    Jade Technologies Singapore Pte. Ltd. ("Jade Singapore") is primarily
engaged in the assembly of leadframes for the electronics industry.
 
    QPF, Inc. ("QPF") manufactures bi-axially oriented polypropylene film,
primarily for use in the packaging industry. In November 1996, the Company
entered into an agreement to sell certain assets of QPF. Although the Company
has received a deposit from the prospective purchaser, closing is subject to
resolution of the contingencies set forth in the asset purchase agreement.
 
DISCONTINUED OPERATIONS AWAITING DISPOSITION
 
    Bearing Inspection, Inc. ("Bearing") overhauls and reconditions aircraft
engine bearings.
 
    The Company owns approximately 33% of the outstanding common stock of Ground
Round Restaurants, Inc. ("Ground Round") which is traded on The Nasdaq Stock
Market under the symbol "GRXR". Ground Round operates and franchises restaurants
in the United States, serving moderately-priced food designed to appeal to the
family market. Two designees of the Company serve on Ground Round's seven member
Board of Directors. The Company designated this investment as a discontinued
operation during the third quarter of fiscal 1996 as it intends to dispose of
the investment within one year.
 
COMPETITION
 
    Many of the industries in which the Company operates are mature and highly
competitive. The Company's businesses generally compete on the basis of brand
identification, quality, price, marketing and distribution approaches. In some
industries, some of the Company's competitors have greater market share or
product availability in a given market or have greater financial resources than
the Company.
 
INVESTMENT
 
    In July 1996, the Company joined a consortium of companies which acquired an
equity interest in All Pantronic Holdings, Limited ("All Pantronic"), a limited
liability company incorporated in Bermuda and listed on the Stock Exchange of
Hong Kong. All Pantronic manufactures voltage converters and other electronic
components. The Company's investment of approximately $11 million results in
beneficial ownership of 19.9% of All Pantronic. The ability of the Company and
such consortium to vote their
 
                                       10
<PAGE>
interest in All Pantronic is limited pursuant to the terms of certain voting
agreements. In November 1996, All Pantronic changed its name to United Pacific
Industries Limited.
 
REAL ESTATE
 
    The Company carries out land planning, development and management of
properties both for its sole benefit and in joint ventures with others through
its wholly-owned subsidiary, USI Properties, Inc. ("USI Properties"). USI
Properties holds and is responsible for the development, management and
disposition of development and surplus properties located throughout the United
States. Since the Demerger, the Company has received net cash consideration
totalling $83 million from real estate-related transactions.
 
INTERNATIONAL OPERATIONS
 
    A number of the Company's businesses generate revenue from exports (i.e.,
U.S. dollar-denominated sales outside the United States by domestic operations)
and/or revenue from operations conducted outside the United States. Export sales
amounted to approximately 14%, 13%, and 12% of total revenues in fiscal 1996,
1995 and 1994, respectively, principally reflecting sales by Rexair to foreign
distributors of Rainbow products in numerous countries, including primarily
Poland, Austria, Japan and Italy as well as sales by Garden State Tanning to
Japanese automobile manufacturers. Revenue from the Company's foreign operations
amounted to approximately 10%, 9% and 8% of total revenues in fiscal 1996, 1995
and 1994, respectively, principally reflecting the operations of affiliates of
Jacuzzi in Italy and Brazil. Identifiable assets of the Company's foreign
operations represented approximately 11% and 10% of total identifiable assets at
September 30, 1996 and 1995, respectively, principally reflecting the assets of
Jacuzzi affiliates. In addition, Ertl obtains a significant amount of finished
goods from unaffiliated suppliers in the Far East, particularly China and Macau,
and has a manufacturing facility in Mexico.
 
    The Company's export sales and foreign manufacturing and sourcing are
subject to certain risks including currency fluctuation, transportation delays,
political and economic instability, restrictions on the transfer of funds, the
imposition of duties, tariffs and import and export controls, and changes in
governmental policies. In particular, if China lost the "Most Favored Nation"
status currently accorded to it by the United States or if the United States
Trade Representative imposed retaliatory trade sanctions on China, the cost of
imports from China could increase significantly.
 
EMPLOYEES
 
    At September 30, 1996, the Company had approximately 16,700 employees
(excluding employees of companies in which the Company holds equity interests).
Approximately 45% of such employees were represented by unions. The Company
believes that the relations of its operating subsidiaries with employees and
unions are generally good.
 
GOVERNMENTAL REGULATION
 
    The Company's operating units are subject to numerous federal, state and
local laws and regulations concerning such matters as zoning, health and safety
and protection of the environment. The Company believes that its operating units
are currently operating in substantial compliance with, or under approved
variances from, various federal, state and local laws and regulations.
 
    Certain present and former operating sites, or portions thereof, currently
or previously owned and/or leased by current or former operating units of the
Company are the subject of investigations, monitoring or remediation under the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "superfund"), the federal Resource Conservation and Recovery Act or
comparable state statutes or agreements with third parties. These proceedings
are in various stages ranging from initial investigations to active settlement
negotiations to implementation of the clean-up or remediation of sites.
 
                                       11
<PAGE>
The Company does not believe that any of these proceedings will have a material
adverse effect on its financial condition, results of operations or cash flows.
 
    A number of present and former operating units of the Company have been
named as Potentially Responsible Parties ("PRPs") at 13 off-site disposal sites
under CERCLA or comparable state statutes in a number of federal and state
proceedings. In each of these matters the operating unit of the Company is
working with the governmental agencies involved and other PRPs to address
environmental claims in a responsible and appropriate manner. Under CERCLA and
other similar statutes, any generator of hazardous waste sent to a hazardous
waste disposal site is potentially responsible for the clean-up, remediation and
response costs required for such site in the event the site is not properly
closed by its owner or operator, irrespective of the amount of waste which the
generator sent to the site. The Company does not believe that any of these
proceedings will have a material adverse effect on its financial condition,
results of operations, or cash flows.
 
    From time to time, the Company may receive notices of violation or may be
denied its applications for certain licenses or permits on the basis that the
practices of the operating unit are not consistent with regulations or
ordinances. In some cases, the relevant operating unit may seek to meet with the
agency to determine mutually acceptable methods of modifying or eliminating the
practice in question. During fiscal 1996, Leon Plastics settled an enforcement
action brought by the Michigan Department of Natural Resources -- Air Quality
Division which had alleged non-compliance with an air permit by paying a penalty
of $95,000 plus a $5,000 supplemental donation. The Company believes that its
operating units, including this Michigan facility, should be able to achieve
compliance with the applicable regulations and ordinances in a manner which
should not have a material adverse effect on its financial condition, results of
operations or cash flows.
 
    The Company's subsidiaries have made significant capital and maintenance
expenditures over time in order to comply with zoning, water, air and solid and
hazardous waste regulations. While the amount of expenditures in future years
will depend on legal and technological developments which cannot be predicted at
this time, these expenditures may progressively increase if regulations become
more stringent. Future costs for compliance cannot be predicted with precision
and there can be no certainty with respect to any costs the Company may be
forced to incur in connection with historical on-site or off-site waste
disposal. Laws and regulations protecting the environment may in certain
circumstances impose "strict liability", rendering a person liable for
environmental damage without regard to negligence or fault on the part of such
person.
 
    At September 30, 1996, the Company had accrued approximately $15 million for
various environmental related liabilities of which the Company is aware. The
Company believes that the range of liability which is reasonable for such
matters is between approximately $7 million and $18 million. The Company cannot
predict whether future developments in laws and regulations concerning
environmental protection or unanticipated enforcement actions, particularly with
respect to environmental standards, will require material capital expenditures
or otherwise affect its financial condition, results of operation or cash flow
in a materially adverse manner or whether its operating units will be successful
in meeting future demands of regulatory agencies in a manner which will not have
a material adverse effect on the Company's financial condition, results of
operations or cash flows.
 
PATENTS AND TRADEMARKS
 
    The Company's subsidiaries have numerous United States and foreign patents,
patent applications, registered trademarks and trade names, and licenses with
regard thereto, that relate to various businesses. The Company believes that
certain of the trademarks and trade names, some of which are mentioned above,
are of material importance to the businesses to which they relate and may be of
material importance to the Company as a whole, including Ames, Jacuzzi, Keller,
Haugh's, Rainbow, Tommy Armour, Odyssey, Ertl, Georgia Boot, Durango, Lehigh,
Prescolite and Columbia.
 
                                       12
<PAGE>
LITIGATION
 
    The Company and its subsidiaries are parties to legal proceedings, including
product liability claims that are considered to be either ordinary, routine
litigation incidental to their business or not material to the Company's
financial position, results of operations or cash flows. For a discussion of
matters involving environmental laws and regulations, see "Governmental
Regulation".
 
EXECUTIVE OFFICERS
 
    At September 30, 1996, the executive officers of the Company were as
follows:
 
<TABLE>
<CAPTION>
NAME                                                                             POSITIONS
--------------------------------------------------------  --------------------------------------------------------
<S>                                                       <C>
 
David H. Clarke.........................................  Chairman of the Board and Chief Executive Officer
 
John G. Raos............................................  President, Chief Operating Officer and Director
 
Frank R. Reilly.........................................  Senior Vice President, Chief Financial Officer and
                                                          Director
 
Christian R. Guntner....................................  Senior Vice President--Corporate Development
 
George H. MacLean.......................................  Senior Vice President, General Counsel and Secretary
 
John A. Mistretta.......................................  Group Vice President
 
John S. Oldford.........................................  Group Vice President
 
Robert M. Brier.........................................  Vice President--Finance and Treasurer
 
Richard A. Buccarelli...................................  Vice President--Properties
 
Diana E. Burton.........................................  Vice President--Investor Relations
 
James O'Leary...........................................  Vice President--Corporate Controller
 
Dorothy Sander..........................................  Vice President--Administration
</TABLE>
 
    David H. Clarke, 55, has served as Chairman of the Board and Chief Executive
Officer of the Company since the Demerger. Mr. Clarke was Vice Chairman of
Hanson from 1993 until the Demerger, Deputy Chairman and Chief Executive Officer
of Hanson Industries, the U.S. arm of Hanson, from 1992 until the Demerger and a
Director of Hanson from 1989 until May 1996. Prior to 1992, Mr. Clarke served as
President of Hanson Industries. Mr. Clarke is a director of Fiduciary Trust
International, a public company engaged in investment management and
administration of assets for individuals, and serves on the National Advisory
Board of The Chase Manhattan Bank.
 
    John G. Raos, 47, has served as President and Chief Operating Officer and a
Director of the Company since the Demerger. Mr. Raos was President and Chief
Operating Officer of Hanson Industries from 1992 until the Demerger and a
Director of Hanson from 1989 until the Demerger. Prior to 1992, he was Senior
Vice President-Operations of Hanson Industries.
 
    Frank R. Reilly, 39, has served as Senior Vice President and Chief Financial
Officer and a Director of the Company since the Demerger. Mr. Reilly served as
an independent consultant to Hanson Industries from January 1995 to February
1995 and became an employee of a Hanson subsidiary in March 1995. He was Vice
President and Chief Financial Officer of Marine Harvest International, Inc.
("Marine Harvest"), a public company engaged in aquaculture, from January 1993
until its acquisition by Booker plc in
 
                                       13
<PAGE>
November 1994. He served as Director--Acquisitions of Hanson Industries from
1990 to 1992, having joined Hanson Industries in 1988 as Assistant Treasurer.
 
    Christian R. Guntner, 42, has served as Senior Vice President--Corporate
Development of the Company since the Demerger. Mr. Guntner served as Executive
Vice President--Corporate Development and Chief Operating Officer of Publicker
Industries, Inc., a U.S. public company engaged in manufacturing and services,
from July 1990 to March 1995. He was an employee of a Hanson subsidiary from
March 1995 until the Demerger. Mr. Guntner is a Director of Ground Round.
 
    George H. MacLean, 61, has served as Senior Vice President, General Counsel
and Secretary of the Company since the Demerger. Mr. MacLean served as Vice
President and Associate General Counsel of Hanson Industries from 1991 until the
Demerger.
 
    John A. Mistretta, 50, has served as a Group Vice President of the Company
since the Demerger. Mr. Mistretta served as Chairman and Chief Executive Officer
of Marine Harvest from October 1992 until its acquisition in November 1994. For
the balance of the past five years, Mr. Mistretta served as Chairman of the
Recreation and Leisure Group of Hanson Industries. Mr. Mistretta is a Director
of Ground Round.
 
    John S. Oldford, 53, has served as a Group Vice President of the Company
since the Demerger. Mr. Oldford served as Group Vice President of the Chemicals
and Automotive Group of Hanson Industries from April 1992 until the Demerger.
Mr. Oldford was Chairman of the Automotive and Industrial Group of Hanson
Industries from March 1991 to April 1992.
 
    Robert M. Brier, 37, has served as Vice President--Finance and Treasurer of
the Company since the Demerger. Mr. Brier served as Vice President--Finance of
Hanson Industries from June 1994 until the Demerger. He was Treasurer of Hanson
Industries from August 1992 until June 1994 and Director of Investor Relations
of Hanson Industries from April 1991 to August 1992.
 
    Richard A. Buccarelli, 41, has served as Vice President-Properties of the
Company and President of USI Properties, Inc. since the Demerger. Mr. Buccarelli
served as President of Hanson Properties North America from January 1992 until
the Demerger. For the balance of the past five years, he was Assistant General
Counsel of Hanson Industries.
 
    Diana E. Burton, 51, has served as Vice President--Investor Relations of the
Company since the Demerger. Ms. Burton served as a consultant to Hanson
Industries from January 1995 through February 1995, when she became an employee
of a Hanson subsidiary. She was Vice President of Marine Harvest, with principal
responsibility for administration and investor relations, from September 1991
until its acquisition in November 1994.
 
    James O'Leary, 33, has served as Corporate Controller of the Company since
the Demerger and as Vice President since January 1996. Mr. O'Leary served as
Group Controller for certain consumer, industrial and building products
businesses of Hanson Industries from September 1994 until the Demerger. From May
1993 to September 1994, he served as Assistant Corporate Controller and Director
of Financial Analysis and Reporting for Hanson Industries. For the balance of
the past five years, he was employed by Deloitte & Touche LLP as an Audit
Manager.
 
    Dorothy E. Sander, 43, has served as Vice President--Administration of the
Company since the Demerger. Ms. Sander served as Vice President--Administration
and Benefits of Hanson Industries from 1991 until the Demerger and as an
Associate Director of Hanson from 1993 until the Demerger. She is a member of
the Advisory Council of the Prudential Insurance Company.
 
ITEM 2. PROPERTIES
 
    The Company's operating subsidiaries own 60 and lease 113 properties, none
of which is considered to have a value that is significant in relation to the
Company's assets as a whole. The Company believes that its properties are well
maintained and are in good operating condition. The properties are deemed to be
 
                                       14
<PAGE>
suitable and adequate for the Company's present needs. The Company believes that
it has sufficient capacity available at most of its production facilities to
satisfy production requirements without substantial capital expenditures at the
present and into the forseeable future. For information concerning the Company's
real estate assets not used by its operating units, see "Business--Real Estate."
 
ITEM 3. LEGAL PROCEEDINGS
 
    Certain of the Company's subsidiaries are defendants in a number of pending
legal proceedings that are considered to be ordinary, routine litigation
incidental to the business of present and former operations. The Company does
not expect that the outcome of these proceedings, either individually or in the
aggregate, will have a material adverse effect upon its financial condition,
results of operations or cash flow.
 
    For information concerning environmental proceedings, see
"Business--Governmental Regulation."
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    The Company did not submit any matter to a vote of its security holders
during the fourth quarter of fiscal 1996.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
       SHAREHOLDER MATTERS
 
    (a) Market Information.
 
    The Common Stock of the Company is traded on the NYSE under the symbol USI.
The following table sets forth, for the fiscal periods indicated, the high and
low closing sales price per share of Common Stock as reported by the NYSE.
Regular-way trading in the Common Stock commenced on the NYSE on June 1, 1995.
 
<TABLE>
<CAPTION>
                                                                                      FISCAL 1996           FISCAL 1995
                                                                                  --------------------  --------------------
<S>                                                                               <C>        <C>        <C>        <C>
                                                                                    HIGH        LOW       HIGH        LOW
                                                                                  ---------  ---------  ---------  ---------
First Quarter...................................................................  $  18 3/8  $  14 3/4     --         --
Second Quarter..................................................................  $  20 3/4  $  17 3/8     --         --
Third Quarter...................................................................  $  24 1/2  $  20 3/8  $      15  $  13 1/8
Fourth Quarter..................................................................  $  27 1/4  $  21 3/4  $  15 7/8  $      14
</TABLE>
 
    (b) Holders.
 
    As of November 1, 1996, there were approximately 40,200 record holders of
Common Stock. The closing price per share of Common Stock as reported by the
NYSE on such date was $27 3/8.
 
    (c) Dividends.
 
    The Company has not paid any dividends and does not anticipate paying
dividends in the foreseeable future, and the Company's Credit Facility restricts
the payment of dividends. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources". Any
future payment of dividends will depend on applicable contractual restrictions,
as well as the financial condition, capital requirements and earnings of the
Company and other factors that the Company's Board of Directors may deem
relevant.
 
                                       15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
 
    The following table sets forth summary consolidated (combined) financial
information for the fiscal years and as of the dates indicated:
 
<TABLE>
<CAPTION>
                                                                          (IN MILLIONS EXCEPT PER SHARE AMOUNTS)
                                                                   -----------------------------------------------------
<S>                                                                <C>        <C>        <C>        <C>        <C>
                                                                     1996      1995(1)     1994       1993       1992
                                                                   ---------  ---------  ---------  ---------  ---------
INCOME STATEMENT DATA:
Net sales........................................................  $   2,233  $   2,094  $   2,015  $   1,815  $   1,726
Operating income (loss)..........................................        228         80        193        154        143
Income (loss) from continuing operations.........................         95        (67)        45         25         28
Net income (loss)................................................        133        (89)        78         61         52
Income from continuing operations per share......................       1.81         --         --         --         --
 
Net income per share.............................................       2.54         --         --         --         --
Pro forma income (loss) from continuing operations(2)............         --        (76)        49         --         --
Pro forma net income (loss) (2)..................................         --        (99)        82         --         --
Pro forma income (loss) from continuing operations per
  share(2).......................................................         --      (1.42)      0.91         --         --
Pro forma net income (loss) per common share (2).................         --      (1.84)      1.53         --         --
 
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents........................................  $      45  $      51  $      28  $      27  $      45
Working capital..................................................        511        478        952      1,097        981
Net assets held for disposition..................................         26        194        454        635        493
Total assets.....................................................      1,821      1,867      2,226      2,288      2,134
Long-term debt (3)...............................................        717        832        985        985        999
Stockholders' equity/Invested capital............................        527        412        803        902        768
</TABLE>
 
------------------------
 
(1) During fiscal 1995, subsequent to the Demerger, the Company's management
    conducted a comprehensive review of its accounting policies in light of its
    current financial position and separate public company status. As a result,
    as discussed below, the Company changed its accounting policy related to
    evaluating goodwill impairment during the third quarter of fiscal 1995. The
    changes affect comparability between fiscal 1995 and previous fiscal years.
 
    The Company adopted the fair value method of evaluating the recoverability
    of goodwill and measuring for permanent impairment. This change resulted in
    charges of $98 million to the Building Products Group's Lighting Products
    and Systems Operations and $13 million to the Consumer Group's Recreation
    and Leisure Products Operations in fiscal 1995. These permanent impairments
    to goodwill were associated with the original acquisitions of the Company's
    commercial and consumer lighting products and golf club businesses and
    result in reduced goodwill amortization expense prospectively. Prior periods
    have not been restated to reflect this change in accounting methodology. See
    Note 11 to the Consolidated (Combined) Financial Statements. Additionally,
    fiscal 1995 operating income includes charges of $2 million associated with
    the closing of underutilized facilities of the Lighting Products and Systems
    Operations. See Note 12 to the Consolidated (Combined) Financial Statements.
 
(2) Prior to fiscal 1996, earnings per share information excludes historical net
    income per share calculated in accordance with Accounting Principles Board
    Opinion No. 15, "Earnings per share" ("APB 15"), as such information is not
    indicative of the Company's continuing capital structure. Pro forma net
    income (loss) and pro forma net income (loss) per share are calculated as if
    (a) the Demerger had been consummated at the beginning of the periods
    presented; (b) the changes in the Company's capital structure contemplated
    by the Demerger, including the utilization of the credit facility entered
    into at the date of Demerger, had occurred on such date; (c) the Company had
    incurred certain general and administrative corporate costs in place of
    previously allocated management fees; and (d) compensation expense related
    to the restricted stock grants had been incurred for a full year. See Notes
    1, 5 and  to the Consolidated (Combined) Financial Statements.
 
(3) Amounts in fiscal 1994, 1993 and 1992 primarily represent notes payable to
    Hanson.
 
                                       16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
RESULTS OF OPERATIONS
 
    The Company's operations are grouped into three segments: Consumer, Building
Products and Industrial. The results of all operations sold or classified as
held for disposition are excluded from the table and discussion below. See Note
4 to the Consolidated (Combined) Financial Statements.
 
<TABLE>
<CAPTION>
                                                                                                (IN MILLIONS)
                                                                                              FISCAL YEAR ENDED
                                                                                                SEPTEMBER 30,
                                                                                       -------------------------------
<S>                                                                                    <C>        <C>        <C>
                                                                                         1996       1995       1994
                                                                                       ---------  ---------  ---------
NET SALES
Consumer Group
  Housewares.........................................................................  $     411  $     342  $     318
  Recreation and Leisure Products....................................................        284        269        282
  Footwear and Textiles..............................................................        240        261        269
                                                                                       ---------  ---------  ---------
                                                                                             935        872        869
                                                                                       ---------  ---------  ---------
Building Products Group
  Bath Products......................................................................        332        283        261
  Lighting Products and Systems......................................................        508        492        446
                                                                                       ---------  ---------  ---------
                                                                                             840        775        707
                                                                                       ---------  ---------  ---------
Industrial Group
  Automotive Components..............................................................        390        380        383
  Other Industrial Products..........................................................         68         67         56
                                                                                       ---------  ---------  ---------
                                                                                             458        447        439
                                                                                       ---------  ---------  ---------
      TOTAL NET SALES................................................................  $   2,233  $   2,094  $   2,015
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
OPERATING INCOME (LOSS)
Consumer Group
  Housewares.........................................................................  $      88  $      67  $      63
  Recreation and Leisure Products....................................................          8         (2)        35
  Footwear and Textiles..............................................................         24         25         26
                                                                                       ---------  ---------  ---------
                                                                                             120         90        124
                                                                                       ---------  ---------  ---------
Building Products Group
  Bath Products......................................................................         55         49         42
  Lighting Products and Systems......................................................         36        (74)        14
                                                                                       ---------  ---------  ---------
                                                                                              91        (25)        56
                                                                                       ---------  ---------  ---------
Industrial Group
  Automotive Components..............................................................         38         37         39
  Other Industrial Products..........................................................          6          5          2
                                                                                       ---------  ---------  ---------
                                                                                              44         42         41
                                                                                       ---------  ---------  ---------
Total Operating Income before corporate expenses
  and management fees................................................................        255        107        221
Corporate expenses and management fees...............................................        (27)       (27)       (28)
                                                                                       ---------  ---------  ---------
      TOTAL OPERATING INCOME.........................................................  $     228  $      80  $     193
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
</TABLE>
 
(1) In fiscal 1995, the Company adopted a new method of evaluating the
    recoverability of goodwill and measuring for permanent impairment. This
    change resulted in a charge of $98 million to the Building Product Group's
    Lighting Products and Systems Operations and a charge of $13 million to the
    Consumer Group's Recreation and Leisure Products Operations. See Note 11 to
    the Consolidated (Combined) Financial Statements. Additionally, fiscal 1995
    operating income includes charges of $2 million associated with the closing
    of underutilized facilities of the Lighting Products and Systems Operations.
    See Note 12 to the Consolidated (Combined) Financial Statements.
 
                                       17
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
 
    The Company had sales of $2,233 million and operating income of $228 million
in fiscal 1996, increases of $139 million (6.6%) and $148 million (185.0%),
respectively, from fiscal 1995. During the third quarter of fiscal 1995, the
Company recorded non-recurring charges totalling $113 million to write-off
permanently impaired goodwill from previous acquisitions and to consolidate
certain underutilized Lighting Products and Systems Operations facilities.
Excluding non-recurring charges, operating income increased $35 million (18.1%)
compared to fiscal 1995.
 
    CONSUMER GROUP
 
    The Consumer Group had sales of $935 million and operating income of $120
million in fiscal 1996, increases of $63 million (7.2%) and $30 million (33.3%),
respectively, compared to fiscal 1995. Fiscal 1995 results include a
non-recurring charge of $13 million to reflect the permanent impairment of
previously acquired goodwill affecting the Recreation and Leisure Products
Operations. Excluding the non-recurring charge, operating income increased $17
million (16.5%) from fiscal 1995.
 
    The Housewares Operations had sales of $411 million and operating income of
$88 million, increases of $69 million (20.2%) and $21 million (31.3%),
respectively, from fiscal 1995. Higher-margin international sales of vacuum
cleaners increased dramatically compared to fiscal 1995, offsetting weaker
domestic sales. The current year also benefitted from favorable factory cost
absorption due to overall higher production rates as well as from higher
pricing. The Company's domestic garden tool operations also performed well
relative to the prior year, more than offsetting weak results at its Canadian
operation. The improvement resulted from strong spring tool sales, successful
product introductions, lower raw material costs, favorable weather conditions
and growth at key accounts (principally "do-it-yourself" home centers). Current
year results include a full year's contributions from the Company's plastic
injection molding operations (acquired in May 1995) and a partial year's
contribution from its ladder subsidiary (acquired in July 1996.)
 
    The Recreation and Leisure Products Operations had sales of $284 million and
operating income of $8 million, increases of $15 million (5.6%) and $10 million,
respectively, from fiscal 1995. Fiscal 1995 results include a non-recurring
charge of $13 million to reflect the permanent impairment of previously acquired
goodwill of a golf club subsidiary. Excluding the non-recurring charge,
operating income decreased $3 million (27.3%) from fiscal 1995. Results at the
Company's toy subsidiary were substantially below those of the prior year due to
the failure of, and accelerated withdrawal from, the promotional toy category.
This withdrawal, which resulted in a number of charges for anticipated inventory
mark-downs, was undertaken to reposition and focus the subsidiary on its core
product lines. The core product lines performed favorably compared to the prior
year. Sales of golf putters (a product line acquired in March 1995) and the
absence of approximately $1 million in inventory obsolescence charges taken
during fiscal 1995 led to improvements in the results of the Company's golf club
business.
 
    The Footwear and Textiles Operations had sales of $240 million and operating
income of $24 million, decreases of $21 million (8.0%) and $1 million (4.0%),
respectively, from fiscal 1995. Weak market conditions for high-margin western
footwear and resulting inventory liquidations adversely affected results for the
period. In the textiles market, softness experienced throughout fiscal 1996
caused shortfalls in sales of both tricot and lace. A $1 million inventory
charge taken during the third quarter of fiscal 1995 to record an inventory
adjustment identified during that period resulted in an improvement in 1996
relative to the prior year.
 
    BUILDING PRODUCTS GROUP
 
    The Building Products Group had sales of $840 million and operating income
of $91 million in fiscal 1996, increases of $65 million (8.4%) and $116 million,
respectively, from fiscal 1995. The fiscal 1995 results include non-recurring
charges of $98 million to reflect the permanent impairment of goodwill and
 
                                       18
<PAGE>
$2 million to consolidate certain underutilized facilities. Excluding the
non-recurring charges, operating income increased $16 million (21.3%) over
fiscal 1995.
 
    The Bath Products Operations had sales and operating income of $332 million
and $55 million, increases of $49 million (17.3%) and $6 million (12.2%),
respectively, over fiscal 1995. While domestic sales increased, market
competition resulted in reduced margins leading to flat domestic operating
income. Internationally, sales were down slightly but operating income increased
due to a shift in sales towards higher-margin items and new products and the net
beneficial effect of a stronger lira. Fiscal 1996 results include a partial
year's contribution from a manufacturer of above-ground swimming pools (acquired
in April 1996).
 
    The Lighting Products and Systems Operations had sales of $508 million and
operating income of $36 million, increases of $16 million (3.3%) and $110
million, respectively, from fiscal 1995. Fiscal 1995 results include
non-recurring charges of $98 million to reflect the permanent impairment of
goodwill and $2 million to consolidate certain underutilized facilities.
Excluding non-recurring charges, operating income increased $10 million (38.5%)
over fiscal 1995. Strong sales at the Company's outdoor lighting subsidiaries,
cost reductions and reduced goodwill amortization resulted in increased
operating income, despite soft construction market conditions affecting the
Company's commercial lighting subsidiaries.
 
    INDUSTRIAL GROUP
 
    The Industrial Group had sales of $458 million and operating income of $44
million in fiscal 1996, increases of $11 million (2.5%) and $2 million (4.8%),
respectively, from fiscal 1995.
 
    The Automotive Components Operations had sales of $390 million and operating
income of $38 million in fiscal 1996, increases of $10 million (2.6%) and $1
million (2.7%), respectively, from fiscal 1995. These results reflect weaker
performance at the Company's premium automotive leather and powdered metals
businesses, which were more than offset by improvement at its plastic and metal
automotive components businesses. The automotive leather business showed
improved sales due to the recovery of foreign sales lost in fiscal 1995
resulting from the threat of tariff sanctions against certain Japanese
automobiles supplied by the Company and the building of inventories by domestic
automobile manufacturers during the fourth quarter of fiscal 1996 in
anticipation of a potential strike by the United Auto Workers union. However,
the volume increases were more than offset by the negative impact of contractual
hide price pass throughs, lower prices for sales of split hides (excess leather
produced when hides are "split" during the production of automotive and other
premium leather) and higher price concessions. Sales at the powdered metals
business were flat compared to the prior year with no operating income benefit
from rising copper prices as experienced in the prior year.
 
    The Other Industrial Products Operations had sales of $68 million and
operating income of $6 million, increases of $1 million (1.5%) and $1 million
(20.0%), respectively, from fiscal 1995. Improved sales volume and mix of
polypropylene films more than offset weakness in the semi-conductor dependent
leadframe market. The disproportionate impact of improved sales of higher-margin
films partially offset by lower sales of leadframes resulted in higher net
operating margins.
 
    INTEREST AND TAXES
 
    Interest expense was $60 million for fiscal 1996, a $41 million (40.6%)
decrease from the prior fiscal year. The decrease reflects lower levels of debt
outstanding and lower average interest rates. In fiscal 1995, prior to the
Demerger, outstanding indebtedness was comprised primarily of notes payable to
Hanson with interest at fixed rates which were higher than those incurred under
the Company's credit facilities. Interest income was $8 million for fiscal 1996,
unchanged from the prior fiscal year.
 
                                       19
<PAGE>
    The provision for income taxes totaled $78 million for fiscal 1996 on
pre-tax income of $173 million (a 45.1% effective tax rate) compared to a $48
million provision on a pre-tax loss of $19 million for fiscal 1995. The prior
year period pre-tax loss included non-recurring charges that were not deductible
for taxes.
 
FISCAL 1995 COMPARED TO FISCAL 1994
 
    The Company had sales of $2,094 million and operating income of $80 million
in fiscal 1995, an increase of $79 million (3.9%) and a decrease of $113 million
(58.5%), respectively, from fiscal 1994. During the third quarter of fiscal
1995, the Company recorded non-recurring charges totalling $113 million to
write-off permanently impaired goodwill from previous acquisitions and to
consolidate certain underutilized Lighting Products and Systems Operations
facilities. Excluding non-recurring charges, operating income for the fiscal
1995 period was $193 million, unchanged from fiscal 1994.
 
    CONSUMER GROUP
 
    The Consumer Group had sales of $872 million and operating income of $90
million in fiscal 1995, an increase of $3 million (0.3%) and a decrease of $34
million (27.4%) compared to fiscal 1994. Fiscal 1995 results include a
non-recurring charge of $13 million to reflect permanent impairment of
previously acquired goodwill affecting the Recreation and Leisure Products
Operations. Excluding the non-recurring charge, operating income was $103
million, a decrease of $21 million (16.9%) from fiscal 1994.
 
    The Housewares Operations reported sales of $342 million and operating
income of $67 million, increases of $24 million (7.5%) and $4 million (6.3%)
from fiscal 1994. Sales and operating income from vacuum cleaners increased to
record levels both domestically and internationally. This increase was partially
offset by reduced sales of and operating income from garden tools due to
unfavorable weather patterns in the Company's principal selling areas.
 
    The Recreation and Leisure Products Operations had sales of $269 million and
an operating loss of $2 million, decreases of $13 million (4.6%) and $37
million, respectively, from fiscal 1994. Results include a non-recurring charge
of $13 million to reflect the permanent impairment of previously acquired
goodwill of a golf club subsidiary. Excluding the non-recurring charge,
operating income was $11 million, a decrease of $24 million (68.6%). Weak retail
demand for promotional toys, in particular the Bumble Ball, accounted for most
of the decline in sales volume. While sales of golf equipment reflected a
contribution from the putter business (acquired in March 1995), its profit
contribution was negligible as significant advertising expenditures were made to
promote its golf club lines. In fiscal 1994, the Company launched its 855 irons
as an oversized complement to its 845 irons. However, production delays, which
were subsequently remedied, had an adverse impact on sales at the end of fiscal
1994 and during fiscal 1995. Fiscal 1995 results also include a $1 million
charge taken in the third quarter to reserve for certain older model golf clubs.
 
    The Footwear and Textiles Operations had sales of $261 million and operating
income of $25 million, reflecting decreases of $8 million (3.0%) and $1 million
(3.8%), respectively, from fiscal 1994. In the footwear market, cost reduction
efforts and the introduction of higher margin products offset reduced retail
demand for fashion western wear products. In textiles, a $1 million unfavorable
inventory adjustment during the third quarter and unfavorable manufacturing
costs incurred during the Company's relocation of a textile facility resulted in
a poor performance relative to the prior year.
 
    BUILDING PRODUCTS GROUP
 
    The Building Products Group had sales of $775 million and an operating loss
of $25 million in fiscal 1995, an increase of $68 million (9.6%) and a decrease
of $81 million, respectively, from fiscal 1994. Fiscal 1995 results include
non-recurring charges of $98 million to reflect the permanent impairment of
goodwill
 
                                       20
<PAGE>
and $2 million to consolidate certain underutilized facilities. Excluding the
non-recurring charges, operating income was $75 million, an increase of $19
million (33.9%) over fiscal 1994.
 
    The Bath Products Operations had record sales and operating income of $283
million and $49 million, increases of $22 million (8.4%) and $7 million (16.7%),
respectively, over fiscal 1994. Strong performances by the Company's
international operations and the success of new product introductions more than
offset weaker demand experienced at the Company's domestic Bath Products
Operations. The Company's high-margin new products, particularly its new shower
systems, performed well in all markets into which they were introduced.
 
    The Lighting Products and Systems Operations had sales of $492 million and
an operating loss of $74 million, an increase of $46 million (10.3%) and a
decrease of $88 million, respectively, from fiscal 1994. Fiscal 1995 results
include non-recurring charges of $98 million to reflect the permanent impairment
of goodwill and $2 million to consolidate certain underutilized facilities.
Excluding the non-recurring charges, operating income was $26 million, an
increase of $12 million (85.7%) over fiscal 1994. The strong increase in
recurring operating earnings reflects the successful restructuring which began
in 1992. Increased market share, continued productivity gains and cost reduction
programs resulted in the significantly improved performance over fiscal 1994.
 
    INDUSTRIAL GROUP
 
    The Industrial Group had sales of $447 million and operating income of $42
million in fiscal 1995, increases of $8 million (1.8%) and $1 million (2.4%),
respectively, from fiscal 1994.
 
    The Automotive Components Operations had sales of $380 million and operating
income of $37 million in fiscal 1995, decreases of $3 million (0.8%) and $2
million (5.1%), respectively, from fiscal 1994. Sales and operating income
contribution made by the automotive leather subsidiary declined significantly
due to the threat of tariff sanctions in the third quarter on certain Japanese
automobile models supplied by the Company, and generally lower demand. The
Company also had record sales and operating income from powdered metal products
and metal automotive components.
 
    The Other Industrial Products Operations had sales of $67 million and
operating income of $5 million, increases of $11 million (19.6%) and $3 million
(150.0%), respectively, over fiscal 1994. Strong sales of leadframes and
bi-axially orientated polypropylene film accounted for the significant increase
over the prior fiscal year.
 
    INTEREST AND TAXES
 
    Interest expense was $101 million for the year ended September 30, 1995, a
$7 million (7.4%) increase from fiscal 1994. The increase reflects higher levels
of debt outstanding at lower average interest rates following the Demerger. In
fiscal 1995, prior to the Demerger, outstanding indebtedness was comprised
primarily of notes payable to Hanson with interest at fixed rates which were
higher than those incurred under the Company's original credit facility.
Interest income was $8 million for the year ended September 30, 1995, a $3
million decrease from fiscal 1994.
 
    The provision for income taxes totaled $48 million for fiscal 1995 on a
pre-tax loss of $19 million, compared to a $33 million provision on pre-tax
income of $78 million for fiscal 1994. Fiscal 1995 included non-recurring
charges for the permanent impairment of nondeductible goodwill.
 
OUTLOOK
 
    Management believes that, although it is early in the fiscal year, the
Company is in an excellent position to again meet management's long-term goal of
achieving average annual earnings-per-share growth of at least 15% throughout a
complete economic cycle. See "Disclosure Concerning Forward-Looking Statements."
 
                                       21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
 
    The Company's primary sources of liquidity and capital resources are cash
provided from operations, external borrowings and proceeds from sales of
non-core businesses and assets. Cash provided by operations and proceeds from
the sales of non-core businesses and assets exceeded the cash used to fund
capital expenditures and acquisitions and to purchase Common Stock for treasury,
leading to an overall decrease in outstanding indebtedness at year-end.
 
    Net cash provided by operating activities was $142 million for fiscal 1996
compared to $151 million for fiscal 1995. Of these amounts, $132 million and
$161 million, respectively, were provided by continuing operations.
 
    Net cash provided by investing activities was $158 million for fiscal 1996
compared to $210 million for fiscal 1995. Fiscal 1996 included proceeds of $272
million from the sale of net assets held for disposition and real estate
transactions, partially offset by capital expenditures of $50 million,
acquisition of companies of $61 million and purchases of investments of $12
million.
 
    Net cash used in financing activities was $306 million for fiscal 1996
compared to $336 million for fiscal 1995. Fiscal 1996 activity consists of
long-term debt and note repayments in excess of new borrowings totalling $260
million and the purchase of $46 million of Common Stock for treasury.
 
    At September 30, 1996, the Company had current maturities of long-term debt
and short-term notes payable aggregating $17 million. The Company had $125
million of unused availability under uncommitted short-term lines of credit and
$325 million of unused credit available under the Existing Credit Facility (as
defined below) at September 30, 1996. The Company believes that cash provided by
operations, availability under the unused credit facilities and the net proceeds
from further dispositions of non-core businesses and assets will provide
adequate support for the Company's cash needs for working capital, capital
expenditures for existing businesses and future principal payments under the
term loan facility.
 
    Total stockholders' equity increased by $115 million from September 30, 1995
to September 30, 1996 principally due to net income for fiscal 1996 and certain
tax benefits recorded, partly offset by purchases of Common Stock for treasury
for a total cash outlay of $46 million. See Note 1 to the Consolidated
(Combined) Financial Statements.
 
    EXISTING CREDIT FACILITY
 
    On December 21, 1995, the Company and its subsidiaries entered into a credit
facility (the "Existing Credit Facility"), which consists of a 4 1/2-year
secured amortizing term loan facility in the amount of $400 million and a 5-year
secured revolving credit facility of $575 million (including a swingline loan
facility and letter of credit facility in an amount of up to $50 million each).
Concurrently, a net-of-tax, non-cash, extraordinary charge of approximately $25
million was recorded to write-off unamortized deferred financing costs
associated with its previously existing bank credit facility and to recognize
previously deferred losses associated with the interest rate protection
agreements then designated as hedges of that credit agreement.
 
    Remaining required principal payments under the term loan facility are as
follows: $14 million on or about November 29, 1996; $89 million on June 15,
1998; $89 million on June 15, 1999; and $178 million on June 15, 2000. These
payments may be satisfied by borrowing under the revolving credit facility to
the extent there is availability thereunder. The term loan facility is subject
to certain mandatory prepayments from asset sales which will be applied to the
scheduled installments of the term loan on a PRO RATA basis. The revolving
credit facility matures on December 15, 2000.
 
                                       22
<PAGE>
    The Existing Credit Facility places restrictions on, among other things,
dividends, liens, acquisitions and additional indebtedness. It also requires
compliance with covenants as to minimum net worth and certain other financial
ratios. On June 18, 1996, the Existing Credit Facility was amended to increase
the amount of permitted investments and unsecured indebtedness of the Company
and its subsidiaries.
 
    The interest rates for loans outstanding under the Existing Credit Facility
are based on specified spreads over, at the option of the Company, (a) the
London interbank offered rate ("LIBOR") or (b) the higher of the rate of
interest publicly announced by Bank of America in San Francisco, California as
its reference rate or the federal funds rate in effect on such day (the "Base
Rate"). The spread on LIBOR-based borrowings ranges between 62.5 and 150 basis
points and the spread on Base Rate borrowings ranges between zero and 50 basis
points, and are adjusted quarterly based on a Consolidated Leverage Ratio
specified in the Existing Credit Facility. At September 30, 1996 the spreads
were 62.5 basis points and zero basis points, respectively, At September 30,
1996, three-month LIBOR was 5.625% per annum. A commitment fee is payable on a
quarterly basis in arrears to the lenders under the Existing Credit Facility on
the aggregate unused amount of the revolving credit facility. The commitment fee
ranges between 15 and 30 basis points per annum and is adjusted quarterly based
on the Consolidated Leverage Ratio. At September 30, 1996, it was 15 basis
points per annum. The Company's interest rate protection agreements outstanding
at September 30, 1996 have been designated as hedges of indebtedness incurred
under the Existing Credit Facility. See "Risk Management" below.
 
    The Company is considering the refinancing of indebtedness outstanding under
the Existing Credit Facility using the proceeds of an offering of senior
unsecured notes of a subsidiary, to be guaranteed by the Company, and borrowings
under a new revolving credit facility. In anticipation of the notes offering,
the Company entered into certain interest rate protection agreements in the
aggregate notional amount of $120 million (the "Treasury Locks"), which may be
less than or greater than the principal amount of notes offered. See "Risk
Management" below.
 
    RISK MANAGEMENT
 
    The Company has entered into various interest rate protection agreements
with several banks to manage its floating rate interest rate exposures under the
Existing Credit Facility. Under these interest rate protection agreements, the
Company receives a floating rate based on three-month LIBOR and pays a weighted
average fixed rate on the various agreements which will range from 6.23% to
6.95%. The aggregate notional amounts for periods covered by such agreements are
as follows:
 
<TABLE>
<S>                                                              <C>
                                                                 $500
September 30, 1996 through May 30, 1997........................  million
                                                                 $450
May 30, 1997 through September 30, 1997........................  million
                                                                 $300
September 30, 1997 through May 30, 1998........................  million
                                                                 $200
May 30, 1998 through September 30, 1998........................  million
</TABLE>
 
    In all cases, the interest rate protection agreements are of notional
amounts and maturities that relate to specific portions of debt under the
Existing Credit Facility and have been accounted for as hedge transactions. The
Company anticipates that its debt levels will exceed the notional amount of the
interest rate protection agreements for the relevant periods.
 
    During fiscal 1996, the Company purchased foreign currency option contracts
to protect the U.S. dollar value of its anticipated foreign currency earnings.
These options were not exercised and expired prior to September 30, 1996. In
addition, the Company purchased foreign currency option contracts to protect the
U.S. dollar value of its anticipated foreign currency earnings in fiscal 1997.
These options expire prior to September 30, 1997. The Company has no exposure
with respect to these foreign currency options contracts other than the cost of
such options. The cost of such foreign currency options is not material and is
charged to operations over the period of the options.
 
                                       23
<PAGE>
    The agreements and foreign exchange options described above were the only
derivative instruments held or entered into by the Company at or during the year
ended September 30, 1996. See Notes 2 and 5 to the Consolidated (Combined)
Financial Statements.
 
    Subsequent to September 30, 1996, in anticipation of the note offering
referred to above, the Company entered into the Treasury Locks in the aggregate
notional amount of $120 million to effectively fix the interest rates tied to
the relevant United States government treasury securities. The amounts which the
Company will pay or receive under the Treasury Locks are based on interest rates
which range from 6.27% to 6.49%. As of November 13, 1996, the Company would have
been required to pay approximately $2 million to settle outstanding indebtedness
under the Treasury Locks based upon the fair value at that date.
 
FOREIGN CURRENCY MATTERS
 
    The functional currency of each of the Company's foreign operations is the
local currency, with the exception of Brazil. Because Brazil's economy
historically has been hyperinflationary, the functional currency of the
Company's operations in Brazil is the U.S. dollar. Interest earned on deposits
in Brazil substantially offset foreign currency translation losses incurred as a
result of remeasurement, which were $1 million, $2 million and $12 million in
fiscal 1996, 1995, and 1994, respectively. Historically, the net impact of
currency translation has not been material to the Company's financial position.
See "Risk Management" above for information concerning certain foreign currency
option contracts purchased by the Company to protect the U.S. dollar value of
anticipated foreign currency earnings.
 
EFFECT OF INFLATION
 
    Because of the relatively low level of inflation experienced in the United
States, inflation did not have a material impact on the Company's results of
operations in fiscal 1996, 1995 or 1994.
 
                                       24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                         REPORT OF INDEPENDENT AUDITORS
 
To the Board of Directors and Stockholders of
U.S. Industries, Inc.
 
We have audited the accompanying consolidated balance sheets of U.S. Industries,
Inc. (the "Company") as of September 30, 1996 and 1995 and the related
consolidated/combined statements of operations, cash flows, and changes in
stockholders' equity/invested capital for each of the three years in the period
ended September 30, 1996. Our audits also included the financial statement
schedule listed in the index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits. We did not audit the financial statements of certain
subsidiaries/combined companies which statements reflect 32% and 13%, of
consolidated total assets as of September 30, 1996 and 1995, respectively, and
32%, 18% and 19% of consolidated/combined revenues for the years ended September
30, 1996, 1995 and 1994, respectively. Those statements and Schedule II
information were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to data included for these
operations, is based solely on the reports of the other auditors.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
 
In our opinion, based upon our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of U.S. Industries, Inc. at September 30,
1996 and 1995 and the consolidated/combined results of their operations and
their cash flows for each of the three years in the period ended September 30,
1996 in conformity with generally accepted accounting principles. Also, in our
opinion, based upon our audits and the reports of other auditors, 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 11 to the financial statements, in 1995, the Company
changed its method of accounting for goodwill impairment.
 
/s/ Ernst & Young LLP
 
November 11, 1996
 
                                       25
<PAGE>
                         REPORT OF PRICE WATERHOUSE LLP
 
                         REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors of
U.S. Industries, Inc.
 
    We have audited the accompanying combined balance sheet of the U.S.
Industries Automotive Group and Jacuzzi Companies as of September 30, 1996, and
the related combined statements of operations and cash flows for the year then
ended (not presented separately herein). Our audit also included Financial
Statement Schedule II of the U.S. Industries Automotive Group and Jacuzzi
Companies for the year ended September 30, 1996 (not presented separately
herein). We have also audited the accompanying combined balance sheet of the
U.S. Industries Automotive Group as of September 30, 1995, and the related
combined statements of operations and cash flows for the year then ended (not
presented separately herein). Our audit also included Financial Statement
Schedule II of the U.S. Industries Automotive Group for the year ended September
30, 1995 (not presented separately herein). These financial statements and
schedules are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 combined financial statements audited by us presently
fairly, in all material respects, the combined financial position of the U.S.
Industries Automotive Group and Jacuzzi Companies at September 30, 1996, and the
results of their combined operations and cash flows for the year then ended and
the combined financial position of the U.S. Industries Automotive Group at
September 30, 1995, and the results of their combined operations and cash flows
for the year then ended in conformity with generally accepted accounting
principles. Also, the financial statement schedules referred to above, when
considered in relation to the basic combined financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
 
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Morristown, New Jersey
November 11, 1996
 
                                       26
<PAGE>
                        REPORT OF DELOITTE & TOUCHE LLP
 
                          INDEPENDENT AUDITORS' REPORT
 
U.S. INDUSTRIES, INC. AUTOMOTIVE GROUP COMPANIES:
 
    We have audited the accompanying combined statements of operations, cash
flows and invested capital of the U.S. Industries Automotive Group Companies for
the year ended September 30, 1994 (not presented separately herein). Our audit
also included the financial statement schedule, Valuation and Qualifying
Accounts, for the year ended September 30, 1994 (not presented separately
herein). These financial statements and schedule information are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
 
    We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
    In our opinion, based upon our audit, the financial statements referred to
above present fairly, in all material respects, the combined results of the
Automotive Group Companies' operations and their cash flows for year ended
September 30, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, based upon our audit, the financial statement schedule
referred to above, when considered in relation to the basic combined financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
 
/S/ DELOITTE & TOUCHE LLP
New York, New York
 
February 21, 1995
 
                                       27
<PAGE>
                             U.S. INDUSTRIES, INC.
 
                CONSOLIDATED (COMBINED) STATEMENTS OF OPERATIONS
 
                      (IN MILLIONS EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                                        FOR THE FISCAL YEARS ENDED
                                                                                               SEPTEMBER 30,
                                                                                    -----------------------------------
<S>                                                                                 <C>        <C>          <C>
                                                                                      1996        1995         1994
                                                                                    ---------  -----------  -----------
Net sales.........................................................................  $   2,233   $   2,094    $   2,015
Operating costs and expenses:
  Cost of products sold...........................................................      1,510       1,428        1,365
  Selling, general and administrative expenses....................................        495         473          457
  Goodwill impairment and non-recurring charges...................................         --         113           --
                                                                                    ---------  -----------  -----------
      Operating income............................................................        228          80          193
Interest expense..................................................................         60         101           94
Interest income...................................................................         (8)         (8)         (11)
Other expense, net................................................................          3           6           32
                                                                                    ---------  -----------  -----------
Income (loss) before income taxes, discontinued operations and extraordinary
  loss............................................................................        173         (19)          78
Provision for income taxes........................................................         78          48           33
                                                                                    ---------  -----------  -----------
  Income (loss) from continuing operations........................................         95         (67)          45
                                                                                    ---------  -----------  -----------
Discontinued operations:
  Income (loss) from operations of discontinued operations
    (net of income taxes (benefit) of $(2), $18 and $24, respectively)............         (3)         21           27
  Gain (loss) on disposals of discontinued operations, including in 1995, $14 of
    operating losses during phaseout period
    (net of income taxes of $9, $3 and $5)........................................         66         (43)           6
                                                                                    ---------  -----------  -----------
  Income (loss) from discontinued operations......................................         63         (22)          33
                                                                                    ---------  -----------  -----------
  Income (loss) before extraordinary loss.........................................        158         (89)          78
  Extraordinary loss from early extinguishment of debt
    (net of income tax benefit of $16)............................................        (25)         --           --
                                                                                    ---------  -----------  -----------
  Net income (loss)...............................................................  $     133   $     (89)   $      78
                                                                                    ---------  -----------  -----------
                                                                                    ---------  -----------  -----------
Income from continuing operations per share.......................................  $    1.81
Income from discontinued operations per share.....................................  $    1.20
Extraordinary loss per share......................................................  $   (0.47)
                                                                                    ---------
Net income per share..............................................................  $    2.54
                                                                                    ---------
                                                                                    ---------
Pro forma income (loss) from continuing operations................................              $     (76)   $      49
                                                                                               -----------  -----------
                                                                                               -----------  -----------
Pro forma net income (loss).......................................................              $     (99)   $      82
                                                                                               -----------  -----------
                                                                                               -----------  -----------
Pro forma income (loss) from continuing operations per share......................              $   (1.42)   $    0.91
                                                                                               -----------  -----------
                                                                                               -----------  -----------
Pro forma net income (loss) per share.............................................              $   (1.84)   $    1.53
                                                                                               -----------  -----------
                                                                                               -----------  -----------
</TABLE>
 
           See notes to consolidated (combined) financial statements.
 
                                       28
<PAGE>
                             U.S. INDUSTRIES, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
                        (IN MILLIONS EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                                                  AT SEPTEMBER 30,
                                                                                               ----------------------
<S>                                                                                            <C>        <C>
                                                                                                 1996        1995
                                                                                               ---------  -----------
                                                       ASSETS
Current assets:
  Cash and cash equivalents..................................................................  $      45   $      51
  Trade receivables, net.....................................................................        400         343
  Inventories, net...........................................................................        387         371
  Deferred income taxes......................................................................         43          --
  Other current assets.......................................................................         24          31
  Net assets held for disposition............................................................         26         194
                                                                                               ---------  -----------
      Total current assets...................................................................        925         990
Property, plant and equipment, net...........................................................        335         315
Deferred income taxes........................................................................         24           6
Other assets.................................................................................        118         163
Goodwill, net................................................................................        419         393
                                                                                               ---------  -----------
                                                                                               $   1,821   $   1,867
                                                                                               ---------  -----------
                                                                                               ---------  -----------
 
                                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable..............................................................................  $       1   $       4
  Current maturities of long-term debt.......................................................         16         157
  Trade accounts payable.....................................................................        168         143
  Accrued expenses and other liabilities.....................................................        186         180
  Income taxes payable.......................................................................         43          28
                                                                                               ---------  -----------
      Total current liabilities..............................................................        414         512
Long-term debt...............................................................................        717         832
Other liabilities............................................................................        163         111
                                                                                               ---------  -----------
  Total liabilities..........................................................................      1,294       1,455
                                                                                               ---------  -----------
Commitments and contingencies
Stockholders' equity:
  Common stock (par value $.01) per share, authorized 200,000,000 shares; issued 53,734,565
    and 53,671,432, respectively; outstanding 51,392,001, and 53,671,432, respectively)......          1           1
  Paid in capital............................................................................        563         542
  Retained earnings (deficit)................................................................         29        (104)
  Minimum pension liability adjustment.......................................................         (2)         (3)
  Unearned restricted stock..................................................................        (19)        (24)
  Cumulative translation adjustment..........................................................         --          --
  Treasury stock (2,342,564 shares at September 30, 1996) at cost............................        (45)         --
                                                                                               ---------  -----------
      Total stockholders' equity.............................................................        527         412
                                                                                               ---------  -----------
                                                                                               $   1,821   $   1,867
                                                                                               ---------  -----------
                                                                                               ---------  -----------
</TABLE>
 
           See notes to consolidated (combined) financial statements.
 
                                       29
<PAGE>
                             U.S. INDUSTRIES, INC.
 
                CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS
 
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                                                     FOR THE FISCAL YEARS ENDED
                                                                                                            SEPTEMBER 30,
                                                                                                 -----------------------------------
<S>                                                                                              <C>        <C>          <C>
                                                                                                   1996        1995         1994
                                                                                                 ---------  -----------  -----------
OPERATING ACTIVITIES:
  Income (loss) from continuing operations.....................................................  $      95   $     (67)   $      45
  Adjustments to reconcile income (loss) from continuing operations to net cash provided by
    operating activities of continuing operations:
    Depreciation and amortization..............................................................         62          59           55
    Provision (benefit) for deferred income taxes..............................................         11          12           (4)
    Provision for doubtful accounts............................................................          5          11            9
    Gain on sale of excess real estate, net....................................................         (5)         (7)          --
    Goodwill impairment & non-recurring charges................................................         --         113           --
  Changes in operating assets and liabilities, excluding the effects of acquisitions and
    dispositions:
    (Increase) decrease in trade receivables...................................................        (43)         25          (67)
    Increase in inventories....................................................................         (4)         (5)         (24)
    Decrease (increase) in other current assets................................................          6           3          (14)
    Increase in other non-current assets.......................................................        (12)        (32)         (22)
    Increase in trade accounts payable.........................................................         18           5           11
    Increase in income taxes payable...........................................................          3          28           --
    (Decrease) increase in accrued expenses and other liabilities..............................        (13)         19           25
    Increase (decrease) in other non-current liabilities.......................................          5           2           (4)
    Other, net.................................................................................          4          (5)          --
                                                                                                 ---------  -----------       -----
  NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS...........................        132         161           10
                                                                                                 ---------  -----------       -----
  Income (loss) from discontinued operations...................................................         63         (22)          33
  Adjustments to reconcile income (loss) from discontinued operations to net cash provided by
    (used in) discontinued operations:
    (Gain) loss on disposal of discontinued operations.........................................        (66)         43           (6)
    Decrease (increase) in net assets held for disposition.....................................         13         (31)           4
                                                                                                 ---------  -----------       -----
    NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS.....................................         10         (10)          31
                                                                                                 ---------  -----------       -----
    NET CASH PROVIDED BY OPERATING ACTIVITIES..................................................        142         151           41
                                                                                                 ---------  -----------       -----
INVESTING ACTIVITIES:
  Proceeds from sale of net assets held for disposition........................................        241         245          189
  Proceeds from real estate transactions.......................................................         31          55           --
  Proceeds from collection of other notes recievable...........................................          7           2           --
  Acquisition of companies, net of cash acquired...............................................        (61)        (29)          --
  Purchase of investments......................................................................        (12)         --           --
  Purchases of property, plant and equipment...................................................        (50)        (64)         (51)
  Proceeds from sale of property, plant and equipment..........................................          2           1            1
                                                                                                 ---------  -----------       -----
    NET CASH PROVIDED BY INVESTING ACTIVITIES..................................................        158         210          139
                                                                                                 ---------  -----------       -----
FINANCING ACTIVITIES:
  Proceeds from long-term debt.................................................................      1,028       1,423           --
  Repayment of long-term debt..................................................................     (1,285)       (470)          (3)
  (Repayment of) proceeds from notes payable...................................................         (3)          4           --
  Repurchase of treasury stock.................................................................        (46)         --           --
  Net cash transfers from (to) affiliate.......................................................         --          90         (170)
  Return of capital to Hanson, net of tax......................................................         --        (477)          --
  Repayment of debt to Hanson..................................................................         --        (873)          --
  Long-term debt issue costs...................................................................         --         (33)          --
  Dividends paid...............................................................................         --          --           (8)
                                                                                                 ---------  -----------       -----
    NET CASH USED IN FINANCING ACTIVITIES......................................................       (306)       (336)        (181)
Effect of exchange rate changes on cash........................................................         --          (2)           2
                                                                                                 ---------  -----------       -----
    (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...........................................         (6)         23            1
Cash and cash equivalents at beginning of year.................................................         51          28           27
                                                                                                 ---------  -----------       -----
    CASH AND CASH EQUIVALENTS AT END OF YEAR...................................................  $      45   $      51    $      28
                                                                                                 ---------  -----------       -----
                                                                                                 ---------  -----------       -----
</TABLE>
 
           See notes to consolidated (combined) financial statements.
 
                                       30
<PAGE>
                             U.S. INDUSTRIES, INC.
 
                CONSOLIDATED (COMBINED) STATEMENTS OF CHANGES IN
                     STOCKHOLDERS' EQUITY/INVESTED CAPITAL
 
          FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
                                 (IN MILLIONS)
<TABLE>
<CAPTION>
                                                                                                  MINIMUM
                                                                                   RETAINED       PENSION       UNEARNED
                                               INVESTED    COMMON      PAID IN     EARNINGS/     LIABILITY     RESTRICTED
                                                CAPITAL     STOCK      CAPITAL     (DEFICIT)    ADJUSTMENT        STOCK
                                               ---------  ---------  -----------  -----------  -------------  -------------
<S>                                            <C>        <C>        <C>          <C>          <C>            <C>
Balance September 30, 1993...................  $     902
Net Income...................................         78
Dividends paid...............................         (8)
Translation adjustment.......................          1
Net transfers--Hanson........................       (170)
                                               ---------  ---------       -----        -----           ---            ---
Balance September 30, 1994...................  $     803
                                               ---------  ---------       -----        -----           ---            ---
 
Net income through date of Demerger..........         15
Net transfers--Hanson........................        190
                                               ---------  ---------       -----        -----           ---            ---
Balance at date of Demerger..................      1,008
                                               ---------  ---------       -----        -----           ---            ---
 
Return of invested capital to Hanson-- Note
  1..........................................       (494)
Issuance of stock............................       (514) $       1   $     516                  $      (2)
Issuance of restricted stock.................                                26                                 $     (26)
Net loss.....................................                                      $    (104)
Amortization of unearned restricted stock....                                                                           2
Translation adjustment.......................
Minimum pension liability adjustment.........                                                           (1)
                                               ---------  ---------       -----        -----           ---            ---
Balance at September 30, 1995................  $      --  $       1   $     542    $    (104)    $      (3)     $     (24)
                                               ---------  ---------       -----        -----           ---            ---
 
Net income...................................                                            133
Amortization of unearned restricted stock....                                                                           7
Purchase of 2,387,591 shares of common stock
  (average cost of $19.30 per share).........
Common stock issued (39,138 shares) upon
  exercise of
  options....................................                    --          --
Common stock issued (23,995 shares) to
  employee and directors.....................                    --          --
Treasury stock issued (62,000 shares) to
  employees and director.....................                                 1                                        (2)
Forfeiture of 16,973 shares of unearned
  restricted stock...........................                    --          --
Deferred tax benefit--Note 1.................                                20
Translation adjustment.......................
Minimum pension liability adjustment.........                                                            1
                                               ---------  ---------       -----        -----           ---            ---
Balance at September 30, 1996................  $          $       1   $     563    $      29     $      (2)     $     (19)
                                               ---------  ---------       -----        -----           ---            ---
                                               ---------  ---------       -----        -----           ---            ---
 
<CAPTION>
 
                                                CUMULATIVE
                                                TRANSLATION    TREASURY
                                                ADJUSTMENT       STOCK       TOTAL
                                               -------------  -----------  ---------
<S>                                            <C>            <C>          <C>
Balance September 30, 1993...................                              $     902
Net Income...................................                                     78
Dividends paid...............................                                     (8)
Translation adjustment.......................                                      1
Net transfers--Hanson........................                                   (170)
                                                     -----         -----   ---------
Balance September 30, 1994...................                              $     803
                                                     -----         -----   ---------
Net income through date of Demerger..........                                     15
Net transfers--Hanson........................                                    190
                                                     -----         -----   ---------
Balance at date of Demerger..................                                  1,008
                                                     -----         -----   ---------
Return of invested capital to Hanson-- Note
  1..........................................                                   (494)
Issuance of stock............................    $      (1)                       --
Issuance of restricted stock.................                                     --
Net loss.....................................                                   (104)
Amortization of unearned restricted stock....                                      2
Translation adjustment.......................            1                         1
Minimum pension liability adjustment.........                                     (1)
                                                     -----         -----   ---------
Balance at September 30, 1995................    $      --     $      --   $     412
                                                     -----         -----   ---------
Net income...................................                                    133
Amortization of unearned restricted stock....                                      7
Purchase of 2,387,591 shares of common stock
  (average cost of $19.30 per share).........                        (46)        (46)
Common stock issued (39,138 shares) upon
  exercise of
  options....................................                                     --
Common stock issued (23,995 shares) to
  employee and directors.....................                                     --
Treasury stock issued (62,000 shares) to
  employees and director.....................                          1          --
Forfeiture of 16,973 shares of unearned
  restricted stock...........................                                     --
Deferred tax benefit--Note 1.................                         --          20
Translation adjustment.......................                         --          --
Minimum pension liability adjustment.........
                                                     -----         -----   ---------
Balance at September 30, 1996................    $      --     $     (45)  $     527
                                                     -----         -----   ---------
                                                     -----         -----   ---------
</TABLE>
 
           See notes to consolidated (combined) financial statements.
 
                                       31
<PAGE>
                             U.S. INDUSTRIES, INC.
 
             NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS
 
NOTE 1--BASIS OF PRESENTATION
 
    U.S. Industries, Inc. (with its subsidiaries, the "Company") was
incorporated in Delaware in February 1995 and has been publicly-owned since May
31, 1995, at which time Hanson PLC ("Hanson") paid a dividend to its
shareholders of the Company's common stock. Regular way trading in the common
stock commenced on the New York Stock Exchange on June 1, 1995. Prior to May 31,
1995, the Company was a wholly-owned subsidiary of Hanson. Certain businesses,
assets and liabilities were transferred to the Company by Hanson pursuant to
transactions consummated on May 31, 1995 and June 5, 1995 (collectively, the
"Demerger").
 
    Prior to the Demerger, the financial statements present the combined
results, financial position and cash flows of the individual businesses, real
estate assets and equity investments that subsequently were transferred to the
Company. Subsequently, the financial statements are presented on a consolidated,
legal entity basis. The financial statements presented for periods prior to the
Demerger include management fees paid by the Company to Hanson for services.
Subsequently, all such services have been provided by the Company.
 
    As a result of the Demerger, certain tax liabilities with respect to
undistributed earnings of foreign subsidiaries arose which did not exist prior
to the Demerger when these subsidiaries were held by Hanson. Such amounts,
approximating $17 million, have been charged directly to paid in capital in
fiscal 1995. The Demerger also resulted in changes to the tax basis of the
assets and liabilities received and assumed. The full extent of the net tax
benefit realized from the aforementioned changes was finalized in late fiscal
1996 and such benefit has been credited directly to paid in capital in that
year.
 
    Subsequent to the Demerger, the Company's management conducted a
comprehensive review of existing accounting policies previously established by
Hanson. As a result of this review, the Company changed its policy for
evaluating goodwill recoverability and measuring its impairment (see Note 11).
 
NOTE 2--ACCOUNTING POLICIES
 
    FISCAL YEAR:  The Company's fiscal year ends on the Saturday nearest to
September 30. All fiscal year data contained herein reflect results of
operations for the 52-week periods ended on the Saturday closest to September
30, but are presented as of such date for convenience.
 
    PRINCIPLES OF CONSOLIDATION:  The consolidated (combined) financial
statements include the accounts of the Company and its subsidiaries.
Intercompany accounts and transactions are eliminated. Companies which are 20%
to 50% owned are accounted for using the equity method of accounting.
 
    USE OF ESTIMATES:  The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
 
    CASH EQUIVALENTS:  Cash equivalents represent short-term investments which
have maturities of ninety days or less when purchased.
 
                                       32
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
    DEPRECIATION AND AMORTIZATION:  Depreciation and amortization for the
periods presented in the consolidated (combined) financial statements consists
of:
 
<TABLE>
<CAPTION>
                                                                                       (IN MILLIONS)
                                                                                     AT SEPTEMBER 30,
                                                                           -------------------------------------
<S>                                                                        <C>          <C>          <C>
                                                                              1996         1995         1994
                                                                              -----        -----        -----
Depreciation.............................................................   $      42    $      38    $      36
Amortization of goodwill.................................................          13           17           19
Amortization of deferred financing costs.................................           2            2       --
Amortization of unearned restricted stock................................           7            2       --
Amortization of deferred income..........................................          (2)      --           --
                                                                                  ---          ---          ---
                                                                            $      62    $      59    $      55
                                                                                  ---          ---          ---
                                                                                  ---          ---          ---
</TABLE>
 
    TRADE RECEIVABLES AND CONCENTRATIONS OF CREDIT RISK:
 
<TABLE>
<CAPTION>
                                                                               (IN MILLIONS)
                                                                              AT SEPTEMBER 30,
                                                                            --------------------
<S>                                                                         <C>        <C>
                                                                              1996       1995
                                                                            ---------  ---------
Trade receivables.........................................................  $     439  $     377
Allowance for doubtful accounts...........................................        (39)       (34)
                                                                            ---------  ---------
                                                                            $     400  $     343
                                                                            ---------  ---------
                                                                            ---------  ---------
</TABLE>
 
    The Company sells consumer, building and industrial products principally in
the United States and, to a lesser extent, in Europe, South America, Canada and
the Asia-Pacific region. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral. Credit
losses have not been material.
 
    INVENTORIES, NET:
 
<TABLE>
<CAPTION>
                                                                                (IN MILLIONS)
                                                                               AT SEPTEMBER 30,
                                                                             --------------------
<S>                                                                          <C>        <C>
                                                                               1996       1995
                                                                             ---------  ---------
Finished products..........................................................  $     201  $     192
In-process products........................................................         82         81
Raw materials..............................................................        104         98
                                                                             ---------  ---------
                                                                             $     387  $     371
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
    Inventories are valued at the lower of cost determined under the first-in,
first-out method, or market.
 
                                       33
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
    PROPERTY, PLANT AND EQUIPMENT:
 
<TABLE>
<CAPTION>
                                                                                (IN MILLIONS)
                                                                               AT SEPTEMBER 30,
                                                                             --------------------
<S>                                                                          <C>        <C>
                                                                               1996       1995
                                                                             ---------  ---------
Land and buildings.........................................................  $     196  $     182
Machinery and equipment....................................................        522        473
Furniture and fixtures.....................................................         27         26
Accumulated depreciation...................................................       (410)      (366)
                                                                             ---------  ---------
                                                                             $     335  $     315
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
    Property, plant and equipment is stated on the basis of cost less
accumulated depreciation provided under the straight-line method.
 
    OTHER ASSETS:  Excess properties held for sale are included in other assets
and are carried at the lower of cost or net realizable value. The carrying value
of such properties was $51 million and $57 million as of September 30, 1996 and
1995, respectively.
 
    GOODWILL:  Goodwill represents the excess of the purchase price over the
fair value of assets acquired and is assessed for recoverability based on the
fair value methodology. As discussed in Note 11--Change in Method of Evaluating
Goodwill Impairment, the fiscal year ended September 30, 1995 included a charge
of $111 million to reflect permanent goodwill impairment. The Company evaluates
goodwill for permanent impairment every fiscal quarter using the fair value
methodology and will record appropriate charges to operations for further
permanent impairments in goodwill, if any. Goodwill is amortized using the
straight-line method over forty years. Accumulated amortization aggregated $289
million and $276 million, at September 30, 1996 and 1995, respectively.
Amortization and adjustments to the carrying value of goodwill amounted to $13
million, $128 million and $19 million for fiscal 1996, 1995 and 1994,
respectively.
 
    LONG-LIVED ASSETS:  In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". The new rules specify when assets should be reviewed for
impairment, how to determine whether an asset or group of assets are impaired,
how to measure an impairment loss and what financial statement disclosures are
necessary. SFAS 121 is not effective for the Company until fiscal 1997. The
effect of adoption of SFAS 121 is not expected to have a material adverse impact
on the Company's financial position.
 
    FOREIGN CURRENCY TRANSLATION AND OPTIONS:  The functional currency of each
of the Company's foreign operations is the local currency with the exception of
Brazil which has historically operated in a hyperinflationary economy. Assets
and liabilities of foreign subsidiaries are translated at the exchange rates in
effect at the balance sheet dates, while revenue, expenses and cash flows are
translated at average exchange rates for the period. Except for companies
operating in hyperinflationary economies, translation gains and losses are
reported as a component of Stockholders' Equity/Invested Capital. Losses
resulting from foreign currency transactions and the translation of the
financial statements of companies operating in highly inflationary economies are
included in Other expense, net and aggregated $1 million, $2 million and $12
million for fiscal 1996, 1995, and 1994, respectively.
 
                                       34
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
    During fiscal 1996, the Company purchased foreign currency option contracts
to protect the U.S. dollar value of its anticipated foreign currency earnings.
These options were not exercised and expired prior to September 30, 1996. In
addition, the Company purchased foreign currency option contracts to protect the
U.S. dollar value of its anticipated foreign currency earnings in fiscal 1997.
These options expire prior to September 30, 1997. The Company has no exposure
with respect to these foreign currency option contracts other than the cost of
such options. The cost of such foreign currency option contracts is not material
and is charged to operations over the period of the options.
 
    INCOME TAXES:  Deferred tax assets and liabilities are computed based on the
difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws. Deferred income tax expense or
benefit is based on the changes in the asset or liability from period to period.
 
    The Company files a consolidated federal income tax return. Prior to the
Demerger, the Company provided for income taxes as if it filed separate income
tax returns and included United States taxes currently payable in Invested
Capital. Pursuant to the Demerger, the Company entered into a tax sharing and
indemnification agreement in which Hanson generally agreed to indemnify the
Company for all federal and state income tax liabilities in respect to periods
prior to the Demerger.
 
    REVENUE RECOGNITION:  Revenue is generally recognized upon shipment of
product to the customer. Provisions are made for warranty and return costs at
the time of sale. Such provisions have been not material.
 
    ADVERTISING COSTS:  Advertising costs are generally expensed as incurred.
Such amounts totalled $61 million, $57 million and $55 million for fiscal 1996,
1995, and 1994, respectively.
 
    RESEARCH AND DEVELOPMENT COSTS:  Research and development costs are expensed
as incurred. Such amounts totalled $19 million, 18 million and $17 million for
fiscal 1996, 1995 and 1994 respectively.
 
    FAIR VALUE OF FINANCIAL INSTRUMENTS:  The fair value of all short-term
financial instruments approximated their carrying value due to their short
maturity. The fair value of long-term financial instruments, excluding interest
rate protection agreements discused below, approximated carrying value as they
were based on terms that continue to be available to the Company from its
lenders. Accordingly, fair value of financial instruments approximates book
carrying amounts at each fiscal year-end, as they are based upon floating rate
interest.
 
    The Company enters into interest rate protection agreements to manage
interest costs and risks associated with changing interest rates; these
agreements effectively convert underlying variable rate debt into fixed rate
date. At September 30, 1996, the Company had several such agreements covering
various periods. The notional amount of these agreements do not exceed $600
million for any covered period. The Company would have been required to pay
approximately $4 million to settle all outstanding agreements based upon their
fair value as of September 30, 1996. These fair values are based upon estimates
received from financial institutions.
 
    STOCK BASED COMPENSATION:  In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation", which establishes a
fair value based method of accounting for stock-based compensation plans. SFAS
123 encourages, but does not require, adoption of a fair value based method; it
allows for a
 
                                       35
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2--ACCOUNTING POLICIES (CONTINUED)
company to continue to report under Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees". However, if a company
follows APB 25, footnote disclosure is then required to reflect what the effects
on the financial statements would have been if SFAS 123's fair value based
method had been adopted. The Company intends to continue to account for its
stock-based compensation under APB 25. The disclosures required under SFAS 123
are not effective for the Company until fiscal 1997.
 
    EARNINGS PER SHARE:  PRO FORMA NET INCOME (LOSS) PER SHARE--Fiscal 1995 and
1994 earnings per share information excludes historical net income per share
calculated in accordance with Accounting Principles Board Opinion No. 15,
"Earnings per share" ("APB 15"), as such information is not indicative of the
Company's continuing capital structure. Pro forma income (loss) from continuing
operations and pro forma net income (loss) per share are calculated as if (a)
the Demerger had been consummated at the beginning of the periods presented; (b)
the changes in the Company's capital structure resulting from the Demerger,
including the utilization of the credit facility entered into at the date of
Demerger (see Note 5), had occurred on such date; (c) the Company had incurred
certain general and administrative corporate costs in place of previously
allocated management fees; and (d) compensation expense related to the
restricted share grants pursuant to the Stock Option Plan (see Note 10) had been
incurred for a full year.
 
    WEIGHTED AVERAGE SHARES OUTSTANDING--Earnings per share are computed using
the weighted average number of common and common equivalent shares outstanding.
The weighted average number of common and common equivalent shares outstanding
during the year ended September 30, 1996 was 52,193,342. Pro forma earnings per
share calculations for fiscal 1995 and 1994 are based on 53,671,432 shares which
represents the number of shares issued and outstanding from the Demerger through
the end of fiscal 1995.
 
NOTE 3--ACQUISITIONS
 
    In July 1996, the Company purchased the assets of Keller Industries, Inc.
("Keller"), for approximately $37 million in cash plus the assumption of certain
liabilities. Keller is a leading manufacturer and marketer of ladders in the
United States. The transaction has been accounted for as a purchase, resulting
in goodwill of $30 million. The results of Keller have been included in the
Housewares Operations.
 
    In July 1996, the Company joined a consortium of companies to acquire an
equity interest in All Pantronic Holdings, Limited ("All Pantronic"), a limited
liability company incorporated in Bermuda and listed on the Stock Exchange of
Hong Kong. All Pantronic manufactures voltage converters and other electronic
components. The Company's investment of $11 million results in beneficial
ownership of 19.9% of All Pantronic. The ability of the Company and such
consortium to vote their interest in All Pantronic is limited pursuant to the
terms of certain voting agreements. In November 1996, All Pantronic changed its
name to United Pacific Industries Limited.
 
    In April 1996, the Company purchased the assets of Haugh's Products Limited
("Haugh's") for $12 million and the assumption of $12 million in debt. Haugh's
is a Canadian manufacturer of above-ground swimming pools and equipment. The
transaction has been accounted for as a purchase, resulting in goodwill of $9
million. The results of Haugh's have been included in the Bath Products
Operations.
 
    In May 1995, the Company acquired the assets of Southeastern Plastics, Inc.,
a plastic injection molder for $11 million, in a transaction accounted for as a
purchase. The transaction resulted in goodwill
 
                                       36
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 3--ACQUISITIONS (CONTINUED)
of $4 million. The result of operations of Southeastern Plastics, Inc. are
included in the Housewares Operations.
 
    In March 1995, the Company acquired Odyssey Sports, Inc., a manufacturer and
marketer of golf putters, for $16 million in a transaction accounted for as a
purchase resulting in goodwill of $14 million. The results of operations of
Odyssey Sports, Inc. are included in the Recreation and Leisure Operations.
 
    The pro forma effect of these acquisitions on the Company's operations is
not material.
 
NOTE 4--DISPOSITIONS AND DISCONTINUED OPERATIONS
 
    During fiscal 1996, the Company adopted formal plans to dispose of
Farberware Inc. ("Farberware"), Franklin Dyed Yarn Division ("Franklin"),
Tubular Textile Machinery Division ("Tube-Tex") and its equity investment in
Ground Round Restaurants, Inc. ("Ground Round"). During the third quarter of
fiscal 1995, the Company adopted a formal plan to dispose of Bearing Inspection,
Inc., ("Bearing") Jade Holdings, Inc., Piedmont Moulding Corporation, Spartus
Corporation, Universal Gym Equipment, Inc. and Halkey-Roberts Corporation
(collectively with Farberware, Franklin, Tube-Tex and Ground Round, the
"Discontinued Operations"). As discussed below, each was sold prior to September
30, 1996 with the exception of Bearing, Tube-Tex and Ground Round. Tube-Tex was
sold in October 1996. All businesses sold since Demerger meet the criteria for
classification as discontinued operations and have been classified as such for
all periods presented.
 
    In fiscal 1995, management estimated losses on disposals of certain
non-strategic businesses then classified as discontinued operations. The
expected proceeds from the sale of these operations were determined based on
estimates of fair value obtained from independent appraisers retained prior to
the Demerger. For a full discussion of the methodology applied, see Note
11--Change in Method of Evaluating Goodwill Impairment. To reflect the estimated
loss on the disposal of these discontinued operations, the Company recorded a
non-cash charge of $50.4 million, net-of-tax, during the third quarter of fiscal
1995. During the fourth quarter of fiscal 1995, the Company recorded an
additional non-cash charge of $3.0 million, net-of-tax, to reflect a revision in
its original estimate for phase-out losses. The original charge of $50.4 million
included a $32.8 million writedown of goodwill, a $12.2 million writedown of
other noncurrent assets including property, plant, and equipment, and a $5.4
million net-of-tax accrual for anticipated phase-out losses.
 
    Prior to the Demerger, Hanson recorded a $10.5 million charge to reflect a
permanent impairment in its carrying value of Beazer Homes USA, Inc. ("Beazer
Homes"). In June 1995, the Company sold 1,000,000 shares of common stock of
Beazer Homes to Beazer Homes for $16 million. On that date, in consideration for
$500,000, the Company also granted Beazer Homes an option exercisable through
September 30, 1995 to purchase the Company's remaining 1,749,267 shares of
Beazer Homes common stock at a formula price of not more than $17.50 or less
than $14 per share. As a result of these June transactions, the Company realized
a pre-tax gain of $3.1 million. In August 1995, Beazer Homes exercised the
option and repurchased all of the remaining shares owned by the Company for
$28.2 million, resulting in an additional pre-tax gain of approximately $5.7
million. The cumulative net-of-tax impact of all of these events related to
Beazer Homes amounted to a loss of $1 million and is included in the loss from
discontinued operations in fiscal 1995.
 
    In September 1995, the Company sold six companies for $200 million,
resulting in a gain of $11 million, net-of-tax. The companies consisted of Bear
Archery, Inc. Valley Recreation Products, Inc., Teters
 
                                       37
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 4--DISPOSITIONS AND DISCONTINUED OPERATIONS (CONTINUED)
Floral Products, Inc., MW Manufacturers, Inc., Brown Moulding Company, Inc. and
Halkey Roberts Corporation (the last of which had previously been designated as
a discontinued operation).
 
    In fiscal 1996, the Company, in separate transactions, sold the Office
Furniture Group and assets of Blue Mountain Industries, Farberware, Spartus,
Piedmont, Jade, Universal and Franklin for $241 million in cash and notes for $6
million and recorded gains of $68 million, net of tax. The Company also entered
into an agreement not to compete with the purchaser of the Office Furniture
Group for a period of five years in exchange for $11 million, which is being
recognized over the period of the agreement. Also during fiscal 1996, the
Company recorded a charge of $2 million, net of a tax benefit of $1 million, to
reduce the carrying value of its equity investment in Ground Round to its
estimated realizable value.
 
    Amounts classified as net assets held for disposition consist of the
following after accrual for anticipated net-of-tax losses on dispositions not
yet consummated:
 
<TABLE>
<CAPTION>
                                                                                 (IN MILLIONS)
                                                                                AT SEPTEMBER 30,
                                                                             ----------------------
<S>                                                                          <C>          <C>
                                                                                1996        1995
                                                                                -----     ---------
Net current assets.........................................................   $      10   $     122
Property, plant and equipment..............................................          15          73
Other non-current assets and liabilities...................................           1          (1)
                                                                                    ---   ---------
Net assets held for disposition............................................   $      26   $     194
                                                                                    ---   ---------
                                                                                    ---   ---------
</TABLE>
 
    The following is a summary of the operating results of the businesses
classified as discontinued operations at September 30, 1996:
 
<TABLE>
<CAPTION>
                                                                                 (IN MILLIONS)
                                                                          FOR THE FISCAL YEARS ENDED
                                                                                 SEPTEMBER 30,
                                                                        -------------------------------
<S>                                                                     <C>        <C>        <C>
                                                                          1996       1995       1994
                                                                        ---------  ---------  ---------
Net sales.............................................................  $     245  $     815  $     980
Pre-tax income (loss).................................................  $      (5) $      39  $      51
</TABLE>
 
                                       38
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5--EXISTING CREDIT FACILITY AND INTEREST RATE SWAP AGREEMENTS
 
    Long term debt is as follows:
 
<TABLE>
<CAPTION>
                                                                                (IN MILLIONS)
                                                                               AT SEPTEMBER 30,
                                                                             --------------------
<S>                                                                          <C>        <C>
                                                                               1996       1995
                                                                             ---------  ---------
Term loan..................................................................  $     370  $     600
Revolving credit facility..................................................        250        358
Other......................................................................        113         31
                                                                             ---------  ---------
                                                                                   733        989
Less current maturities....................................................         16        157
                                                                             ---------  ---------
Long term debt.............................................................  $     717  $     832
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
    Other long-term debt at September 30, 1996 includes $82 million of notes
payable with maturities due within one year which the Company expects to repay
using borrowings under the revolving credit portion of the Company's bank credit
facility (the "Existing Credit Facility") described below. Of this amount, $75
million was borrowed under uncommitted short-term lines of credit as described
below.
 
    On December 21, 1995, the Company entered into the Existing Credit Facility,
which consists of a 4 1/2--year secured amortizing term loan facility in the
amount of $400 million and a 5-year secured revolving credit facility of $575
million (including a swingline loan facility in the amount of up to $50 million
and a letter of credit facility in the amount of up to $50 million). Upon
entering into the Existing Credit Facility, the Company repaid all loans
outstanding under its previous bank credit facility with amounts borrowed at
lower rates under the new facility. The Existing Credit Facility is guaranteed
by the Company's subsidiaries that are U.S. corporations and is secured by a
first priority security interest in, and pledge of, all outstanding capital
stock of the Company's direct and indirect subsidiaries that are U.S.
corporations and 65% of the capital stock of a foreign subsidiary which holds
the shares of other foreign subsidiaries of the Company. The term loan facility
is subject to certain mandatory prepayments from asset sales which will be
applied to the scheduled installments of the term loan on a pro rata basis.
Amortization payments may be satisfied by borrowing under the existing revolving
credit facility to the extent there is availability thereunder. As such, current
maturities of long-term debt includes approximately $14 million related to
mandatory prepayments required as a result of the September 1996 sales of the
assets of Jade and Franklin (See Note 4) and the October 1996 sale of the assets
of Tube-Tex (See Note 17).
 
    The Existing Credit Facility places restrictions on, among other things,
dividends, liens, acquisitions and additional indebtedness. It also requires
compliance with covenants as to minimum net worth and certain other financial
ratios. On June 18, 1996, the Existing Credit Facility was amended to increase
the amount of permitted investments and unsecured indebtedness of the Company
and its subsidiaries.
 
    The interest rates for loans outstanding under the Existing Credit Facility
are based on specified spreads over, at the option of the Company, (a) the
London interbank offered rate ("LIBOR") or (b) the higher of the rate of
interest publicly announced by Bank of America in San Francisco, California as
its reference rate or the federal funds rate in effect on such day (the "Base
Rate"). The spread on LIBOR-based borrowings ranges between 62.5 and 150 basis
points and the spread on Base Rate borrowings ranges between zero and 50 basis
points, and are adjusted quarterly based on a Consolidated Leverage Ratio
specified in the Existing Credit Facility. At September 30, 1996, the spreads
were 62.5 basis points
 
                                       39
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5--EXISTING CREDIT FACILITY AND INTEREST RATE SWAP AGREEMENTS (CONTINUED)
and zero basis points, respectively. At September 30, 1996, three-month LIBOR
was 5.625% per annum. A commitment fee is payable on a quarterly basis in
arrears to the lenders under the Existing Credit Facility on the aggregate
unused amount of the revolving credit facility. The commitment fee ranges
between 15 and 30 basis points per annum and is adjusted quarterly based on the
Consolidated Leverage Ratio. At September 30, 1996, it was 15 basis points per
annum.
 
    Aggregate maturities of long-term debt for each of the next five fiscal
years are as follows:
 
<TABLE>
<CAPTION>
                                                                                    (IN MILLIONS)
                                                                                    -------------
<S>                                                                                 <C>
1997..............................................................................    $      16
1998..............................................................................    $     114
1999..............................................................................    $      89
2000..............................................................................    $     182
2001..............................................................................    $     325
</TABLE>
 
    The Company maintains uncommitted short-term lines of credit with a number
of banks under which $200 million could be borrowed at September 30, 1996 on
such terms as the Company and the banks may agree. Borrowing under the lines of
credit are classified as long-term as the Company expects to repay the
borrowings with the revolving credit portion of the Existing Credit Facility.
There are no fees or compensating balances associated with these borrowings.
Amounts outstanding under these lines of credit at September 30, 1996 were $75
million, at an average interest rate of 5.74%.
 
    Interest paid, including amounts under swap agreements, during fiscal 1996,
1995 and 1994 was $63 million, $90 million, and $93 million, respectively (which
included interest paid to Hanson of $60 million and $90 million in 1995 and
1994, respectively).
 
    Including amounts available under the Existing Credit Facility as discussed
above, the Company has $106 million available under unused letters of credit at
September 30, 1996.
 
    At September 30, 1996, the Company had outstanding interest rate protection
agreements with several banks covering an aggregate notional amount of $500
million to exchange variable rate interest payment obligations under the
respective credit facilities for fixed rate obligations (without the exchange of
the underlying principal amounts) to manage interest rate exposures in a manner
consistent with the Company's credit facility requirements. See Note 2 regarding
the fair value of swap agreements outstanding at September 30, 1996. Under the
interest rate protection agreements, the Company receives a floating rate based
on three-month LIBOR and pays a weighted average fixed rate of 6.86%. Net
payments under the agreements amounted to approximately $7 million and $2
million, for the years ended September 30, 1996 and 1995, respectively.
 
    In conjunction with the Company's repayment of all loans outstanding under
its previous credit facility during the first quarter of fiscal 1996, a
net-of-tax, noncash, extraordinary charge of approximately $25 million was
incurred to write-off unamortized deferred financing costs and to accrue for
previously deferred losses associated with the interest rate protection
agreements hedging its previous credit facility. These agreements have
subsequently been designated as hedges of the indebtedness incurred under the
Existing Credit Facility.
 
    The Company has entered into various interest rate protection agreements
with several banks to manage its interest rate exposures. Under the interest
rate protection agreements, the Company will
 
                                       40
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5--EXISTING CREDIT FACILITY AND INTEREST RATE SWAP AGREEMENTS (CONTINUED)
receive a floating rate based on three-month LIBOR and will pay a weighted
average fixed rate on the various agreements which will range from 6.23% to
6.95%. The aggregate notional amounts for periods covered by such agreements are
as follows:
 
<TABLE>
<S>                                                              <C>
September 30, 1996 through May 30, 1997........................  $500 million
May 30, 1997 through September 30, 1997........................  $450 million
September 30, 1997 through May 30, 1998........................  $300 million
May 30, 1998 through September 30, 1998........................  $200 million
</TABLE>
 
    In all cases, the protection agreements are of notional amounts and
maturities that relate to specific portions of debt under the credit facility.
The Company anticipates that its debt levels will exceed the notional amount of
the interest rate protection agreements for the relevant periods.
 
NOTE 6--PENSION PLANS
 
DOMESTIC BENEFIT PLANS
 
    The Company and its subsidiaries have noncontributory defined benefit
pension plans covering substantially all of its United States employees. The
benefits under these plans are based primarily on years of credited service and
compensation as defined under the respective plan provisions. The Company's
funding policy is to contribute amounts to the plans sufficient to meet the
minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974, plus such additional amounts as the Company may determine
to be appropriate from time to time.
 
    The Company and its subsidiaries also sponsor defined contribution plans and
participate in multiemployer plans, which provide defined benefits to union
employees of the Company's subsidiaries. Contributions relating to defined
contribution plans are made based upon the respective plans' provisions.
Contributions relating to multiemployer plans are based on negotiated collective
bargaining agreements.
 
    Net periodic pension cost for the Company's defined benefit plans covering
employees in the United States and the total contributions charged to pension
expense for defined contribution and multiemployer plans covering employees in
the United States are:
 
<TABLE>
<CAPTION>
                                                                                                      (IN MILLIONS)
                                                                                               FOR THE FISCAL YEARS ENDED
                                                                                                      SEPTEMBER 30,
                                                                                             -------------------------------
<S>                                                                                          <C>        <C>        <C>
                                                                                               1996       1995       1994
                                                                                             ---------  ---------  ---------
DEFINED BENEFIT PLANS:
Service cost--benefits earned during the period............................................  $      11  $       9  $      10
Interest cost on projected benefit obligation..............................................         19         18         17
Actual return on plan assets...............................................................        (39)       (39)        (9)
Net amortization and deferral..............................................................         12         13        (16)
                                                                                                   ---        ---        ---
      Net periodic pension cost for defined benefit plans..................................          3          1          2
Defined contribution plans.................................................................          6          6          5
Multiemployer plans........................................................................         --          1          2
                                                                                                   ---        ---        ---
      Total pension expense................................................................  $       9  $       8  $       9
                                                                                                   ---        ---        ---
                                                                                                   ---        ---        ---
</TABLE>
 
                                       41
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 6--PENSION PLANS (CONTINUED)
    Assumptions used in the accounting for the defined benefit plans were as
follows:
 
<TABLE>
<CAPTION>
                                                                                           FOR THE FISCAL YEARS ENDED
                                                                                                  SEPTEMBER 30,
                                                                                        ---------------------------------
<S>                                                                                     <C>        <C>        <C>
                                                                                          1996       1995        1994
                                                                                        ---------  ---------     -----
Weighted average discount rates.......................................................       7.75%      7.75%        8.5%
Rates of increase in compensation levels..............................................        4.5%       4.5%        4.5%
Expected long-term rate of return on assets...........................................        9.0%       9.0%        9.0%
</TABLE>
 
    The change in the weighted average discount rate from 8.5% for fiscal 1994
to 7.75% for fiscal 1995 and other actuarial assumptions caused the projected
benefit obligation at September 30, 1995 to increase by approximately $29
million.
 
    The funded status and amounts recognized in the consolidated balance sheets
at September 30, 1996 and 1995 for the Company's defined benefit pension plans
covering employees in the United States are:
<TABLE>
<CAPTION>
                                                                    1996                                1995
                                                     ----------------------------------  ----------------------------------
<S>                                                  <C>              <C>                <C>              <C>
                                                       PLANS WHOSE       PLANS WHOSE       PLANS WHOSE       PLANS WHOSE
                                                      ASSETS EXCEED      ACCUMULATED      ASSETS EXCEED      ACCUMULATED
                                                       ACCUMULATED     BENEFITS EXCEED     ACCUMULATED     BENEFITS EXCEED
                                                        BENEFITS           ASSETS           BENEFITS           ASSETS
                                                     ---------------  -----------------  ---------------  -----------------
 
<CAPTION>
                                                                                 (IN MILLIONS)
<S>                                                  <C>              <C>                <C>              <C>
Actuarial present value of benefit obligations:
  Vested benefit obligation........................     $    (165)        $     (55)        $    (153)        $     (51)
  Nonvested benefit obligation.....................            (6)               (9)               (6)               (8)
                                                            -----               ---             -----               ---
Accumulated benefit obligation.....................     $    (171)        $     (64)        $    (159)        $     (59)
                                                            -----               ---             -----               ---
                                                            -----               ---             -----               ---
Projected benefit obligation.......................     $    (195)        $     (68)        $    (183)        $     (62)
Plan assets at fair value..........................           283                51               254                44
                                                            -----               ---             -----               ---
Projected benefit obligation less than (or in
  excess of) plan assets...........................     $      88         $     (17)        $      71         $     (18)
Add (deduct):
  Unrecognized prior service cost..................             2                10                 2                 9
  Unrecognized net (gain) loss.....................           (38)                2               (27)                4
  Unrecognized net (asset) obligation at date of
    adoption, net of amortization..................            (9)                1               (11)                1
  Adjustment required to recognize minimum
    liability......................................            --                (9)               --               (11)
                                                            -----               ---             -----               ---
Prepaid (accrued) pension costs....................     $      43         $     (13)        $      35         $     (15)
                                                            -----               ---             -----               ---
                                                            -----               ---             -----               ---
</TABLE>
 
    The plans' assets are primarily included in a master trust which principally
invests in listed stocks and bonds, including common stock of the Company which,
at market value, comprises less than 1% of the master trust's assets at
September 30, 1996 and 1995.
 
                                       42
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 6--PENSION PLANS (CONTINUED)
FOREIGN BENEFIT ARRANGEMENTS
 
    Pension and other employee benefits of the Company's foreign subsidiaries
are primarily provided by government sponsored plans and are being accrued
currently over the period of active employment. The costs of such plans were not
significant during fiscal 1996, 1995 and 1994.
 
NOTE 7--POSTRETIREMENT PLANS
 
    The Company provides health care and life insurance benefits to certain
groups of retirees. In 1994 the Company adopted Financial Accounting Standards
Board SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions." The effect of adopting the new rules did not have a material
effect on the Company's Invested Capital or fiscal 1994 net periodic
postretirement benefit cost as the Company had provided for the unfunded
obligation for most post employment benefits as part of its accounting for
certain business combinations.
 
    The following table presents the plan's unfunded status reconciled with
amounts recognized in the Company's consolidated balance sheets:
 
<TABLE>
<CAPTION>
                                                                                 (IN MILLIONS)
                                                                                AT SEPTEMBER 30,
                                                                              --------------------
<S>                                                                           <C>        <C>
                                                                                1996       1995
                                                                              ---------  ---------
Accumulated postretirement benefit obligation:
  Retirees..................................................................  $     (12) $     (12)
  Fully eligible active plan participants...................................         (3)        (4)
  Other active plan participants............................................         (7)        (8)
                                                                                    ---        ---
  Accumulated postretirement benefit obligation.............................        (22)       (24)
Unrecognized net loss.......................................................         --          3
                                                                                    ---        ---
Accrued postretirement benefit cost.........................................  $     (22) $     (21)
                                                                                    ---        ---
                                                                                    ---        ---
</TABLE>
 
    Net periodic postretirement benefit cost includes the following components:
 
<TABLE>
<CAPTION>
                                                                                    (IN MILLIONS)
                                                                        FOR THE FISCAL YEARS ENDED SEPTEMBER
                                                                                         30,
                                                                        -------------------------------------
<S>                                                                     <C>          <C>          <C>
                                                                           1996         1995         1994
                                                                           -----        -----        -----
Service cost..........................................................   $       1    $       1    $       1
Interest cost.........................................................           1            1            1
                                                                                --           --           --
Net periodic postretirement benefit cost..............................   $       2    $       2    $       2
                                                                                --           --           --
                                                                                --           --           --
</TABLE>
 
    The weighted average annual assumed rate of increase in the health care cost
trend rate is 12.0% for
fiscal 1996 and is assumed to decrease .5% a year to 6.0%. The effect of
increasing the assumed health care cost trend rate by 1% in each year would
increase the accumulated postretirement benefit obligation as of September 30,
1996 by $2 million and the aggregate of service and interest components of net
periodic post retirement benefit for 1996 by $0.3 million.
 
    The weighted average discount rate used was 7.75% at September 30, 1996 and
1995.
 
                                       43
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 8--LEASES
 
    Rental expense for operating leases is:
 
<TABLE>
<CAPTION>
                                                                                    (IN MILLIONS)
                                                                        FOR THE FISCAL YEARS ENDED SEPTEMBER
                                                                                         30,
                                                                        -------------------------------------
<S>                                                                     <C>          <C>          <C>
                                                                           1996         1995         1994
                                                                           -----        -----        -----
Minimum rentals.......................................................   $      22    $      20    $      18
Contingent rentals....................................................           2            2            2
                                                                               ---          ---          ---
                                                                         $      24    $      22    $      20
                                                                               ---          ---          ---
                                                                               ---          ---          ---
</TABLE>
 
    Future minimum rental commitments under noncancellable operating leases as
of September 30, 1996 are:
 
<TABLE>
<CAPTION>
                                                                                      (IN
                                                                                   MILLIONS)
                                                                                  ------------
<S>                                                                               <C>
1997............................................................................  $         20
1998............................................................................  $         15
1999............................................................................  $         11
2000............................................................................  $          5
2001............................................................................  $          4
Thereafter......................................................................  $         13
</TABLE>
 
NOTE 9--INCOME TAXES
 
    Income (loss) before income taxes, discontinued operations and extraordinary
loss consists of:
 
<TABLE>
<CAPTION>
                                                                                    (IN MILLIONS)
                                                                             FOR THE FISCAL YEARS ENDED
                                                                                    SEPTEMBER 30,
                                                                          ---------------------------------
<S>                                                                       <C>        <C>        <C>
                                                                            1996       1995        1994
                                                                          ---------  ---------     -----
United States...........................................................  $     118  $     (71)  $      45
Foreign.................................................................         55         52          33
                                                                          ---------        ---         ---
                                                                          $     173  $     (19)  $      78
                                                                          ---------        ---         ---
                                                                          ---------        ---         ---
</TABLE>
 
                                       44
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 9--INCOME TAXES (CONTINUED)
    The provisions for federal, foreign, and state income taxes attributable to
income (loss) from continuing operations consist of:
 
<TABLE>
<CAPTION>
                                                                                    (IN MILLIONS)
                                                                        FOR THE FISCAL YEARS ENDED SEPTEMBER
                                                                                         30,
                                                                        -------------------------------------
<S>                                                                     <C>          <C>          <C>
                                                                           1996         1995         1994
                                                                           -----        -----        -----
Current:
  Federal.............................................................   $      38    $      10    $      18
  Foreign.............................................................          23           19           15
  State...............................................................           6            7            4
                                                                               ---          ---          ---
                                                                                67           36           37
  Deferred............................................................          11           12           (4)
                                                                               ---          ---          ---
                                                                         $      78    $      48    $      33
                                                                               ---          ---          ---
                                                                               ---          ---          ---
</TABLE>
 
                                       45
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 9--INCOME TAXES (CONTINUED)
    The Company's effective income tax provision attributable to continuing
operations differs from the statutory federal income tax provision (benefit) as
follows:
 
<TABLE>
<CAPTION>
                                                                                    (IN MILLIONS)
                                                                        FOR THE FISCAL YEARS ENDED SEPTEMBER
                                                                                         30,
                                                                        -------------------------------------
<S>                                                                     <C>          <C>          <C>
                                                                           1996         1995         1994
                                                                           -----        -----        -----
Computed "expected" income tax (benefit) provision....................   $      61    $      (7)   $      27
Foreign income tax differential.......................................           4            1            3
State income taxes (net of federal benefit)...........................           4            5            3
Goodwill amortization.................................................           5            6            6
Goodwill impairment...................................................                       39
Miscellaneous.........................................................           4            4           (6)
                                                                                             --
                                                                               ---                       ---
                                                                         $      78    $      48    $      33
                                                                                             --
                                                                                             --
                                                                               ---                       ---
                                                                               ---                       ---
Significant components of deferred taxes are:
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                 (IN MILLIONS)
                                                                                AT SEPTEMBER 30,
                                                                             ----------------------
<S>                                                                          <C>        <C>
                                                                               1996        1995
                                                                             ---------     -----
Deferred tax liabilities:
  Property, plant and equipment............................................  $      15   $      11
  Inventory................................................................          1          21
  Net pension assets.......................................................         14           6
  Other....................................................................          3          11
                                                                             ---------         ---
  Total deferred tax liabilities...........................................         33          49
Deferred tax assets:
  Accruals and allowances..................................................         67          26
  Postretirement benefits..................................................          7           9
  Deductible goodwill......................................................         26          20
                                                                             ---------         ---
  Total deferred tax assets................................................        100          55
                                                                             ---------         ---
  Net deferred tax asset...................................................  $      67   $       6
                                                                             ---------         ---
                                                                             ---------         ---
</TABLE>
 
    In addition to the $11 million deferred tax provision in 1996, the deferred
taxes were effected by the deferred tax benefit discussed in Note 1, the impact
of acquisitions, reclassifications of discontinued businesses and the
extraordinary charge.
 
                                       46
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 9--INCOME TAXES (CONTINUED)
    The classification of such deferred tax balances is:
 
<TABLE>
<CAPTION>
                                                                                 (IN MILLIONS)
                                                                                AT SEPTEMBER 30,
                                                                              --------------------
<S>                                                                           <C>        <C>
                                                                                1996       1995
                                                                              ---------  ---------
Current asset...............................................................  $      44  $      11
Current liability...........................................................         (1)       (11)
                                                                                    ---        ---
                                                                                     43          0
                                                                                    ---        ---
Noncurrent asset............................................................         56         44
Noncurrent liability........................................................        (32)       (38)
                                                                                    ---        ---
                                                                                     24          6
                                                                                    ---        ---
Net deferred tax asset......................................................  $      67  $       6
                                                                                    ---        ---
                                                                                    ---        ---
</TABLE>
 
Income taxes paid during fiscal 1996 were $62 million.
 
NOTE 10--STOCK OPTION PLAN
 
    Prior to the Demerger, the Company adopted a stock incentive plan (the
"Stock Option Plan") providing for awards of restricted common stock and grants
of options to purchase common stock to key employees of the Company and its
designated subsidiaries, at prices equal to the fair market value of the shares
at the date of grant, and for formula grants of Common Stock to non-employee
directors of the Company.
 
    In June 1995, a total of 1,843,330 restricted shares of Common Stock were
awarded to certain key employees and a total of 6,000 shares of common stock
were issued to non-employee directors. As holders of restricted stock have all
the rights of other stockholders, subject to certain restrictions and forfeiture
provisions, such restricted stock is considered to be issued and outstanding.
Restrictions on the shares will expire over seven years. Unearned restricted
stock of $26 million was recorded at June 8, 1995 based on the market value of
the shares on the date of issuance and is included as a separate component of
stockholders' equity.
 
    In fiscal 1996, a total of 72,173 incentive shares were awarded to certain
key employees and a total of 13,822 shares of common stock were issued to
non-employee directors (1,000 of which were issued from treasury). The incentive
shares, 61,000 of which were issued from treasury, are substantially identical
in terms of issuance and restrictions to the restricted stock discussed above.
Based on the market value of the shares on the various dates of issuance, $2
million of additional unearned restricted stock was recorded during fiscal 1996.
A total of 8,487 restricted shares issued in fiscal 1995 were purchased for
treasury at $17 1/8 per share by the Company in fiscal 1996. Additionally 16,973
restricted shares were forfeited in fiscal 1996.
 
                                       47
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10--STOCK OPTION PLAN (CONTINUED)
    The following information relates to options to purchase common stock under
the Stock Option Plan for the fiscal years ended September 30:
 
<TABLE>
<CAPTION>
                                                                    1996            1995
                                                               --------------  --------------
<S>                                                            <C>             <C>
Options outstanding at beginning of year.....................       2,692,063        --
Granted......................................................         221,315       2,692,063
Exercised (at $13 1/8 per share).............................         (39,138)       --
Forfeited....................................................         (89,692)       --
Purchased by Company.........................................         (14,698)       --
                                                               --------------  --------------
Options outstanding at end of year...........................       2,769,850       2,692,063
                                                               --------------  --------------
                                                               --------------  --------------
Exercise price per share of options outstanding..............  $13 1/8--$26 1/2 $13 1/8--$14 3/8
                                                               --------------  --------------
                                                               --------------  --------------
</TABLE>
 
    Options granted under the Stock Option Plan vest in four equal installments
from the date of grant. Options to purchase 644,895 shares were exercisable at
September 30, 1996. The Company had authorization under the Stock Option Plan to
grant 703,320 and 808,607 additional options at the end of fiscal 1996 and 1995,
respectively.
 
NOTE 11--CHANGE IN METHOD OF EVALUATING GOODWILL IMPAIRMENT
 
    Prior to the Demerger, the recoverability of goodwill of the Company's
businesses was evaluated by Hanson using projected undiscounted cash flows. At
June 6, 1995, goodwill from acquisitions, prior to restatement for
discontinuance of operations, aggregated $616.2 million, net of accumulated
amortization of $238.3 million. During the quarter ended June 30, 1995, as a
result of a comprehensive review of accounting policies, the Company adopted a
new policy for evaluating the recoverability of goodwill and measuring its
impairment based on the fair value approach. The Company believes that, in its
circumstances, the fair value method of evaluating the recoverability of
goodwill and measuring its impairment is preferable to the projected
undiscounted cash flow method. Significant asset sales have been and may be
required to meet the Company's debt amortization requirements; therefore, some
of the Company's businesses will not be owned for a period of time sufficient to
recover their goodwill through operations. The fair value approach measures the
recoverability of goodwill based on the amount for which a business could be
sold in an arms-length transaction. The Company believes this is a better
indicator of the extent to which the goodwill may not be recoverable and,
therefore, may be impaired. This change in the method of evaluating the
recoverability of goodwill resulted in the recording of a pre-tax charge to
continuing operations of $111 million to reflect permanent goodwill impairment
in the quarter ended June 30, 1995, resulting in a reduction in goodwill
amortization expense of approximately $1.65 million quarterly and approximately
$6.6 million annually.
 
    The fair value methodology was applied on a separate company basis using
ranges of fair values obtained from independent appraisers retained during the
Demerger. In developing these ranges, the independent appraisers considered,
among other things, (a) publicly available information, (b) financial
projections of each business, (c) the future prospects of each business as
discussed with senior operating and financial management, (d) publicly available
information regarding comparable publicly traded companies in each industry, (e)
market prices, capitalizations and trading multiples of comparable public
companies and (f) other information deemed relevant. In reviewing these
valuations and considering the need to record a charge for permanent goodwill
impairment, the Company also evaluated solicited and
 
                                       48
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 11--CHANGE IN METHOD OF EVALUATING GOODWILL IMPAIRMENT (CONTINUED)
unsolicited bids for businesses and considered whether the factors giving rise
to indicated impairments were temporary or permanent. The Company has recorded
charges to operations for all permanent impairments of goodwill. See Note 2.
 
NOTE 12--NON-RECURRING CHARGES
 
    During June 1995, the Company incurred non-recurring charges aggregating $2
million associated with the closing of underutilized facilities of the Lighting
Products and Systems Operations. The charge includes accruals for lease costs of
vacated facilities and severance payments related to a facility that the Company
is closing.
 
NOTE 13--COMMITMENTS AND CONTINGENCIES
 
    Certain present and former operating sites, or portions thereof, currently
or previously owned and/or leased by current or former operating units of the
Company are the subject of investigations, monitoring or remediation under the
Federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "superfund"), the Federal Resource Conservation and Recovery Act or
comparable state statutes or agreements with third parties. These proceedings
are in various stages ranging from initial investigations to active settlement
negotiations to implementation of the clean-up or remediation of sites.
 
    A number of present and former operating units of the Company have been
named as Potentially Responsible Parties ("PRPs") at approximately 13 off-site
disposal sites under CERCLA or comparable state statutes in a number of federal
and state proceedings. In each of these matters the operating unit of the
Company is working with the governmental agencies involved and other PRPs to
address environmental claims in a responsible and appropriate manner.
 
    At September 30, 1996, the Company had accrued approximately $15 million for
various environmental related liabilities of which the Company is aware. The
Company believes that the range of liability for such matters is between
approximately $7 million and $18 million.
 
    Also, certain of the Company's subsidiaries are defendants or plaintiffs in
lawsuits that have arisen in the normal course of business. While certain of
these matters involve substantial amounts, it is management's opinion, based on
the advice of counsel, that the ultimate resolution of such litigation and
environmental matters will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
 
                                       49
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 14--SEGMENT DATA
 
    The Company's continuing operations are classified into three business
segments: consumer, building products, and industrial. These operations are
conducted primarily in the United States, and to a lesser extent, in other
regions of the world. Export sales represented 14%, 13% and 12% of the Company's
total net sales for fiscal years 1996, 1995 and 1994, respectively. The
principal international markets served by the Company include Europe, and to a
lesser extent South America, Canada and the Asia-Pacific region.
 
<TABLE>
<CAPTION>
                                                                                                (IN MILLIONS)
                                                                                         FOR THE FISCAL YEARS ENDED
                                                                                                SEPTEMBER 30,
                                                                                       -------------------------------
<S>                                                                                    <C>        <C>        <C>
                                                                                         1996       1995       1994
                                                                                       ---------  ---------  ---------
NET SALES
  Consumer Group
    Houswares........................................................................  $     411  $     342  $     318
    Recreation and Leisure Products..................................................        284        269        282
    Footwear and Textiles............................................................        240        261        269
                                                                                       ---------  ---------  ---------
                                                                                             935        872        869
                                                                                       ---------  ---------  ---------
  Building Products Group
    Bath Products....................................................................        332        283        261
    Lighting Products and Systems....................................................        508        492        446
                                                                                       ---------  ---------  ---------
                                                                                             840        775        707
                                                                                       ---------  ---------  ---------
  Industrial Group
    Automotive Components............................................................        390        380        383
    Other Industrial Products........................................................         68         67         56
                                                                                       ---------  ---------  ---------
                                                                                             458        447        439
                                                                                       ---------  ---------  ---------
    TOTAL NET SALES..................................................................  $   2,233  $   2,094  $   2,015
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
OPERATING INCOME (LOSS)
  Consumer Group
    Housewares.......................................................................  $      88  $      67  $      63
    Recreation and Leisure Products..................................................          8         (2)        35
    Footwear and Textiles............................................................         24         25         26
                                                                                       ---------  ---------  ---------
                                                                                             120         90        124
                                                                                       ---------  ---------  ---------
  Building Products Group
    Bath Products....................................................................         55         49         42
    Lighting Products and Systems....................................................         36        (74)        14
                                                                                       ---------  ---------  ---------
                                                                                              91        (25)        56
                                                                                       ---------  ---------  ---------
  Industrial Group
    Automotive Components............................................................         38         37         39
    Other Industrial Products........................................................          6          5          2
                                                                                       ---------  ---------  ---------
                                                                                              44         42         41
                                                                                       ---------  ---------  ---------
    Total Operating Income before corporate
      expenses and management fees...................................................        255        107        221
  Corporate expenses and management fees.............................................        (27)       (27)       (28)
                                                                                       ---------  ---------  ---------
    TOTAL OPERATING INCOME...........................................................  $     228  $      80  $     193
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
</TABLE>
 
                                       50
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 14--SEGMENT DATA (CONTINUED)
    Fiscal 1995 operating income includes non-recurring charges of $13 million
related to the Recreation and Leisure Products Operations and $100 million
related to the Lighting Products and Systems Operations.
 
<TABLE>
<CAPTION>
                                                                                                (IN MILLIONS)
                                                                                         FOR THE FISCAL YEARS ENDED
                                                                                                SEPTEMBER 30,
                                                                                       -------------------------------
<S>                                                                                    <C>        <C>        <C>
                                                                                         1996       1995       1994
                                                                                       ---------  ---------  ---------
INDENTIFIABLE ASSETS AT SEPTEMBER 30
  Consumer Group
    Housewares.......................................................................  $     320  $     240  $     220
    Recreation and Leisure Products..................................................        236        232        254
    Footwear and Textiles............................................................        175        187        187
                                                                                       ---------  ---------  ---------
                                                                                             731        659        661
                                                                                       ---------  ---------  ---------
  Building Products Group
    Bath Products....................................................................        335        304        255
    Lighting Products and Systems....................................................        281        270        372
                                                                                       ---------  ---------  ---------
                                                                                             616        574        627
                                                                                       ---------  ---------  ---------
  Industrial Group
    Automotive Components............................................................        255        218        237
    Other Industrial Products........................................................         82         79         58
                                                                                       ---------  ---------  ---------
                                                                                             337        297        295
  Corporate..........................................................................        111        140        189
                                                                                       ---------  ---------  ---------
  Total for continuing operations....................................................      1,795      1,670      1,772
  Net assets held for disposition....................................................         26        197        454
                                                                                       ---------  ---------  ---------
    TOTAL IDENTIFIABLE ASSETS........................................................  $   1,821  $   1,867  $   2,226
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
DEPRECIATION AND GOODWILL AMORTIZATION
  Consumer Group
    Housewares.......................................................................  $       8  $       7  $       6
    Recreation and Leisure Products..................................................         12         11          9
    Footwear and Textiles............................................................          5          4          4
                                                                                       ---------  ---------  ---------
                                                                                              25         22         19
                                                                                       ---------  ---------  ---------
  Building Products Group
    Bath Products....................................................................          7          6          7
    Lighting Products and Systems....................................................          9         13         15
                                                                                       ---------  ---------  ---------
                                                                                              16         19         22
                                                                                       ---------  ---------  ---------
  Industrial Group
    Automotive Components............................................................         10         10          9
    Other Industrial Products........................................................          4          4          5
                                                                                       ---------  ---------  ---------
                                                                                              14         14         14
                                                                                       ---------  ---------  ---------
TOTAL DEPRECIATION AND GOODWILL AMORTIZATION.........................................  $      55  $      55  $      55
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
</TABLE>
 
                                       51
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 14--SEGMENT DATA (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                                       (IN MILLIONS)
                                                                                FOR THE FISCAL YEARS ENDED
                                                                                       SEPTEMBER 30,
                                                                           -------------------------------------
<S>                                                                        <C>          <C>          <C>
                                                                              1996         1995         1994
                                                                              -----        -----        -----
CAPITAL EXPENDITURES
  Consumer Group
    Housewares...........................................................   $       9    $      11    $      12
    Recreation and Leisure Products......................................          11           16           15
    Footwear and Textiles................................................           2            4            3
                                                                                  ---          ---          ---
                                                                                   22           31           30
                                                                                  ---          ---          ---
  Building Products Group
    Bath Products........................................................           8            4            2
    Lighting Products and Systems........................................          10            8            7
                                                                                  ---          ---          ---
                                                                                   18           12            9
  Industrial Group
    Automotive Components................................................           7            9            8
    Other Industrial Products............................................           3            1            4
                                                                                  ---          ---          ---
                                                                                   10           10           12
  Corporate..............................................................      --               11       --
                                                                                  ---          ---          ---
    TOTAL CAPITAL EXPENDITURES...........................................   $      50    $      64    $      51
                                                                                  ---          ---          ---
                                                                                  ---          ---          ---
</TABLE>
 
NOTE 15--GEOGRAPHIC AREAS--FINANCIAL DATA
 
    The following table presents certain data by geographic areas:
 
<TABLE>
<CAPTION>
                                                                            (IN MILLIONS)
                                                                     FOR THE FISCAL YEARS ENDED
                                                                            SEPTEMBER 30,
                                                                   -------------------------------
<S>                                                                <C>        <C>        <C>
                                                                     1996       1995       1994
                                                                   ---------  ---------  ---------
NET SALES
  United States..................................................  $   2,011  $   1,900  $   1,845
  Foreign........................................................        222        194        170
OPERATING EARNINGS
  United States..................................................  $     175  $      36  $     152
  Foreign........................................................         53         44         41
IDENTIFIABLE ASSETS
  United States..................................................  $   1,609  $   1,675  $   2,066
  Foreign........................................................        212        192        160
</TABLE>
 
    The Company's foreign operations are based predominantly in Europe, and to a
lesser extent in South America, Canada and the Asia-Pacific region. United
States export sales to customers throughout the world were $312 million, $273
million and $236 million for the fiscal years ended September 30, 1996, 1995 and
1994, respectively. Fiscal 1995 United States operating earnings includes
non-recurring charges of
 
                                       52
<PAGE>
                             U.S. INDUSTRIES, INC.
 
       NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 15--GEOGRAPHIC AREAS--FINANCIAL DATA (CONTINUED)
$113 million to write-off permanently impaired goodwill from previous
acquisitions and to consolidate underutilized Lighting Products and Systems
Operations facilities. (See Notes 2, 11 and 12).
 
NOTE 16--QUARTERLY FINANCIAL DATA (UNAUDITED)
 
    Summarized quarterly financial information for the fiscal years ended
September 30, 1996 and 1995 is as follows (dollars in millions, except per share
data):
<TABLE>
<CAPTION>
                                                                      1996                                   1995
                                               --------------------------------------------------  ------------------------
<S>                                            <C>          <C>          <C>          <C>          <C>          <C>
QUARTER ENDED                                   SEPT. 30      JUNE 30     MARCH 31      DEC. 31     SEPT. 30      JUNE 30
---------------------------------------------  -----------  -----------  -----------  -----------  -----------  -----------
Net sales....................................   $     601    $     586    $     546    $     500    $     538    $     528
Gross profit.................................         199          182          178          164          175          167
Income (loss) before extraordinary loss......          38           24           15           81           44         (159)
Net income (loss)............................          38           24           15           56           44         (159)
Income (loss) before extraordinary loss per
  share......................................        0.72         0.46         0.30         1.50         0.82           --
Net income per share.........................        0.72         0.46         0.30         1.04         0.82           --
Pro forma net income (loss)..................          --           --           --           --           --         (161)
Pro forma net income (loss) per common
  share......................................          --           --           --           --           --        (3.00)
 
<CAPTION>
 
<S>                                            <C>          <C>
QUARTER ENDED                                   MARCH 31      DEC. 31
---------------------------------------------  -----------  -----------
Net sales....................................   $     539    $     489
Gross profit.................................         167          157
Income (loss) before extraordinary loss......          14           12
Net income (loss)............................          14           12
Income (loss) before extraordinary loss per
  share......................................          --           --
Net income per share.........................          --           --
Pro forma net income (loss)..................          10            8
Pro forma net income (loss) per common
  share......................................        0.19         0.15
</TABLE>
 
    Certain of the amounts above have been restated from the amounts reported in
the Company's reports on Form 10-Q for the disposal of businesses. See Notes 3,
4, 5, 11 and 12 regarding transactions that affect comparability of quarterly
data.
 
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED)
 
    In October 1996, the Company sold most of the assets of Tube-Tex for gross
cash consideration of $21 million and a note for $1 million. There was no gain
or loss as the proceeds generated from this transaction approximated the net
carrying amount of the assets sold.
 
    In November 1996, the Company entered into an agreement to sell certain
assets of QPF, Inc. for approximately $43 million in cash. Although the Company
has received a deposit from the prospective purchaser, closing is subject to
resolution of the contingencies set forth in the asset purchase agreement.
 
    In October 1996, the Company entered into interest rate protection
agreements (the "Treasury Locks") in the aggregate notional amount of $120
million in connection with its consideration of refinancing indebtedeness
outstanding under the Existing Credit Facility using the proceeds of an offering
of senior unsecured notes of a subsidiary, to be guaranteed by the Company, and
borrowings under a new revolving credit facility. The Treasury Locks effectively
fix the interest rates tied to such proposed note offering to the relevant
United States government treasury securities.
 
                                       53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
  ACCOUNTING AND FINANCIAL DISCLOSURE
 
    Not applicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    The information included under the caption "Executive Officers" in Item 1 of
this Annual Report on Form 10-K is incorporated herein by reference.
 
    The information to be included under the caption "Election of Directors" in
the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A of the 1934 Act in connection with the annual meeting
of the Company's stockholders to be held on February 6, 1997 (the "Proxy
Statement") is incorporated herein by reference.
 
ITEM 11. EXECUTIVE COMPENSATION
 
    The information to be included under the caption "Execution Compensation" in
the Proxy Statement is incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The information to be included under the caption "Ownership of Common Stock"
in the Proxy Statement is incorporated herein by reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    The information to be included under the caption "Executive
Compensation--Compensation Committee Interlocks and Insider Transactions" in the
Proxy Statement is incorporated herein by reference.
 
                                       54
<PAGE>
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
 
    (a) Listing of Documents
 
        (1) FINANCIAL STATEMENTS. The Company's Consolidated (Combined)
    Financial Statements included in Item 8 hereof, as required at September 30,
    1996 and 1995, and for the years ended September 30, 1996, 1995 and 1994,
    consist of the following:
 
           Consolidated (Combined) Statements of Operations
           Consolidated Balance Sheets
           Consolidated (Combined) Statements of Cash Flows
           Consolidated (Combined) Statements of Changes in Stockholders'
    Equity/Invested Capital
           Notes to Consolidated (Combined) Financial Statements
 
        (2) FINANCIAL STATEMENT SCHEDULE.
 
        Financial Statement Schedule of the Company appended hereto, as required
    for the years ended September 30, 1996, 1995 and 1994, consists of the
    following:
 
           II. Valuation and Qualifying Accounts
 
        (3) MANAGEMENT CONTRACTS AND COMPENSATORY PLANS AND ARRANGEMENTS.
 
<TABLE>
<S><C>                                                                     
--Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
  Hanson Industries and David H. Clarke (filed as Exhibit 10.9 to The Company's
  Registration Statement on Form 10, dated April 21, 1995 (the "Form 10")).*
--First Amendment, dated June 12, 1995, to the Employment Agreement, dated
  February 22, 1995, between the Company and David H. Clarke (filed as Exhibit
  10.19(b) to the Company's Report on Form 10-K for the fiscal year ended
  September 30, 1995 (the "1995 10-K")).*
--Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
  Hanson Industries and John G. Raos (filed as Exhibit 10.10 to the Form 10).*
--First Amendment, dated June 12, 1995, to the Employment Agreement, dated
  February 22, 1995, between the Company and John G. Raos (filed as Exhibit
  10.20(b) to the 1995 10-K).*
--Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
  Hanson Industries and John S. Oldford (filed as Exhibit 10.11 to the Form
  10).*
--First Amendment, dated June 12, 1995, to the Employment Agreement, dated
  February 22, 1995, between the Company and John S. Oldford (filed as Exhibit
  10.21(b) to the 1995 10-K).*
--Employment Agreement, dated March 1, 1995, among Hanson PLC, the Company,
  Hanson Industries and Christian R. Guntner (filed as Exhibit 10.12 to the
  Form 10).*
--First Amendment, dated June 12, 1995, to the Employment Agreement, dated
  March 1, 1995, between the Company and Christian R. Guntner (filed as Exhibit
  10.22(b) to the 1995 10-K).*
--Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
  Hanson Industries and John A. Mistretta (filed as Exhibit 10.23(a) to the
  1995 10-K).*
--First Amendment, dated June 12, 1995, to the Employment Agreement, dated
  February 22, 1995, between the Company and John A. Mistretta (filed as
  Exhibit 10.23(b) to the 1995 10-K).*
--U.S. Industries, Inc. Stock Option Plan (filed as Exhibit 10.13 to the Form
  10).*
--U.S. Industries, Inc. Supplemental Retirement Plan (filed as Exhibit 10.14 to
  the Form 10).*
--U.S. Industries, Inc. Long Term Incentive Plan (filed as Exhibit 10.15 to the
  Form 10).*
</TABLE>
 
------------------------
 
*   Incorporated by reference

                                       55
<PAGE>
    (b) Reports on Form 8-K.
 
           Not applicable.
 
    (c) Exhibits.
 
<TABLE>
<S>        <C>
      3.1  --Form of Amended and Restated Certificate of Incorporation (filed as Exhibit 1 to
             the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 1,
             1995 (the "Third Quarter 1994 10-Q")).*
           --Form of Certificate of Designations of the Series A Junior Preferred Stock
             (filed as Exhibit 2 to the Third Quarter 1994 10-Q)).*
      3.2  --Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 to the Form
             10).*
      4.1  --Specimen form of certificate representing shares of Common Stock of the Company
             (filed as Exhibit 4.1 to the Form 10).*
     10.1  --Stock Purchase Agreement, dated May 30, 1995, between USI American Holdings,
             Inc. and HM Holdings, Inc. (filed as Exhibit 10.1 to the 1995 10-K).*
     10.2  --Stock Purchase Agreement, dated May 30, 1995, between USI American Holdings,
             Inc. and Kaiser Cement Corporation. (filed as Exhibit 10.2 to the 1995 10-K).*
     10.3  --Stock Purchase Agreement, dated May 30, 1995, between USI American Holdings,
             Inc. and Kidde Industries, Inc. (filed as Exhibit 10.3 to the 1995 10-K).*
     10.4  --Stock Purchase Agreement, dated May 30, 1995, between USI American Holdings,
             Inc. and HMB Holdings, Inc. (filed as Exhibit 10.4 to the 1995 10-K).*
     10.5  --Proceeds Participation Agreement Relating to the Stock of Smith Corona
             Corporation, dated May 30, 1995, between USI American Holdings, Inc. and Hanson
             Natural Resources Company. (filed as Exhibit 10.5 to the 1995 10-K).*
     10.6  --Stock Purchase Agreement, dated May 30, 1995, between USI American Holdings,
             Inc. and Endicott Johnson Corporation. (filed as Exhibit 10.6 to the 1995
             10-K).*
     10.7  --Asset Purchase Agreement, dated May 30, 1995, between USI American Holdings,
             Inc. and Quantum Chemical Corporation. (filed as Exhibit 10.7 to the 1995
             10-K).*
     10.8  --Asset Purchase Agreement, dated May 30, 1995, between USI American Holdings,
             Inc. and Spartus Corporation. (filed as Exhibit 10.8 to the 1995 10-K).*
     10.9  --Asset Purchase Agreement, dated May 30, 1995, between USI American Holdings,
             Inc. and Endicott Johnson Corporation. (filed as Exhibit 10.9 to the 1995
             10-K).*
    10.10  --Subscription Agreement, dated May 31, 1995, between Hanson PLC and the Company.
             (filed as Exhibit 10.10 to the 1995 10-K).*
    10.11  --Stock Purchase Agreement, dated May 31, 1995, between Hanson PLC and USI
             Overseas Holdings, Ltd. (filed as Exhibit 10.11 to the 1995 10-K).*
    10.12  --Proceeds Participation Agreement, Relating to the Stock of Ground Round
             Restaurants, Inc. dated June 5, 1995, between USI American Holdings, Inc. and HM
             Holdings, Inc. (filed as Exhibit 10.12 to the 1995 10-K).*
    10.13  --Corporate Transition Agreement, dated May 31, 1995, between Hanson Industries,
             HM Anglo-American Ltd., U.S. Industries, Inc. and USI American Holdings, Inc.
             (filed as Exhibit 10.13 to the 1995 10-K).*
    10.14  --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, U.S. Industries, Inc. and USI American Holdings, Inc. (filed as
             Exhibit 10.14 to the 1995 10-K).*
    10.15  --Tax Sharing and Indemnification Agreement, dated May 30, 1995, among HM Anglo-
             American Ltd., Quantum Chemical Corporation, Endicott Johnson Corporation,
             Spartus Corporation, U.S. Industries, Inc. and USI American Holdings, Inc.
             (filed as Exhibit 10.15 to the 1995 10-K).*
</TABLE>
 
------------------------
 
*   Incorporated by reference
 
                                       56
<PAGE>
<TABLE>
<S>        <C>
    10.16(a) --Credit Agreement, dated May 12, 1995, among USI American Holdings, Inc., the
             Company, Various Banks, Bank of America National Trust and Savings Association,
             as Issuing Bank and Swingline Bank, Bank of America National Trust and Savings
             Association as Agent and BA Securities Inc. as Arranger (filed as Exhibit 2 to
             the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March
             31, 1995).*
         (b) --First Amendment and Consent to Credit Agreement, dated as of September 27, 1995,
             to the Credit Agreement referred to in 10.11(a) above. (filed as Exhibit
             10.16(b) to the 1995 10-K).*
    10.17  --Stock Purchase Agreement dated August 11, 1995 among U.S. Industries, Inc., JUSI
             Holdings, Inc., Jacuzzi (U.K.) Limited and FPI Acquisition Corp. (filed as
             Exhibit 10.17 to the 1995 10-K)*
    10.18  --Stock Purchase Agreement, dated October 20, 1995, between Haworth International,
             Ltd., USI American Holdings, Inc. and joined in by the Company. (filed as
             Exhibit 10.18 to the 1995 10-K)*
    10.19(a) --Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
             Hanson Industries and David H. Clarke (filed as Exhibit 10.9 to the Form 10).*+
         (b) --First Amendment, dated June 12, 1995, to the Employment Agreement, dated
             February 22, 1995, between the Company and David H. Clarke. (filed as Exhibit
             10.19(b) to the 1995 10-K).*+
    10.20(a) --Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
             Hanson Industries and John G. Raos (filed as Exhibit 10.10 to the Form 10).*+
         (b) --First Amendment, dated June 12, 1995, to the Employment Agreement, dated
             February 22, 1995, between John G. Raos and the Company. (filed as Exhibit
             10.20(b) to the 1995 10-K).*+
    10.21(a) --Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company,
             Hanson Industries and John S. Oldford (filed as Exhibit 10.11 to the Form 10).*+
         (b) --First Amendment, dated June 12, 1995, to the Employment Agreement, dated
             February 22, 1995, between the Company and John S. Oldford. (filed as Exhibit
             10.21(b) to the 1995 10-K).*+
    10.22(a) --Employment Agreement, dated March 1, 1995, among Hanson PLC, the Company, Hanson
             Industries and Christian R. Guntner (filed as Exhibit 10.12 to the Form 10).*+
         (b) --First Amendment, dated June 12, 1995, to the Employment Agreement dated March 1,
             1995, between the Company and Christian R. Guntner. (filed as Exhibit 10.22(b)
             to the 1995 10-K).*+
    10.23(a) --Employment Agreement, dated May 1, 1995, among Hanson PLC, the Company, Hanson
             Industries and John A. Mistretta (filed as Exhibit 10.23(a) to the 1995 10-K).*+
         (b) --First Amendment, dated June 12, 1995, to the Employment Agreement dated May 1,
             1995, between the Company and John A. Mistretta (filed as Exhibit 10.23(b) to
             the 1995 10-K).*+
    10.24  --U.S. Industries, Inc. Stock Option Plan (filed as Exhibit 10.13 to the Form
             10).*+
    10.25  --U.S. Industries, Inc. Supplemental Retirement Plan (filed as Exhibit 10.14 to
             the Form 10).*+
    10.26  --U.S. Industries, Inc. Long Term Incentive Plan (filed as Exhibit 10.15 to the
             Form 10).*+
     21.1  --Subsidiaries of the Company.
     23.1  --Consent of Ernst & Young LLP
     23.2  --Consent of Price Waterhouse LLP
     23.3  --Consent of Deloitte & Touche, LLP
     27.1  --Financial Data Schedule
</TABLE>
 
------------------------
 
*   Incorporated by reference
 
+   Denotes a management contract or compensatory plan or arrangement required
    to be filed as an exhibit pursuant to Item 14(c) of this Report
 
    (d) Financial Statement Schedules
 
                                       57
<PAGE>
                                   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.
 
                                U.S. INDUSTRIES, INC.
 
                                By:             /s/ DAVID H. CLARKE
                                     -----------------------------------------
                                                  David H. Clarke
                                             CHAIRMAN OF THE BOARD AND
November 20, 1996                             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
------------------------------  ---------------------------
 
                                Chairman of the Board and
     /s/ DAVID H. CLARKE          Chief Executive Officer
------------------------------    (Principal Executive
       David H. Clarke            Officer)
 
       /s/ JOHN G. RAOS         Director, President and
------------------------------    Chief Operating Officer
         John G. Raos
 
                                Director, Senior Vice
     /s/ FRANK R. REILLY          President and Chief
------------------------------    Financial Officer
       Frank R. Reilly            (Principal Financial
                                  Officer)
 
     /s/ BRIAN C. BEAZER        Director
------------------------------
       Brian C. Beazer
 
   /s/ JOHN J. MCATEE, JR.      Director
------------------------------
     John J. McAtee, Jr.
 
/s/ THE HON. CHARLES H. PRICE   Director
              II
------------------------------
 The Hon. Charles H. Price II
 
    /s/ SIR HARRY SOLOMON       Director
------------------------------
      Sir Harry Solomon
 
    /s/ ROYALL VICTOR III       Director
------------------------------
      Royall Victor III
 
   /s/ MARK VORDER BRUEGGE      Director
------------------------------
     Mark Vorder Bruegge
 
      /s/ JAMES O'LEARY         Vice President--Corporate
------------------------------    Controller (Principal
        James O'Leary             Accounting Officer)
 
                                       58
<PAGE>
                                                                     SCHEDULE II
 
                             U.S. INDUSTRIES, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
               COLUMN A                      COLUMN B                        COLUMN C                      COLUMN D
---------------------------------------  -----------------  ------------------------------------------  ---------------
<S>                                      <C>                <C>                <C>                      <C>
                                                                            ADDITIONS
                                                            ------------------------------------------
 
<CAPTION>
                                            BALANCE AT         CHARGED TO
                                           BEGINNING OF           COSTS           CHARGED TO OTHER
              DESCRIPTION                     PERIOD          AND EXPENSES            ACCOUNTS            DEDUCTIONS
---------------------------------------  -----------------  -----------------  -----------------------  ---------------
<S>                                      <C>                <C>                <C>                      <C>
Year ended September 30, 1994
  Deducted from asset accounts:
    Allowance for doubtful accounts....             24                  9                                        4(1)
Year ended September 30, 1995
  Deducted from asset accounts:
    Allowance for doubtful accounts....             29                 11                                        6(1)
Year ended September 30, 1996
  Deducted from asset accounts:
    Allowance for doubtful accounts....             34                  5                                        0(1)
 
<CAPTION>
               COLUMN A                      COLUMN E
---------------------------------------  -----------------
<S>                                      <C>
 
                                            BALANCE AT
              DESCRIPTION                  END OF PERIOD
---------------------------------------  -----------------
<S>                                      <C>
Year ended September 30, 1994
  Deducted from asset accounts:
    Allowance for doubtful accounts....             29
Year ended September 30, 1995
  Deducted from asset accounts:
    Allowance for doubtful accounts....             34
Year ended September 30, 1996
  Deducted from asset accounts:
    Allowance for doubtful accounts....             39
</TABLE>
 
------------------------
 
(1) Uncollectible accounts written off, net of recoveries.
 
                                       59
<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               -----
<S>        <C>                                                                                              <C>
     3.1   --Form of Amended and Restated Certificate of Incorporation (filed as Exhibit 1 to the
             Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 1995 (the "Third
             Quarter 1994 10-Q"))*
           --Form of Certificate of Designations of the Series A Junior Preferred Stock (filed as Exhibit
             2 to the Third Quarter 1994 10-Q))*
     3.2   --Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 to the Form 10*
     4.1   --Specimen form of certificate representing shares of Common Stock of the Company (filed as
             Exhibit 4.1 to the Form 10)*
    10.1   --Stock Purchase Agreement, dated May 30, 1995, between USI American Holdings, Inc. and HM
             Holdings, Inc. (filed as Exhibit 10.1 to the Company's Report on Form 10-K for the fiscal
             year ended September 30, 1995 (the "1995 10-K"))*
    10.2   --Stock Purchase Agreement, dated May 30, 1995, between USI American Holdings, Inc. and Kaiser
             Cement Corporation. (filed as Exhibit 10.2 to the 1995 10-K)*
    10.3   --Stock Purchase Agreement, dated May 30, 1995, between USI American Holdings, Inc. and Kidde
             Industries, Inc. (filed as Exhibit 10.3 to the 1995 10-K)*
     10.4  --Stock Purchase Agreement, dated May 30, 1995, between USI American
             Holdings, Inc. and HMB Holdings, Inc. (filed as Exhibit 10.4 to the 1995
             10-K)*
     10.5  --Proceeds Participation Agreement Relating to the Stock of Smith Corona
             Corporation, dated May 30, 1995, between USI American Holdings, Inc. and
             Hanson Natural Resources Company. (filed as Exhibit 10.5 to the 1995
             10-K)*
     10.6  --Stock Purchase Agreement, dated May 30, 1995, between USI American
             Holdings, Inc. and Endicott Johnson Corporation. (filed as Exhibit 10.6 to
             the 1995 10-K)*
     10.7  --Asset Purchase Agreement, dated May 30, 1995, between USI American
             Holdings, Inc. and Quantum Chemical Corporation. (filed as Exhibit 10.7 to
             the 1995 10-K)*
     10.8  --Asset Purchase Agreement, dated May 30, 1995, between USI American
             Holdings, Inc. and Spartus Corporation. (filed as Exhibit 10.8 to the 1995
             10-K)*
     10.9  --Asset Purchase Agreement, dated May 30, 1995, between USI American
             Holdings, Inc. and Endicott Johnson Corporation. (filed as Exhibit 10.9 to
             the 1995 10-K)*
    10.10  --Subscription Agreement, dated May 31, 1995, between Hanson PLC and the
             Company. (filed as Exhibit 10.10 to the 1995 10-K)*
    10.11  --Stock Purchase Agreement, dated May 31, 1995, between Hanson PLC and USI
             Overseas Holdings, Ltd. (filed as Exhibit 10.11 to the 1995 10-K)*
    10.12  --Proceeds Participation Agreement, Relating to the Stock of Ground Round
             Restaurants, Inc. dated June 5, 1995, between USI American Holdings, Inc.
             and HM Holdings, Inc. (filed as Exhibit 10.12 to the 1995 10-K)*
    10.13  --Corporate Transition Agreement, dated May 31, 1995, between Hanson
             Industries, HM Anglo-American Ltd., U.S. Industries, Inc. and USI American
             Holdings, Inc. (filed as Exhibit 10.13 to the 1995 10-K)*
    10.14  --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, U.S. Industries, Inc. and USI American Holdings, Inc.
             (filed as Exhibit 10.14 to the 1995 10-K)*
    10.15  --Tax Sharing and Indemnification Agreement, dated May 30, 1995, among HM
             Anglo-American Ltd., Quantum Chemical Corporation, Endicott Johnson
             Corporation, Spartus Corporation, U.S. Industries, Inc. and USI American
             Holdings, Inc. (filed as Exhibit 10.15 to the 1995 10-K)*
    10.16(a) --Credit Agreement, dated May 12, 1995, among USI American Holdings, Inc.,
             the Company, Various Banks, Bank of America National Trust and Savings
             Association, as Issuing Bank and Swingline Bank, Bank of America National
             Trust and Savings Association as Agent and BA Securities Inc. as Arranger
             (filed as Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the
             fiscal quarter ended March 31, 1995)*
</TABLE>
 
------------------------
 
*   Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            -----
<S>        <C>                                                                           <C>          <C>   <C>
         (b) --First Amendment and Consent to Credit Agreement, dated as of September 27, 1995, to the
             Credit Agreement referred to in 10.11(a) above. (filed as Exhibit 10.16(b) to the 1995 10-K)*
    10.17  --Stock Purchase Agreement dated August 11, 1995 among U.S. Industries, Inc., JUSI Holdings,
             Inc., Jacuzzi (U.K.) Limited and FPI Acquisition Corp. (filed as Exhibit 10.17 to the 1995
             10-K)*
    10.18  --Stock Purchase Agreement, dated October 20, 1995, between Haworth International, Ltd., USI
             American Holdings, Inc. and joined in by the Company. (filed as Exhibit 10.18 to the 1995
             10-K)*
    10.19(a) --Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company, Hanson
             Industries and David H. Clarke (filed as Exhibit 10.9 to the Form 10)*+
         (b) --First Amendment, dated June 12, 1995, to the Employment Agreement, dated February 22, 1995,
             between the Company and David H. Clarke. (filed as Exhibit 10.19(b) to the 1995 10-K)*+
    10.20(a) --Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company, Hanson
             Industries and John G. Raos (filed as Exhibit 10.10 to the Form 10)*+
         (b) --First Amendment, dated June 12, 1995, to the Employment Agreement, dated February 22, 1995,
             between John G. Raos and the Company. (filed as Exhibit 10.20(b) to the 1995 10-K)*+
    10.21(a) --Employment Agreement, dated February 22, 1995, among Hanson PLC, the Company, Hanson
             Industries and John S. Oldford (filed as Exhibit 10.11 to the Form 10)*+
         (b) --First Amendment, dated June 12, 1995, to the Employment Agreement, dated February 22, 1995,
             between the Company and John S. Oldford. (filed as Exhibit 10.21(b) to the 1995 10-K)*+
    10.22(a) --Employment Agreement, dated March 1, 1995, among Hanson PLC, the Company, Hanson Industries
             and Christian R. Guntner (filed as Exhibit 10.12 to the Form 10)*+
         (b) --First Amendment, dated June 12, 1995, to the Employment Agreement dated March 1, 1995,
             between the Company and Christian R. Guntner. (filed as Exhibit 10.22(b) to the 1995 10-K)*+
    10.23(a) --Employment Agreement, dated May 1, 1995, among Hanson PLC, the Company, Hanson Industries and
             John A. Mistretta (filed as Exhibit 10.23(a) to the 1995 10-K)*+.............................
         (b) --First Amendment, dated June 12, 1995, to the Employment Agreement dated May 1, 1995, between
             the Company and John A. Mistretta (filed as Exhibit 10.23(b) to the 1995 10-K)*+.............
    10.24  --U.S. Industries, Inc. Stock Option Plan (filed as Exhibit 10.13 to the Form 10)*+
    10.25  --U.S. Industries, Inc. Supplemental Retirement Plan (filed as Exhibit 10.14 to the Form 10)*+
    10.26  --U.S. Industries, Inc. Long Term Incentive Plan (filed as Exhibit 10.15 to the Form 10)*+
    21.1   --Subsidiaries of the Company..................................................................
    23.1   --Consent of Ernst & Young LLP.................................................................
    23.2   --Consent of Price Waterhouse LLP..............................................................
    23.3   --Consent of Deloitte & Touche, LLP............................................................
    27     --Financial Data Schedule......................................................................
</TABLE>
 
------------------------
 
*   Incorporated by reference
 
+   Denotes a management contract or compensatory plan or arrangement required
    to be filed as an exhibit pursuant to Item 14(c) of this Report