UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2005

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 1-14557

JACUZZI BRANDS, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		22-3568449 (I.R.S. Employer Identification No.)

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

(561) 514-3838
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x		Accelerated filer  o		Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes   x   No    o

As of January 31, 2006, Jacuzzi Brands, Inc. had one class of common stock, of which 77,567,776 shares were outstanding.

 

 

JACUZZI BRANDS, INC.

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings for the Three Months Ended December 31, 2005 and 2004			1
Condensed Consolidated Balance Sheets as of December 31, 2005 and September 30, 2005			2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2005 and 2004			3
Notes to Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4. Controls and Procedures			29
PART II. OTHER INFORMATION
Item 6. Exhibits			30
SIGNATURES			31
Section 302 CEO Certification
Section 302 CFO Certification
Section 906 CEO and CFO Certification

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

JACUZZI BRANDS, INC.

		Three Months Ended
		December 31,
		2005				2004
						(Restated)
Net sales		$	267.1			$	281.5
Operating costs and expenses:
Cost of products sold			184.9				190.8
Selling, general and administrative expenses			59.5				68.4
Restructuring charges			1.6				1.5
Operating income			21.1				20.8
Interest expense			(10.3	)			(12.1	)
Interest income			1.4				1.0
Other income, net			8.7				0.7
Earnings before income taxes and discontinued operations			20.9				10.4
Provision for income taxes			(8.8	)			(3.8	)
Earnings from continuing operations			12.1				6.6
Discontinued operations:
Loss from operations (net of tax benefit of $0.3 and $0.5 in 2006 and 2005, respectively)			(0.6	)			(1.1	)
Loss from disposals (net of tax benefit of $0.4 2006)			(0.8	)			—
Net earnings		$	10.7			$	5.5
Basic earnings (loss) per share:
Continuing operations		$	0.16			$	0.09
Discontinued operations			(0.02	)			(0.02	)
		$	0.14			$	0.07
Diluted earnings (loss) per share:
Continuing operations		$	0.16			$	0.09
Discontinued operations			(0.02	)			(0.02	)
		$	0.14			$	0.07

The accompanying notes are an integral part of these statements.

JACUZZI BRANDS, INC.

		December 31,				September 30,
		2005				2005
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	121.4			$	110.2
Trade receivables, net			172.0				200.5
Inventories			175.4				165.0
Deferred income taxes			27.6				27.9
Assets held for sale			65.6				69.7
Prepaid expenses and other current assets			20.9				22.6
Total current assets			582.9				595.9
Restricted cash			12.6				12.4
Property, plant and equipment, net			100.4				103.7
Pension assets			148.5				147.8
Insurance for asbestos claims			153.0				153.0
Goodwill			227.0				228.2
Other non-current assets			48.3				48.5
TOTAL ASSETS		$	1,272.7			$	1,289.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable		$	25.3			$	22.0
Current maturities of long-term debt			1.5				1.5
Trade accounts payable			90.3				105.7
Income taxes payable			27.0				24.7
Liabilities associated with assets held for sale			65.2				66.9
Accrued expenses and other current liabilities			107.0				114.4
Total current liabilities			316.3				335.2
Long-term debt			383.5				383.5
Deferred income taxes			4.9				5.6
Asbestos claims			153.0				153.0
Other non-current liabilities			121.0				127.0
Total liabilities			978.7				1,004.3
Commitments and contingencies Stockholders’ equity			294.0				285.2
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,272.7			$	1,289.5

The accompanying notes are an integral part of these statements.

JACUZZI BRANDS, INC.

		Three months ended
		December 31,
		2005				2004
						(Restated)
OPERATING ACTIVITIES:
Net cash provided by operating activities of continuing operations		$	2.6			$	5.4
Net cash used in operating activities of discontinued operations			(3.2	)			(9.4	)
NET CASH USED IN OPERATING ACTIVITIES			(0.6	)			(4.0	)
INVESTING ACTIVITIES:
Collection of a non-operating note receivable			9.3				—
Purchases of property, plant and equipment			(3.0	)			(4.1	)
Proceeds from sale of excess real estate			1.7				—
Other			(0.1	)			—
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES			7.9				(4.1	)
FINANCING ACTIVITIES:
Proceeds from long-term debt			—				8.1
Repayment of long-term debt			—				(7.2	)
Payments for stock option exchange			—				(0.2	)
Proceeds from stock option exercises			0.3				—
Increase in notes payable, net			3.8				2.1
NET CASH PROVIDED BY FINANCING ACTIVITIES			4.1				2.8
Effect of exchange rate changes on cash and cash equivalents			(0.2	)			2.9
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			11.2				(2.4	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			110.2				39.6
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	121.4			$	37.2

The accompanying notes are an integral part of these statements.

JACUZZI BRANDS, INC.

Note 1-Basis of Presentation

We manufacture and distribute a broad range of consumer and industrial products through our operating subsidiaries in two business segments — Bath Products and Plumbing Products. Refer to Note 13 regarding our business segments.

We operate on a 52- or 53-week fiscal year ending on the Saturday nearest to September 30. The three-month periods presented in our condensed consolidated financial statements reflect the 13-week periods ending on the Saturday nearest December 31 of the respective fiscal year, but are presented as of December 31 for convenience. The fiscal quarter periods presented in this report on Form 10-Q, which consist of the 13 weeks ended December 31, 2005 (also referred to as the “first quarter of 2006”) and December 31, 2004 (also referred to as the “first quarter of 2005”), are unaudited. However, in our opinion, these financial statements reflect all normal, recurring adjustments necessary to provide a fair presentation of our financial position, results of operations and cash flows for the periods presented. These interim financial statements are condensed, and thus, do not include all of the information and footnotes required by United States generally accepted accounting principles (“GAAP”) for presentation of a complete set of financial statements. The balance sheet as of October 1, 2005 (referred to as of September 30, 2005 for convenience) has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for a complete set of financial statements.

Our results are impacted by weather and other seasonal influences affecting construction. These interim results are not necessarily indicative of the results that should be expected for the full year. For a better understanding of Jacuzzi Brands, Inc. and our financial statements, the condensed interim financial statements should be read in conjunction with our audited consolidated financial statements for the year ended October 1, 2005, which are included in our 2005 Annual Report on Form 10-K, filed on December 15, 2005.

Net cash provided by investing activities in the first quarter of 2006 included $9.3 million collected on a non-operating note that had previously been fully reserved. We had obtain the note in October 2002 upon the sale of a piece of property to a property developer, Woodlands Ventures, LLC. The gain of $9.3 million, which had been deferred until collection of the note, was recorded in other income, net.

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

Restatement for Step Acquisition

Prior year results have been restated to reflect a change in accounting for our investment in Spear & Jackson (“SJ”) as a result of an increase in our ownership percentage that occurred in the previous year. Net earnings for the first quarter of 2005 increased by $0.1 million; earnings per share for that period did not change. As a result of a plan to dispose of SJ, their operating results are included in discontinued operations for all periods presented, and their assets and liabilities have been classified as assets held for sale and liabilities associated with assets held for sale, respectively. Additional information regarding our increased ownership percentage of SJ and the disposal plan can be found in our 2005 Annual Report on Form 10-K, filed on December 15, 2005.

Note 2- New Accounting Pronouncements

In November 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position Nos. FAS115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“FSP Nos. 115-1 and 124-1”). The guidance in this FSP amends FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and FASB Statement No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and adds a footnote to APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. FSP Nos. 115-1 and 124-1 addresses the determination of when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. In addition, FSP Nos. 115-1 and 124-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in FSP Nos. 115-1 and 124-1 is effective for reporting periods beginning after December 15, 2005. We do not expect the implementation of FSP Nos. 115-1 and 124-1 to have a material impact on our financial position or results of operations.

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 3-Inventories

Inventories consist of the following:

		December 31,				September 30,
		2005				2005
Finished products		$	118.4			$	108.7
In-process products			12.6				12.9
Raw materials			44.4				43.4
		$	175.4			$	165.0

Note 4-Long-Term Debt

     Long-term debt consists of the following:

		December 31,				September 30,
		2005				2005
Senior Notes		$	380.0			$	380.0
Asset-based credit facility			—				—
Other long-term debt			5.0				5.0
			385.0				385.0
Less: current maturities			(1.5	)			(1.5	)
Long-term debt		$	383.5			$	383.5

The 9.625% senior secured notes (“Senior Notes”) are due on July 1, 2010 and require the payment of interest of $18.3 million on January 1 and July 1 of each year. We are restricted in the redemption of the Senior Notes per the terms of the agreement with the note holders. Prior to July 1, 2006, we are permitted to redeem up to 35% of the Senior Notes with the net cash proceeds of an equity offering. On and after July 1, 2007, we can redeem the Senior Notes subject to a redemption premium of 104.8% for the first 12 months and 102.4% for the following 12 months. On and after July 1, 2009, the Senior Notes can be redeemed at face value. As of December 31, 2006, we have restricted cash accounts of $12.6 million that are being held for the benefit of the bondholders upon the sales of Rexair, Inc. (“Rexair”) and Eljer Plumbingware, Inc. (“Eljer”) in the third quarter of fiscal 2005.

We also have an asset-based credit facility that matures on July 15, 2008. Under this facility, we can borrow up to $200.0 million subject to a borrowing base consisting of eligible accounts receivable and eligible inventory. The weighted-average interest rate associated with the asset-based facility was 5.3% for the first quarter of 2005. There were no balances outstanding under this facility during the first quarter of 2006. At December 31, 2005, we had approximately $113.7 million available to be borrowed under the asset-based credit facility, of which we had utilized approximately $39.3 million for letters of credit, leaving $74.4 million available for borrowings. In addition, we have outstanding foreign commercial letters of credit of $2.3 million which do not affect availability under the asset-based credit facility.

The availability under our asset-based credit facility must be reduced by the amount that our cash balance falls below the $42.0 million of excess proceeds we received upon the sale of Rexair. We are required to either reinvest the excess proceeds in our business or offer to redeem the Senior Notes at par within one year of the date of sale. Our cash balance exceeded $42.0 million at December 31, 2005, thus the availability under our asset-based credit facility was not impacted by this credit facility requirement.

We paid $0.8 million of interest on our borrowings during the first quarter of 2006 and $2.1 million during the first quarter of 2005. Additional information regarding our long-term debt can be found in our 2005 Annual Report on Form 10-K, filed on December 15, 2005.

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 5-Commitments and Contingencies

Warranties

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

Changes in our warranty reserves during the first quarter of 2006 are as follows:

At September 30, 2005		$	24.3
Warranty accrual			4.3
Cash payments			(4.1	)
At December 31,2005		$	24.5

Contingencies

During the first quarter of 2006, we reached a settlement with a state regarding past due taxes on property. As a result, we recorded a gain of $1.7 million, reducing our liability to the state to $0.3 million. This gain is included in corporate general and administrative expenses.

Guarantees & Indemnifications

In connection with the sale of Ames True Temper in January 2002, we continue to guarantee the lease payments of their master distribution center. The lease obligation will expire in 2015. The scheduled lease payments totaled $3.8 million for fiscal 2005, and increase by 2.25% each year thereafter. We obtained a security interest and indemnification from Ames True Temper on the lease that would enable us to exercise remedies in the event of default. We have not been called upon to make any payments under this guarantee.

We have sold a number of assets and businesses over the last several years and have, on occasion, provided indemnifications for liabilities relating to product liability, environmental, insurance, tax and other claims. We have recorded reserves, net of escrow deposits totaling approximately $21.2 million as of December 31, 2005 for asserted and potential unasserted claims related to these liabilities. These amounts have not been discounted.

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

Environmental Matters

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

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

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 5-Commitments and Contingencies (continued)

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

As of December 31, 2005, we had accrued approximately $2.5 million ($0.7 million accrued as current liabilities and $1.8 million as non-current liabilities), including $0.9 million for discontinued operations, for environmental liabilities. These amounts are net of $13.8 million held in escrow and have not been discounted. We accrue an amount for each case when the likelihood of an unfavorable outcome is probable and the amount of loss associated with such unfavorable outcome is reasonably estimable. We believe that the range of liability for these matters could reach $15.8 million if it included cases where the likelihood of an unfavorable outcome is only reasonably possible. We cannot predict whether future developments in laws and regulations concerning environmental protection or unanticipated enforcement actions will require material capital expenditures or otherwise affect our financial condition, results of operations or cash flows in a materially adverse manner, or whether our businesses will be successful in meeting future demands of regulatory agencies in a manner which will not have a material adverse effect on our financial condition, results of operations or cash flows.

Litigation

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

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

During the first quarter of 2006, we increased our reserves by $1.1 million for post-closing claims related to certain of our disposed businesses that have been accounted for as discontinued operations. Our reserves for these claims at December 31, 2005 total $1.5 million, net of $3.6 million in escrow.

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

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

New claims filed against Zurn were lower period-over-period. During the first quarter of 2006, approximately 1,900 new asbestos claims were filed against Zurn versus 2,200 in the first quarter of 2005. As of December 31, 2005, the number of asbestos claims pending against Zurn was approximately 66,300 compared to 69,900 as of September 30, 2005. The pending claims against Zurn as of December 31, 2005 were included in approximately 7,900 lawsuits, in which Zurn and an average of 100 other companies are named as defendants, and which cumulatively allege damages of approximately $10 billion against all defendants. The claims are handled pursuant to a defense strategy funded by Zurn’s insurers. Defense costs currently do not erode the coverage amounts in the insurance policies, although a few policies that will be accessed in the future may count defense costs toward aggregate limits.

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 5-Commitments and Contingencies (continued)

During the first quarter of 2006 and as of the end of such period, approximately 13,800 claims were paid and/or pending payment and approximately 2,900 claims were dismissed and/or pending dismissal. During the first quarter of 2005 and as of the end of such period, approximately 15,300 claims were paid and/or pending payment and approximately 1,100 claims were dismissed and/or pending dismissal. Since Zurn received its first asbestos claim in the 1980s, Zurn has paid or dismissed or agreed to settle or dismiss approximately 121,900 asbestos claims including dismissals or agreements to dismiss of approximately 27,200 of such claims through December 31, 2005.

Zurn used an independent economic consulting firm with substantial experience in asbestos liability valuations to assist in the estimation of Zurn’s potential asbestos liability. At September 30, 2005, that firm estimated that Zurn’s potential liability for asbestos claims pending against it and for claims estimated to be filed through 2015 is approximately $153 million, of which Zurn expects to pay approximately $114 million through 2015 on such claims, with the balance of the estimated liability being paid in subsequent years. As discussed below in more detail, Zurn expects all such payments to be paid by its carriers.

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

Zurn’s current estimate of its asbestos liability of $153 million for claims filed through 2015 assumes that (i) its continuous vigorous defense strategy will remain effective; (ii) new asbestos claims filed annually against it will decline modestly through 2015; (iii) the values by disease will remain consistent with past experience; and (iv) its insurers will continue to pay defense costs without eroding the coverage amounts of its insurance policies. While Zurn believes there is evidence, in its claims settlements experience, for such an impact of a successful defense strategy, if the defense strategy ultimately is not successful to the extent assumed by Zurn, the severity and frequency of asbestos claims could increase substantially above Zurn’s estimates. Further, while Zurn’s current asbestos liability is based on an estimate of claims through 2015, such liability may continue beyond 2015, and such liability could be substantial.

Zurn estimates that its available insurance to cover its potential asbestos liability as of December 31, 2005 is approximately $292 million. Zurn believes, based on its experience in defending and dismissing such claims and the coverage available, that it has sufficient insurance to cover the pending and reasonably estimable future claims. This conclusion was reached after considering Zurn’s experience in asbestos litigation, the insurance payments made to date by Zurn’s insurance carriers, existing insurance policies, the industry ratings of the insurers and the advice of insurance coverage counsel with respect to applicable insurance coverage law relating to the terms and conditions of those policies. As of December 31, 2005 and September 30, 2005, Zurn recorded a receivable from its insurance carriers of $153 million, which corresponds to the amount of Zurn’s potential asbestos liability that is covered by available insurance and is probable of recovery.

However, there is no assurance that $292 million of insurance coverage will ultimately be available or that Zurn’s asbestos liabilities will not ultimately exceed this amount. Factors that could cause a decrease in the amount of available coverage include changes in law governing the policies, potential disputes with the carriers on the scope of coverage, and insolvencies of one or more of Zurn’s carriers.

Principally as a result of the past insolvency of certain of Zurn’s insurance carriers, coverage analysis reveals that certain gaps exist in Zurn’s insurance coverage, but only if and after Zurn uses approximately $222 million of its remaining approximate $292 million of insurance coverage. As noted above, the estimate of Zurn’s potential liability for asbestos claims pending against it and for claims estimated to be filed through 2015 is $153 million with the expected amount to be paid through 2015 being $114 million. In order to use approximately $267 million of the $292 million of its insurance coverage from solvent carriers, Zurn estimates that it would need to satisfy approximately $14 million of asbestos claims, with additional gaps of $80 million layered within the final $25 million of the $292 million of coverage. We will pursue, if necessary, any available recoveries on our approximately $148 million of coverage with insolvent carriers, which includes approximately $83 million of coverage attributable to the gaps discussed above. These estimates are subject to the factors noted above.

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

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 6 — Comprehensive Earnings

     The components of comprehensive earnings are as follows:

		First Quarter
		2006				2005
						(Restated)
Net earnings		$	10.7			$	5.5
Foreign currency translation adjustments, net of tax			(3.6	)			11.8
Minimum pension liability adjustment, net of tax			0.5				(0.9	)
Net unrealized loss on investments, net of tax			(0.1	)			(0.1	)
Comprehensive earnings		$	7.5			$	16.3

Note 7 — Earnings Per Share

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

		First Quarter
		2006				2005
Basic weighted-average number of common shares outstanding			76.1				75.0
Effect of potentially dilutive securities:
Stock options			0.3				0.5
Restricted stock			0.6				0.3
Diluted weighted-average number of common shares outstanding			77.0				75.8

Options to purchase 0.4 million and 0.1 million shares in the first quarter of 2006 and 2005, respectively, were not included in the computation of diluted earnings per share because the exercise prices of these options exceeded the average market price of the common shares during the respective periods.

Note 8 — Stock Based Compensation

We maintain incentive stock plans that provide for grants of stock options and restricted stock awards to our directors, officers and key employees. The stock plans are described more fully below.

Adoption of New Accounting Guidance and Transition

Prior to October 2, 2005, we accounted for these plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, (“APB 25”) as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). No compensation cost was recognized in the Statement of Earnings prior to October 2, 2005 related to stock option grants as they all had an exercise price equal to the market value of the underlying common stock on the date of grant. The restricted stock awards granted under those plans were measured at fair value, which was determined as the closing market value of the stock on the date of the grant, and amortized over the vesting period in tranches consistent with our previous accounting policy of recognizing expense for awards with graded vesting under the expense attribution method described in FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and other Variable Stock Option or Award Plans (“FIN 28”).

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 8 — Stock Based Compensation (continued)

Effective October 2, 2005, we adopted the fair value recognition provisions of FASB Statement No. 123R, Share-Based Payment, and related interpretations (“SFAS No. 123R”) using the modified-prospective transition method. Under that method, compensation cost recognized in the first quarter of 2006 includes (a) compensation cost for all share-based payments granted prior to, but not yet vested as of, October 2, 2005 based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and (b) compensation cost for all share-based payments granted on or subsequent to October 2, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. Compensation cost related to stock awards granted prior to, but not vested as of, October 2, 2005 continues to be amortized using the expense attribution method described in FIN 28, while compensation cost associated with stock awards granted on or after October 2, 2005 is being recognized on a straight-line basis over the requisite service period for the entire award in accordance with the provisions of SFAS No. 123R. Results for the prior periods have not been restated.

Prior to the adoption of SFAS No. 123R, we recognized compensation cost over the explicit service period for restricted stock awards subject to acceleration of vesting upon retirement. This policy has changed upon the adoption of SFAS No. 123R. For awards granted prior to the adoption of SFAS No. 123R, we continue to recognize compensation cost over the explicit service period and will accelerate any remaining unrecognized compensation cost when an employee actually retires. For awards granted or modified after the adoption of SFAS No. 123R and subject to acceleration of vesting upon retirement, compensation cost is recognized over a service period ending no later than the date the employee first becomes eligible for retirement. Had we recognized any remaining unrecognized compensation cost at the point when an employee became eligible for retirement, compensation cost would have decreased in the first quarter of 2006 by approximately $0.3 million and increased by approximately $1.1 million in the first quarter of 2005.

Prior to the adoption of SFAS No. 123R, we presented the tax benefit of deductions arising from the exercise of stock options as operating cash flows in the Condensed Consolidated Statement of Cash Flows. SFAS No. 123R requires that we classify the cash flows resulting from the tax benefit that arises when the tax deductions exceed the compensation cost recognized for those options (excess tax benefits) as financing cash flows. The excess tax benefits, which were less than $0.1 million for the first quarter of 2006, would have been classified as an operating cash inflow if we had not adopted SFAS No. 123R.

Pro Forma Information Under SFAS No. 123 for Periods Prior to Fiscal 2006

The table below illustrates the effect on net earnings and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123 to options granted in the first quarter of 2005. For purposes of this disclosure, the fair value of the options is estimated using a Black-Scholes-Merton (BSM) option-pricing formula, applying the following assumptions:

		First Quarter
		2005
Expected term (in years)			4.0
Risk-free interest rate			3.34	%
Expected volatility			63	%
Expected dividend yield			0	%

We estimated the expected term and expected volatility of the stock options based upon historical data. The weighted-average fair value of options granted during the first quarter of 2005 was $4.86. Forfeitures were recognized as they occurred.

The estimated value is amortized to expense over each option grants’ respective vesting period. The following table is presented in millions, except per-share amounts.

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 8 — Stock Based Compensation (continued)

		First Quarter
		2005
Net earnings, as reported:		$	5.5
Share-based employee compensation cost, net of tax			0.8
Total share-based employee compensation cost determined under the fair value method, net of tax			(1.0	)
Pro forma net earnings		$	5.3
Earnings per share:
Basic — as reported		$	0.07
Basic — pro forma			0.07
Diluted — as reported		$	0.07
Diluted — pro forma			0.07

Valuation and Expense Information under SFAS No. 123R

The adoption of SFAS No. 123R had a negligible impact on our earnings before income taxes and net earnings for the first quarter of 2006. Accordingly, the adoption of SFAS No. 123R did not have an effect on earnings per share for the first quarter of 2006. We recorded compensation costs of $1.0 million and $1.4 million for the first quarter of 2006 and 2005, respectively. We recognized a tax benefit for share-based compensation arrangements of $0.4 million in both the first quarters of 2006 and 2005.

As required by SFAS No. 123R, we now estimate forfeitures of employee stock options and recognize compensation cost only for those awards expected to vest. Forfeiture rates are determined for three groups of employees-directors, senior management and all other employees-based on historical experience. Estimated forfeitures are now adjusted to actual forfeiture experience as needed. The cumulative effect of adopting SFAS No. 123 of $0.2 million, which represents estimated forfeitures for restricted stock awards outstanding at the date of adoption, was not material and therefore has been recorded as a reduction of our stock-based compensation costs in SG&A expense rather than displayed separately as a cumulative change in accounting principle in the Condensed Consolidated Statement of Earnings.

In connection with the adoption of SFAS No. 123R, we estimate the fair value of each stock option on the date of grant using a BSM option-pricing formula, applying the following assumptions, and amortize that value to expense over the option’s vesting period using the straight-line attribution approach:

		First Quarter
		2006
Expected term (in years)			5.6
Risk-free interest rate			4.26	%
Expected volatility			72	%
Expected dividend yield			0	%

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 8 — Stock Based Compensation (continued)

Expected Term: The expected term represents the period over which the share-based awards are expected to be outstanding. It has been determined using the “shortcut method” described in Staff Accounting Bulletin Topic 14.D.2, which is based on a calculation to arrive at the midpoint between the vesting date and the end of the contractual term.

Risk-Free Interest Rate: We based the risk-free interest rate used in our assumptions on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the stock option award’s expected term.

Expected Volatility: The volatility factor used in our assumptions is based on the historical price of our stock over the most recent period commensurate with the expected term of the stock option award.

Expected Dividend Yield: We do not intend to pay dividends on our common stock for the foreseeable future. Accordingly, we use a dividend yield of zero in our assumptions.

Incentive Stock Plans

We maintain incentive stock plans that provide for the grants of stock options and restricted stock awards to our directors, officers and key employees. As of December 31, 2005, there were 2,769,708 shares of common stock reserved for issuance under our stock plans. Under these stock plans, stock options must be granted at an option price equal to the closing market value of the stock on the date of the grant. Options granted under these plans, prior to October 2, 2005, become exercisable over four years in equal annual installments after the date of grant, with the exception of directors’ options which cliff vest after six months, provided that the individual is continuously employed by our company. Options granted in the first quarter of 2006 become exercisable over three years in equal annual installments after the date of grant, with the exception of directors’ options which cliff vest after six months, provided that the individual is continuously employed by our company. All options granted expire ten years from the date of grant. We had authorization under our stock plans to grant 2,958,811 additional stock awards at December 31, 2005.

At December 31, 2005 and 2004, respectively, we had 1,412,883 and 1,341,204 restricted shares of our common stock (“restricted stock awards”) outstanding. Restricted stock awards granted in the first quarter of 2006 vest ratably over three years. Restricted stock awards granted in fiscal 2005 either vest in annual increments over four years or at the end of three years. Restricted stock awards issued in prior years either vest in equal annual increments over four years or vest over seven years (either in thirds-on the third year, fifth year and seventh year—or solely at the end of the seventh year). The weighted-average fair value of restricted stock awards granted was $8.23 per share during the first quarter of 2006 and $9.52 per share during the first quarter of 2005.

In order to better align our stock compensation plans with our human resource goals, we plan to rebalance future grant awards to favor restricted stock awards over stock option awards.

A summary of option activity under our stock plans as of December 31, 2005 and the changes during the first quarter of 2006 is presented below:

										Weighted-
						Weighted-				Average				Aggregate
						Average				Remaining				Instrinsic
		Number of				Exercise				Contractual				Value
Options		Options				Price				Term				($000)
Outstanding at September 30, 2005			1,266,032			$	5.37
Granted			48,750				8.19
Exercised			(47,500	)			4.84
Forfeited or expired			(50,875	)			6.95
Outstanding at December 31, 2005			1,216,407				5.44				6.2			$	3,776
Vested or expected to vest at December 31, 2005			1,173,466				5.42				6.1				3,664
Exercisable at December 31, 2005			838,907			$	5.21				5.5			$	2,701

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 8 — Stock Based Compensation (continued)

The weighted-average fair value of stock options granted during the first quarter of 2006 was $5.32. The total intrinsic value of stock options exercised was $0.2 million during the first quarter of 2006 and was less than $0.1 million in the first quarter of 2005. As of December 31, 2005, there was $1.2 million of total unrecognized compensation cost related to the stock options granted under our stock plans. That cost is expected to be recognized over a weighted-average period of 1.8 years.

A summary of the status of our restricted stock awards as of December 31, 2005 and changes during the first quarter of 2006 is presented below:

						Weighted-
						Average
		Number of				Fair Value
		Shares				at Grant Date
Nonvested at September 30, 2005			1,012,204			$	9.41
Granted			472,058				8.23
Vested			(34,820	)			13.22
Forfeited or expired			(36,559	)			9.36
Nonvested at December 31, 2005			1,412,883			$	8.92

As of December 31, 2005, there was $7.3 million of total unrecognized compensation cost related to restricted stock awards granted under our stock plans. That cost is expected to be recognized over a weighted-average period of 2.6 years. The total fair value of restricted stock awards vested during the first quarter of 2006, based on the closing price on the vesting date, was $0.3 million. No restricted stock awards vested during the first quarter of 2005.

Cash received from the exercise of stock options under our stock plans for the first quarter of 2006 was $0.3 million. The tax benefit realized from tax deductions we can take as a result of these exercises was immaterial.

We have a policy of issuing treasury shares to satisfy share option exercises.

Note 9 — Pension and Retirement Plans

We sponsor a number of non-contributory defined benefit pension plans and a number of defined contribution plans. Additionally, we provide other post-retirement benefits, such as health care and life insurance benefits, to certain groups of retirees, with most retirees contributing a portion of our costs.

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 9 — Pension and Retirement Plans (continued)

The components of net periodic expense for our defined benefit pension and other post-retirement benefit plans are as follows:

		Pension Plans								Other Plans
		First Quarter								First Quarter
		2006				2005				2006				2005
Service cost		$	1.5			$	2.0			$	0.1			$	0.1
Interest cost			5.9				5.8				0.2				0.2
Expected return on plan assets			(9.0	)			(8.8	)			—				—
Amortization of prior service cost			0.3				0.4				(0.2	)			(0.3	)
Amortization of net actuarial loss			2.1				1.4				—				—
Curtailment/settlement			0.6				—				—				—
Periodic expense of defined benefit plans including discontinued operations			1.4				0.8				0.1				—
Net reclassification adjustment for discontinued operations			—				(0.8	)			—				—
Net periodic expense of:
Defined benefit plans			1.4				—				0.1				—
Defined contribution plans			0.4				0.4				—				—
Net periodic expense		$	1.8			$	0.4			$	0.1			$	—

During the first quarter of 2006, we made an offer to certain retired or terminated vested participants in our defined benefit pension plans to pay them their future nonqualified benefits as a one-time lump sum payment, instead of in scheduled monthly payments. There were 27 participants who accepted the offer, resulting in a payment of $3.0 million in benefits and a settlement charge of $0.6 million, which is included in other income, net.

Our funding policy is to contribute amounts to our pension plans sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974 or U.K. law and pension regulations, plus such additional amounts as we may determine to be appropriate from time to time. During the first quarter of 2006, we contributed $0.4 million to our foreign pension plans and expect to contribute another $3.4 million to our foreign pension plans during the remainder of fiscal 2006.

Note 10 — Restructuring Costs

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

		Lease and				Severance
		Contract-Related				and Related				Total
		Costs				Costs				Costs
At September 30, 2005		$	1.7			$	2.1			$	3.8
Charges			0.1				1.5				1.6
Cash payments			(0.1	)			(2.2	)			(2.3	)
At December 31, 2005		$	1.7			$	1.4			$	3.1

We recorded restructuring charges of $1.6 million during the first quarter of 2006. These charges were for the closure of our Asia office, staff reductions in the U.K. and domestic bath business and the continued implementation of other overhead reductions. In the first quarter of 2006, management approved a plan to close our Asia sales and administration office, which was closed effective December 31, 2005. These operations are being absorbed into our domestic and European subsidiaries. We incurred severance and lease related charges of $0.6 million associated with this closure, and 11 employees were terminated.

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 10 — Restructuring Costs (continued)

Approximately $2.2 million of the accrued restructuring costs at December 31, 2005 are included in the balance sheet caption “Accrued expenses and other current liabilities,” while the remaining $0.9 million are recorded in the balance sheet caption “Other non-current liabilities.” We expect the remaining accruals to be paid with cash over the next three years as provided by the severance and lease agreements.

Note 11 — Discontinued Operations

On April 15, 2005, our Board of Directors adopted a plan to dispose of our investment in SJ, and on May 20, 2005, our Board of Directors approved a plan to dispose of Eljer. In the third quarter of fiscal 2005, we completed the sale of substantially all the assets, the current liabilities, the long-term retiree medical liability and certain other liabilities of Eljer. Eljer’s operations were included in our Bath Products segment prior to its sale.

Both of these disposal plans qualified for treatment as discontinued operations in accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”). Therefore, the operating results of these discontinued operations were not included in our results from continuing operations. Instead, the results were recorded as loss from discontinued operations.

Summarized results of the discontinued operations are as follows:

		First Quarter
		2006				2005
Net sales		$	14.2			$	47.8
Operating loss			(1.2	)			(2.3	)
Loss from discontinued operations			(0.6	)			(1.1	)

The assets and liabilities of discontinued operations are included in assets held for sale and liabilities associated with assets held for sale, respectively, until they are sold. The major classes of assets and liabilities classified as held for sale are as follows:

		December 31,				September 30,
		2005				2005
Cash		$	7.6			$	7.3
Trade receivables, net			14.8				16.4
Inventories			23.5				25.0
Other current assets			1.4				1.3
Deferred taxes			15.4				15.3
Property, plant and equipment, net			2.7				4.2
Other non-current assets			0.2				0.2
Assets held for sale		$	65.6			$	69.7
Notes payable		$	—			$	0.8
Trade accounts payable			8.8				8.1
Other current liabilities			10.5				11.3
Other non-current liabilities			36.8				36.7
Minority interest			9.1				10.0
Liabilities associated with assets held for sale		$	65.2			$	66.9

Also, included in assets held for sale under the classification of property, plant and equipment are properties held for sale of $1.7 million at December 31, 2005 and $2.8 million at September 30, 2005. These properties are currently being marketed for sale and meet all of the criteria for classification as held for sale at December 31, 2005 as required by SFAS No. 144. These properties are recorded at the lower of their carrying value or fair value less costs to sell.

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 11 — Discontinued Operations (continued)

Pension Plan

SJ operates a contributory defined benefit pension plan (“The Plan”) covering certain of its employees in its United Kingdom based subsidiaries. The benefits covered by the Plan are based on years of service and compensation history. Plan assets are primarily invested in equities, fixed income securities and government securities.

Pension costs amounted to $2.0 million for the first quarter of 2006 and $1.0 million for the same quarter last year. The net periodic costs include the following components:

		First Quarter
		2006				2005
Service cost		$	0.5			$	0.5
Interest cost			2.6				2.5
Expected return on plan assets			(2.5	)			(2.7	)
Recognition of actuarial loss			1.4				0.7
Net periodic expense		$	2.0			$	1.0

SJ’s funding policy with respect to the Plan is to contribute annually not less than the minimum required by applicable U.K. law and pension regulations. Amounts payable are determined on the advice of the Plan’s actuaries. SJ contributed $0.9 million to the Plan in the first quarter of 2006 and anticipates that contributions will total $3.3 million during fiscal 2006.

Our share of SJ’s pension benefit cost is included in loss from discontinued operations, and our share of SJ’s minimum pension liability is included in accumulated other comprehensive earnings.

Note 12 — Income Taxes

Our effective tax rate for the first quarter of 2006 is 42.1% as compared to 37.0% for the first quarter of 2005. The increase in tax rate is the result of the change in the mix of foreign and domestic earnings.

We have appealed various issues relating to the Federal audit of our U.S. consolidated returns for 1998 through 2002. We have recorded reserves that are adequate to cover any assessment if our appeals are rejected. In addition, several states and various other countries have examinations either in the planning stages or currently underway.

Note 13 — Segment Data

We manufacture and distribute a broad range of consumer and industrial products through our operating subsidiaries in two business segments — Bath Products and Plumbing Products. Our Bath Products segment manufactures whirlpool baths, spas, showers, sanitary ware, including sinks and toilets, and bathtubs for the construction and remodeling markets. Our Plumbing Products segment manufactures professional grade drainage, water control, commercial brass and PEX piping products primarily for the commercial and institutional construction, renovation and facilities maintenance markets. Our results of operations are reported in three business segments, consisting of the Bath Products segment, the Plumbing Products segment and the Rexair segment, which was sold on June 30, 2005. Stock compensation expense is allocated to the segments. The following is a summary of the significant accounts and balances by segment, reconciled to the consolidated totals.

		Bath				Plumbing								Corporate				Consolidated
		Products				Products				Rexair				and Other				Total
Net Sales
First Quarter 2006		$	174.2			$	92.9			$	-			$	-			$	267.1
2005			180.9				76.8				23.8				-				281.5
Total Operating Income (Loss)
First Quarter 2006		$	5.9			$	18.1			$	-			$	(2.9	)		$	21.1
2005			4.6				15.2				6.5				(5.5	)			20.8
Capital Expenditures
First Quarter 2006		$	1.7			$	1.3			$	-			$	-			$	3.0
2005			3.0				0.9				0.1				0.1				4.1
Depreciation and Amortization
First Quarter 2006		$	4.2			$	1.2			$	-			$	0.3			$	5.7
2005			3.5				1.4				0.8				0.9				6.6
Restructuring Charges Included in Operating Income (Loss)
First Quarter 2006		$	1.4			$	-			$	-			$	0.2			$	1.6
2005			1.5				-				-				-				1.5
Assets
As of December 31, 2005		$	455.5			$	298.6			$	-			$	518.6			$	1,272.7
As of September 30, 2005			480.9				295.6				-				513.0				1,289.5

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

Note 14 — Supplemental Joint Issuer and Guarantor Financial Information

The following represents the supplemental consolidating condensed financial statements of Jacuzzi Brands, Inc. (“JBI”), which is the issuer of our Senior Notes, the subsidiaries which are guarantors of the Senior Notes and our subsidiaries which are not guarantors of the Senior Notes as of December 31, 2005 and September 30, 2005 and for each of the three months ended December 31, 2005 and 2004. Certain of our existing and future domestic restricted subsidiaries guarantee the Senior Notes, jointly and severally, on a senior basis. The Senior Notes are secured by a first-priority lien on and security interest in substantially all of our domestic real property, plant and equipment. The Senior Notes are also secured by a second-priority lien on and security interest in the assets that secure the asset-based credit facility (see our 2005 Annual Report on Form 10-K, filed on December 15, 2005). Separate consolidated financial statements of each guarantor are not presented, as we have determined that they would not be material to investors.

		For the Three Months Ended December 31, 2005
						Combined				Combined
						Guarantor				Non-Guarantor
		JBI				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	193.4			$	75.4			$	(1.7	)		$	267.1
Operating costs and expenses:
Cost of products sold			—				132.8				53.8				(1.7	)			184.9
Selling, general and administrative expenses			2.7				38.3				18.5								59.5
Restructuring charges			0.2				0.4				1.0								1.6
Operating (loss) income			(2.9	)			21.9				2.1				—				21.1
Interest expense			(9.9	)			(0.2	)			(0.2	)							(10.3	)
Interest income			1.0				0.2				0.2								1.4
Intercompany interest (expense) income, net			(7.4	)			7.0				0.4								—
Equity in earnings (losses) of investees, net			20.1				2.0				—				(22.1	)			—
Other (expense) income, net			(0.5	)			9.1				0.1								8.7
Other intercompany income (expense), net			7.0				(7.7	)			0.7								—
Earnings (loss) before income taxes and discontinued operations			7.4				32.3				3.3				(22.1	)			20.9
Benefit from (provision for) income taxes			4.7				(12.2	)			(1.3	)							(8.8	)
Earnings (loss) from continuing operations			12.1				20.1				2.0				(22.1	)			12.1
(Loss) earnings from discontinued income taxes			(1.4	)			(1.4	)			—				1.4				(1.4	)
Net earnings (loss)		$	10.7			$	18.7			$	2.0			$	(20.7	)		$	10.7

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

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

		For the Three Months Ended December 31, 2004
						Combined				Combined
						Guarantor				Non-Guarantor
		JBI				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	193.9			$	91.1			$	(3.5	)		$	281.5
Operating costs and expenses:
Cost of products sold			—				130.2				64.1				(3.5	)			190.8
Selling, general and administrative expenses			5.4				44.2				18.8								68.4
Restructuring charges			—				1.5				—								1.5
Operating (loss) income			(5.4	)			18.0				8.2				—				20.8
Interest expense			(11.7	)			(0.2	)			(0.2	)							(12.1	)
Interest income			—				0.4				0.6								1.0
Intercompany interest (expense) income, net			(3.8	)			3.7				0.1								—
Equity in earnings (losses) of investees, net			15.5				5.8				—				(21.3	)			—
Other income (expense), net			0.7				(1.2	)			1.2								0.7
Other intercompany income (expense), net			6.4				(5.6	)			(0.8	)							—
Earnings (loss) before income taxes and discontinued operations			1.7				20.9				9.1				(21.3	)			10.4
Benefit from (provision for) income taxes			4.9				(5.4	)			(3.3	)							(3.8	)
Earnings (loss) from continuing operations			6.6				15.5				5.8				(21.3	)			6.6
(Loss) earnings from discontinued income taxes			(1.1	)			(1.1	)			—				1.1				(1.1	)
Net earnings (loss)		$	5.5			$	14.4			$	5.8			$	(20.2	)		$	5.5

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

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

		At December 31, 2005
						Combined				Combined
						Guarantor				Non-Guarantor
		JBI				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	93.7			$	(8.8	)		$	36.5			$	—			$	121.4
Trade receivables, net			—				97.9				74.1				—				172.0
Inventories			—				126.9				48.5				—				175.4
Deferred income taxes			7.9				19.4				0.3				—				27.6
Assets held for sale			—				0.7				64.9				—				65.6
Prepaid expenses and other current assets			2.8				6.1				12.0				—				20.9
Total current assets			104.4				242.2				236.3				—				582.9
Restricted cash collateral accounts			12.6				—				—				—				12.6
Property, plant and equipment, net			1.1				48.9				50.4				—				100.4
Pension assets			148.5				—				—				—				148.5
Insurance for asbestos claims			—				153.0				—				—				153.0
Goodwill			—				176.7				50.3				—				227.0
Other non-current assets			28.8				19.3				0.2				—				48.3
Investment in subsidiaries/ Intercompany receivable (payable), net			480.0				993.0				185.1				(1,658.1	)			—
Total assets		$	775.4			$	1,633.1			$	522.3			$	(1,658.1	)		$	1,272.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable		$	—			$	—			$	25.3			$	—			$	25.3
Current maturities of long-term debt			—				1.5				—				—				1.5
Trade accounts payable			—				47.9				42.4				—				90.3
Income taxes payable			19.7				7.0				0.3				—				27.0
Liabilities associated with assets held for sale			—				—				65.2				—				65.2
Accrued expenses and other current liabilities			24.6				54.7				27.7				—				107.0
Total current liabilities			44.3				111.1				160.9				—				316.3
Long-term debt			380.0				3.5				—				—				383.5
Deferred income taxes			16.9				(1.7	)			(10.3	)			—				4.9
Asbestos claims			—				153.0				—				—				153.0
Other non-current liabilities			40.2				53.1				27.7				—				121.0
Total liabilities			481.4				319.0				178.3				—				978.7
Commitments and contingencies Stockholders’ equity			294.0				1,314.1				344.0				(1,658.1	)			294.0
Total liabilities and stockholders’ equity		$	775.4			$	1,633.1			$	522.3			$	(1,658.1	)		$	1,272.7

JACUZZI BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular amounts in millions)
(unaudited)

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

		At September 30, 2005
						Combined				Combined
						Guarantor				Non-Guarantor
		JBI				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	84.1			$	(7.0	)		$	33.1			$	—			$	110.2
Trade receivables, net			—				118.9				81.6				—				200.5
Inventories			—				116.9				48.1				—				165.0
Deferred income taxes			7.9				19.4				0.6				—				27.9
Assets held for sale			—				1.8				67.9				—				69.7
Prepaid expenses and other current assets			4.4				5.9				12.3				—				22.6
Total current assets			96.4				255.9				243.6				—				595.9
Restricted cash collateral accounts			12.4				—				—				—				12.4
Property, plant and equipment, net			1.2				50.5				52.0				—				103.7
Pension assets			146.8				1.0				—				—				147.8
Insurance for asbestos claims			—				153.0				—				—				153.0
Goodwill			—				176.7				51.5				—				228.2
Other non-current assets			30.6				17.6				0.3				—				48.5
Investment in subsidiaries/ Intercompany receivable (payable), net			475.7				985.2				180.7				(1,641.6	)			—
Total assets		$	763.1			$	1,639.9			$	528.1			$	(1,641.6	)		$	1,289.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable		$	—			$	—				22.0			$	—			$	22.0
Current maturities of long-term debt			—				1.5				—				—				1.5
Trade accounts payable			0.3				58.0				47.4				—				105.7
Income taxes payable			19.3				6.0				(0.6	)			—				24.7
Liabilities associated with assets held for sale			—				—				66.9				—				66.9
Accrued expenses and other current liabilities			17.9				63.9				32.6				—				114.4
Total current liabilities			37.5				129.4				168.3				—				335.2
Long-term debt			380.0				3.5				—				—				383.5
Deferred income taxes			17.4				(1.2	)			(10.6	)			—				5.6
Asbestos claims			—				153.0				—				—				153.0
Other liabilities			43.0				55.8				28.2				—				127.0
Total liabilities			477.9				340.5				185.9				—				1,004.3
Stockholders’ equity			285.2				1,299.4				342.2				(1,641.6	)			285.2
Total liabilities and stockholders’ equity		$	763.1			$	1,639.9			$	528.1			$	(1,641.6	)		$	1,289.5