UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
July 9, 2002
----------------------------
Date of report (Date of earliest event reported)
Hubbell Incorporated
(exact name of registrant as specified in its charter)
CONNECTICUT 1-2958 06-0397030
-------------------- ---------------------- --------------------
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification Number)
incorporation or
organization)
584 Derby Milford Road, Orange, Connecticut 06477-4024
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(Address of Principal Executive Offices) (Zip Code)
(203) 799-4100
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report.)
ITEM 5. OTHER EVENTS.
On May 10, 2002, Hubbell Incorporated, a Connecticut corporation
(the "Company"), filed a Current Report on Form 8-K announcing its April 26,
2002 acquisition of the domestic lighting division of U.S. Industries, Inc. The
Company is filing this amendment to include financial statements under item 7(a)
and associated pro forma information under 7(b).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
(1) Report of Ernst & Young LLP, Independent Auditors
Audited combined balance sheets of USI Lighting Group as of
September 30, 2001 and 2000, and the related audited combined
statements of operations, cash flows and changes in invested
capital for each of the three years in the period ended
September 30, 2001.
(2) Unaudited condensed combined balance sheet of USI Lighting Group
as of December 31, 2001 and September 30, 2001 and the unaudited
condensed combined statements of operations and cash flows for the
three-month periods ended December 31, 2001 and December 31, 2000.
(b) Unaudited Pro Forma Financial Information.
Unaudited Pro forma condensed combined balance sheet as of
December 31, 2001 and unaudited pro forma condensed combined
statement of earnings for the year ended December 31, 2001.
(c) Exhibits:
23.1 Consent of Ernst & Young LLP.
Item 7a-(1).
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
U.S. Industries, Inc.
We have audited the combined balance sheets of USI Lighting Group (the
"Company") as of September 30, 2001 and 2000, and the related combined
statements of operations, cash flows and changes in invested capital for each of
the three years in the period ended September 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Company at
September 30, 2001 and 2000, and the combined results of its operations and its
cash flows for each of the three years in the period ended September 30, 2001,
in conformity with accounting principles generally accepted in the United
States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 2, the
Company is comprised of entities that are indirectly owned subsidiaries of U.S.
Industries, Inc. ("USI"). USI is required under its restructured credit
facilities to make cumulative reductions of its senior debt of $450 million by
June 30, 2002. USI needs to generate sufficient funds to make such reductions,
restructure or refinance its debt. The capital stock and substantially all of
the assets of the Company have been pledged as collateral under USI's
restructured credit facilities and senior notes. These conditions raise
substantial doubt about USI's and the Company's ability to continue as a going
concern. USI's management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that may
result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
New York, New York
January 14, 2002
1
USI LIGHTING GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN MILLIONS)
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------
2001 2000 1999
-------- -------- --------
Net sales $ 582.4 $ 622.6 $ 610.8
Operating costs and expenses:
Cost of products sold 420.5 468.2 443.0
Selling, general and
administrative expenses 123.2 119.8 131.4
Management fees 5.5 2.7 3.1
Goodwill impairment charges 14.5 -- --
-------- -------- --------
Operating income 18.7 31.9 33.3
Interest expense to Affiliates (12.7) (12.7) (12.7)
Interest income -- 0.1 --
Other income (expense), net (0.1) (0.1) 0.7
-------- -------- --------
Income before income taxes 5.9 19.2 21.3
Provision for income taxes (10.4) (7.3) (8.1)
-------- -------- --------
Net income (loss) $ (4.5) $ 11.9 $ 13.2
======== ======== ========
See notes to combined financial statements.
2
USI LIGHTING GROUP
COMBINED BALANCE SHEETS
(IN MILLIONS)
AT SEPTEMBER 30,
-----------------
2001 2000
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 0.9 $ 0.6
Trade receivables,net 93.5 109.3
Inventories 88.4 111.0
Deferred income taxes 2.2 8.1
Other current assets 2.7 4.0
-------- --------
Total current assets 187.7 233.0
Property, plant and equipment, net 86.7 81.3
Pension assets 2.0 6.6
Other assets 0.7 1.1
Goodwill, net 45.2 61.5
-------- --------
$ 322.3 $ 383.5
======== ========
LIABILITIES AND INVESTED CAPITAL
Current liabilities:
Notes payable 0.1 $ -
Trade accounts payable 40.8 34.6
Accrued expenses and other liabilities 21.7 22.6
State and foreign taxes payable 0.5 0.4
-------- --------
Total current liabilities 63.1 57.6
Deferred income taxes 2.2 5.0
Pension liabilities 10.9 8.1
Other liabilities 7.7 7.3
Notes and interest payable to Affiliates 195.0 218.3
-------- --------
Total liabilities 278.9 296.3
-------- --------
Commitments and contingencies
Invested Capital 43.4 87.2
-------- --------
$ 322.3 $ 383.5
======== ========
See notes to combined financial statements.
3
USI LIGHTING GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
FOR THE FISCAL YEARS
ENDED
SEPTEMBER 30,
-------------
2001 2000 1999
------- ------- -------
OPERATING ACTIVITIES:
Net income (loss ) $ (4.5) $ 11.9 $ 13.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15.6 15.4 12.3
Provision (benefit) for deferred income taxes 4.3 1.7 (2.6)
Provision for doubtful accounts 0.9 0.9 0.1
(Gain) loss on sale of property, plant and equipment -- 0.1 (0.7)
Goodwill impairment charges 14.5 -- --
Changes in operating assets and liabilities,
excluding the effects of acquisitions:
(Increase) decrease in trade receivables 14.9 (2.2) (5.3)
(Increase) decrease in inventories 22.7 1.2 (3.4)
(Increase) decrease in other current assets 1.3 (0.5) 1.3
(Increase) decrease in other assets 3.8 (1.4) (0.2)
Increase (decrease) in trade accounts payable 6.2 (2.8) (0.4)
Increase (decrease) in state and foreign taxes payable 0.1 0.5 (0.3)
Increase (decrease) in accrued expenses and other liabilities (0.9) (5.4) 0.7
Increase (decrease) in other liabilities (6.3) (0.6) 1.0
Other, net -- 1.4 --
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 72.6 20.2 15.7
------- ------- -------
INVESTING ACTIVITIES:
Acquisitions of companies, net of cash acquired -- -- (46.1)
Purchases of property, plant and equipment (19.2) (13.2) (17.8)
Proceeds from sales of property, plant and equipment -- 0.3 1.0
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (19.2) (12.9) (62.9)
------- ------- -------
FINANCING ACTIVITIES:
Increase (decrease) in notes and interest payable to Affiliates (23.3) 12.8 10.6
Proceeds from notes payable 0.1 -- --
Capital contributions from Affiliates -- -- 46.1
Net transfers to Affiliates (30.1) (20.2) (8.5)
------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (53.3) (7.4) 48.2
======= ======= =======
Effect of exchange rate changes on
cash and cash equivalents 0.2 -- (0.4)
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 0.3 (0.1) 0.6
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 0.6 0.7 0.1
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 0.9 $ 0.6 $ 0.7
======= ======= =======
See notes to combined financial statements.
4
USI LIGHTING GROUP
COMBINED STATEMENTS OF CHANGES IN INVESTED CAPITAL
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
(IN MILLIONS)
Balance at September 30, 1998 $ 43.7
Net income $ 13.2
Translation adjustment (0.4)
Minimum pension liability adjustment 1.5
-------
Comprehensive income 14.3
Capital contributions from Affiliates 46.1
Net transfers to Affiliates (8.5)
-------
Balance at September 30, 1999 95.6
Net income $ 11.9
Translation adjustment --
Minimum pension liability adjustment (0.1)
-------
Comprehensive income 11.8
Net transfers to Affiliates (20.2)
-------
Balance at September 30, 2000 87.2
Net loss $ (4.5)
Translation adjustment 0.2
Minimum pension liability adjustment (9.4)
-------
Comprehensive loss (13.7)
Net transfers to Affiliates (30.1)
-------
Balance at September 30, 2001 $ 43.4
=======
See notes to combined financial statements.
5
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying combined financial statements include the combined
operations of Lighting Corporation of America, Columbia Lighting Inc.,
Dual-Lite Inc., Kim Lighting Inc., Architectural Area Lighting, Inc.,
Spaulding Lighting, Inc., Progress Lighting, Inc., Prescolite, Inc., and the
Progress Canada Division of USI Canada Inc. (together, the "USI Lighting
Group" or the "Company"), which is comprised of subsidiaries currently owned,
directly or indirectly by U.S Industries, Inc. (the "Parent" or "USI "). The
Company, through these entities, manufactures and distributes indoor and
outdoor lighting fixtures in North America.
At September 30, 2001, the Company had no separate legal status or
existence as a combined group. These financial statements are presented on a
going concern basis as if the Company had existed as a corporation separate from
USI during the periods presented and include the historical net assets and
results of operations directly related to the Company's operations.
USI and certain subsidiaries of USI (referred to herein as "Affiliates")
have provided certain corporate general and administrative services to the
Company including legal, finance, tax, risk management and employee benefits. A
portion of the related costs has been allocated to the Company based on the
percentage of the Company's sales to the combined sales of USI as management
fees. The Company's management believes such amounts are reasonable; however,
they may not be indicative of the Company's ongoing costs as a separate entity.
NOTE 2 -- GOING CONCERN
The accompanying combined financial statements have been prepared on a
going concern basis of accounting and do not reflect any adjustments that might
result if the Company was unable to continue as a going concern. On August 15,
2001, USI finalized a comprehensive restructuring of its bank debt and the bank
debt of Rexair, Inc. ("Rexair"), a former subsidiary that was reacquired from
Strategic Industries, LLC ("Strategic") on the same date. The amended facilities
(together the "Restructured Facilities") extend the final maturity date of USI's
debt under its credit agreement to November 30, 2002, which coincides with the
final maturity of the amended Rexair Credit Facility. The Restructured
Facilities provide for scheduled permanent reductions of USI's senior debt (a
combination of the Restructured Facilities, senior notes of USI and other
defined obligations) during the term of the Restructured Facilities. The
required cumulative permanent reductions of USI's senior debt are scheduled at
$75 million, $200 million, $450 million and $600 million for the periods ending
December 31, 2001, March 31, 2002, June 30, 2002, and October 15, 2002,
respectively. The remaining balance of the Restructured Facilities is due in
full on November 30, 2002. The capital stock and substantially all of the assets
of the entities comprising the USI Lighting Group have been pledged as
collateral under USI's senior debt. USI expects to satisfy operating liquidity
needs through operating cash flow. However, it will have to sell a substantial
amount of its assets and restructure or refinance its debt to satisfy the
required cumulative permanent reductions.
On December 28, 2001, the Board of Directors of USI approved a formal
Disposal Plan for five businesses in order to meet the scheduled reductions. The
businesses to be disposed of include the USI Lighting Group. The Disposal Plan
calls for the sale of these businesses over the next 12 months.
The net proceeds from the expected January 2002 sales of USI's hardware
business and certain notes receivable are expected to be sufficient to fund the
required reductions of USI's senior debt through March 31, 2002.
USI continues to actively pursue its Disposal Plan. However, there can be
no assurance when or whether USI will consummate these transactions. If USI is
unable to consummate asset disposals as outlined in its Disposal Plan in time to
meet scheduled amortizations, USI expects to seek a further restructuring of its
credit facilities. Furthermore, the proceeds of the Disposal Plan, if
consummated in its entirety, will be insufficient to repay the Restructured
Facilities upon their maturity in November 2002. Accordingly, USI will have to
restructure or refinance its existing Restructured Facilities. USI believes it
will be able to restructure or refinance its existing Restructured Facilities
before their scheduled maturity in November 2002. However, there can be no
assurance that it will be able to do so.
6
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- GOING CONCERN (CONTINUED)
USI's and the Company's independent auditors have included a going concern
explanatory paragraph in their audit reports accompanying the September 30, 2001
consolidated financial statements of USI and the September 30, 2001 combined
financial statements of the Company. The paragraph states that USI's need to
generate sufficient funds to make the required cumulative reductions of senior
debt of $450 million by June 30, 2002 through asset sales or a restructuring or
refinancing raises substantial doubt about USI's and the Company's ability to
continue as a going concern.
NOTE 3 -- 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 September 29, 2001, September 30, 2000, and October 2,
1999, respectively, but are presented as of September 30 for convenience.
PRINCIPLES OF COMBINATION: The combined financial statements include the
accounts of the USI Lighting Group and its subsidiaries. Intercompany accounts
and transactions are eliminated.
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, highly liquid
investments, which have maturities of ninety days or less when purchased. Except
for certain cash balances owned by the Company, cash accounts have been
controlled on a centralized basis by an Affiliate which sweeps cash receipts and
funds cash disbursements of the Company. The net results of cash transactions
between or on behalf of the Company, including intercompany advances are
included in the Combined balance sheets as Invested Capital.
DEPRECIATION AND AMORTIZATION:
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-------------
2001 2000 1999
----- ----- -----
(IN MILLIONS)
Depreciation $13.8 $13.5 $10.9
Amortization of goodwill 1.8 1.9 1.4
----- ----- -----
$15.6 $15.4 $12.3
===== ===== =====
7
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACCOUNTING POLICIES (CONTINUED)
TRADE RECEIVABLES AND CONCENTRATIONS OF CREDIT RISK:
AT SEPTEMBER 30,
----------------
2001 2000
----- ------
(IN MILLIONS)
Trade receivables $98.8 $115.0
Allowance for doubtful accounts (5.3) (5.7)
----- ------
$93.5 $109.3
===== ======
The Company principally operates in the United States, and to a lesser
extent, in Mexico and Canada. The Company performs periodic credit evaluations
of its customers' financial condition and generally does not require collateral.
Credit losses have been within management's estimates.
INVENTORIES:
AT SEPTEMBER 30,
----------------
2001 2000
----- ------
(IN MILLIONS)
Finished products $38.1 $48.9
In-process products 16.5 19.4
Raw materials 33.8 42.7
----- ------
$88.4 $111.0
===== ======
Inventories are valued at the lower of cost, determined under the
first-in, first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT:
AT SEPTEMBER 30,
----------------
2001 2000
----- -----
(IN MILLIONS)
Land and buildings $65.2 $56.8
Machinery and equipment 138.9 133.9
Furniture and fixtures 18.9 18.2
Accumulated depreciation (136.3) (127.6)
----- -----
$86.7 $81.3
===== =====
Property, plant and equipment are stated on the basis of cost less
accumulated depreciation provided under the straight-line method. Buildings are
depreciated based on lives ranging from twenty to forty years, machinery and
equipment based on lives ranging from three to twelve years, and furniture and
fixtures based on lives ranging from three to ten years.
8
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACCOUNTING POLICIES (CONTINUED)
GOODWILL: Goodwill represents the excess of the purchase price over the fair
value of net assets acquired. The Company reviews operating results and other
relevant facts every fiscal quarter for each of its businesses to determine if
there are indications that the carrying value of an enterprise may be impaired.
When there are indicators of impairment, the Company first assesses the
recoverability of goodwill associated with long-lived assets in accordance with
the requirements of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of", which requires impairment
losses to be recorded when the undiscounted cash flows estimated to be generated
by those assets are less than the carrying amount of those assets. In addition,
an enterprise level assessment of the recoverability of any remaining goodwill
is performed using the fair value methodology, as permitted under Accounting
Principles Board Opinion No. 17, "Intangible Assets". In the event that such
fair value is below the carrying value of an enterprise, for those companies
with goodwill, the Company reduces goodwill to the extent it is impaired based
upon fair value.
The fair value methodology is applied to determine the recoverable value
for each business on a stand alone basis using ranges of fair values obtained
from independent appraisers. In developing these ranges, the independent
appraisers consider (a) publicly available information, (b) financial
projections of each business based on management's best estimates, (c) the
future prospects of each business as discussed with senior operating and
financial management, (d) publicly available information regarding comparable
publicly traded companies in each industry, (e) market prices, capitalizations
and trading multiples of comparable public companies and (f) other information
deemed relevant. In reviewing these valuations and considering the need to
record a charge for impairment of enterprise value and goodwill to the extent it
is part of the enterprise value, the Company also evaluates solicited and
unsolicited bids for the businesses of the Company. See Note 4 for the Company's
fiscal 2001 review of its goodwill, which resulted in the write-off of $14.5
million of goodwill in the third quarter of fiscal 2001.
Goodwill is amortized on a straight-line basis over 40 years. Amortization
of goodwill amounted to $1.8 million, $1.9 million, and $1.4 million in fiscal
2001, 2000, and 1999, respectively. Accumulated amortization aggregated $166.0
million and $165.0 million at September 30, 2001 and 2000, respectively. The
fiscal 2001 goodwill impairment charges of $14.5 million reflect the write-off
of $15.3 million of goodwill, partially offset by the related reduction of
accumulated amortization of $0.8 million.
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets," effective for the fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. The Company has
elected to adopt this pronouncement as of October 1, 2001. Accordingly, as of
such date, the Company will no longer amortize goodwill.
ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consist of the following:
AT SEPTEMBER 30,
----------------
2001 2000
----- -----
(IN MILLIONS)
Compensation related $ 8.9 $ 8.9
Commissions and Royalties 4.2 4.9
Other 8.6 8.8
----- -----
$21.7 $22.6
===== =====
9
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION: The functional currency of each of the Company's
foreign operations is the local currency, except for the Company's operations in
Mexico, for which the U.S. Dollar is the functional currency. Assets and
liabilities of foreign subsidiaries other than those in Mexico 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.
Translation gains and losses are included in invested capital and comprehensive
income (loss).
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's United States earnings have been included in the
consolidated federal income tax return filed by USI. The Company provided for
income taxes in the accompanying financial statements as if it were a
stand-alone entity. Income taxes paid to state, local and foreign jurisdictions
during fiscal 2001, 2000 and 1999 were $0.9 million, $0.6 million and $1.4
million, respectively.
REVENUE RECOGNITION: Revenue is recognized upon shipment of products or
delivery of products to the customer depending on the terms of the sale.
Provisions are made for warranty and return costs at the time of sale. Such
provisions have not been material.
ADVERTISING COSTS: Advertising costs are expensed as incurred. Such amounts
totaled $7.5 million, $8.1 million and $6.4 million for fiscal 2001, 2000 and
1999, respectively.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed as
incurred. Such amounts totaled $1.8 million, $1.4 million and $1.2 million for
fiscal 2001, 2000 and 1999, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of all short-term financial
instruments approximate their carrying value due to their short maturity. The
fair value of the notes payable to Affiliates is also estimated to approximate
its carrying amount since it is contemplated that these notes will be either
repaid or forgiven upon completion of the sale of the Company.
FREIGHT EXPENSE: In the fourth quarter of fiscal 2001, the Company changed its
classification of shipping and handling costs in accordance with EITF Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs." As a result of the
adoption of EITF Issue No. 00-10, the Company now reflects all shipping and
handling costs in cost of products sold and all shipping and handling amounts
billed to customers in net sales. Shipping and handling costs and revenues have
been reclassified in all periods presented to conform to the new presentation.
Shipping and handling costs were approximately $33.8 million, $38.8 million, and
$36.6 million in 2001, 2000 and 1999, respectively. The reclassifications had no
impact on the Company's financial position or net income (loss) for the periods
presented.
SEGMENT REPORTING: Operating segments are defined as components of an enterprise
for which separate financial information is available that is evaluated
regularly by chief operating decision makers in deciding how to allocate
resources in assessing performance. All of the Company's operations are
classified within one business segment.
10
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACCOUNTING POLICIES (CONTINUED)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Comprehensive income is net
income (loss) and other items, which include foreign currency translation
adjustments and minimum pension liability adjustments.
Components of accumulated other comprehensive income (loss) consist of the
following:
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustments (Loss)
--------- --------- ---------
(In Millions)
September 30, 1998 $ 5.0 $ (2.5) $ 2.5
Fiscal 1999 change (0.4) 1.5 1.1
--------- --------- ---------
September 30, 1999 4.6 (1.0) 3.6
Fiscal 2000 change -- (0.1) (0.1)
--------- --------- ---------
September 30, 2000 4.6 (1.1) 3.5
Fiscal 2001 change 0.2 (9.4) (9.2)
--------- --------- ---------
September 30, 2001 $ 4.8 $ (10.5) $ (5.7)
========= ========= =========
STOCK BASED COMPENSATION: The Company does not have stock-based compensation
plans separate from USI; however, the Company does participate in USI's
stock-based compensation plans. Consistent with USI, the Company accounts for
participation in these plans in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees."
Certain key employees of the Company participate in stock incentive plans
of USI that provide for awards of restricted stock and options to purchase USI
common stock at prices equal to the fair value of the underlying shares at the
date of grant. The Company recognized compensation expense of approximately $0.1
million in fiscal 2001 for vesting restricted stock awards. As of September 30,
2001, an aggregate of approximately 0.2 million options to purchase shares of
USI common stock were held by Company employees and any options which are not
vested as of the date of the sale of the Company will be forfeited. The Company
has elected to not present any of the pro-forma net income disclosures under
SFAS 123, "Accounting for Stock-Based Compensation," as such amounts would not
differ materially from the Company's reported results of operations for any of
the periods presented herein.
NOTE 4 -- ACQUISITION
In March 1999, the Company purchased the assets of the Dual-Lite Inc.
business ("Dual-Lite") for approximately $46.1 million in cash, resulting in
goodwill of $36.4 million. Dual-Lite manufactures emergency lights and central
inverter systems. This acquisition has been accounted for as a purchase and the
results of operations of Dual-Lite are included in the financial statements from
the date of acquisition. The pro-forma effect of this acquisition was not
material to fiscal 1999 results.
NOTE 5 -- GOODWILL IMPAIRMENT CHARGES
In the third quarter of 2001, the Company evaluated the recoverability of
its goodwill in accordance with its accounting policy described in Note 2. This
evaluation indicated that the carrying value of the goodwill at Dual-Lite was
impaired. As a result, the Company recorded goodwill impairment charges of $14.5
million, equal to the amount of the impairment in the third quarter of fiscal
2001.
11
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- DEBT AND NOTES PAYABLE TO AFFILIATES
Notes and interest payable to Affiliates consist of the following:
AT SEPTEMBER 30,
2001 2000
(IN MILLIONS)
6.5% Notes Payable $195.0 $195.0
Interest payable - 23.3
------ ------
$195.0 $218.3
====== ======
The notes are unsecured and mature in fiscal 2005. Interest paid was
$36.0 million, zero and $2.0 million in fiscal 2001, 2000 and 1999,
respectively.
Pursuant to the terms of an August 15, 2001 restructuring of USI's bank
debt, USI has pledged substantially all of its assets, including all of the
shares of stock of its domestic subsidiaries and 65% of the shares of certain
foreign subsidiaries. Accordingly, all of the shares of the Company's domestic
entities and 65% of the shares of USI Canada were pledged under USI's debt
agreements. Additionally, the restructured debt agreements also require that the
proceeds of any asset sales by USI (including the sale of the Company) be
applied to reduce USI's debt.
NOTE 7 -- PENSION AND OTHER POST-RETIREMENT PLANS
The Company has noncontributory defined benefit 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 amounts as the Company may determine to be appropriate from time to
time. The Company also provides health care and life insurance benefits for
certain groups of retirees. These plans are typically partially contributory by
the retirees, but are reflected as liabilities in the Company's balance sheets.
The Company sponsors defined contribution plans. Contributions relating to
defined contribution plans are made based upon the respective plans' provisions.
In the United States, the Company also participates in multi-employer plans,
which provide defined benefits to union employees of the Company's subsidiaries.
Contributions relating to multi-employer plans are based on negotiated
collective bargaining agreements.
12
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- PENSION AND OTHER POST-RETIREMENT PLANS (CONTINUED)
The following table provides a reconciliation of changes in the projected
benefit obligation, fair value of plan assets and the funded status of the
Company's U.S. defined benefit pension and post-retirement benefit plans with
the amounts recognized in the Company's balance sheet at September 30:
Pension Benefits Other Benefits
---------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
CHANGE IN PROJECTED BENEFIT OBLIGATION: (In Millions)
Benefit obligation at beginning of year $ 73.7 $ 73.8 $5.2 $4.5
Service cost 3.0 3.1 -- --
Interest cost 5.7 5.6 0.3 0.3
Plan amendments 0.1 0.6 -- --
Actuarial (gain) loss 5.1 (3.6) (0.9) 0.7
Benefits paid (5.9) (5.8) (0.5) (0.3)
---- ---- ---- ----
Benefit obligation at end of year $ 81.7 $ 73.7 $4.1 $5.2
==== ==== ==== ====
CHANGE IN FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of year $ 78.1 $ 75.8 $ -- $ --
Actual return on plan assets (11.1) 5.9 -- --
Contributions 2.9 2.2 0.5 0.3
Benefits paid (5.9) (5.8) (0.5) (0.3)
---- ---- ---- ----
Fair value of plan assets at end of year $ 64.0 $ 78.1 $ -- $ --
==== ==== ==== ====
FUNDED STATUS OF PLANS:
Plan assets in excess of (less than) projected
benefit obligation $ (17.7) $ 4.4 $(4.1) $(5.2)
Unrecognized net actuarial (gain) loss 17.2 (6.4) 1.9 2.8
Unrecognized prior service (income) cost 2.1 2.3 (1.5) (1.7)
Unrecognized net transition asset -- (0.1) -- --
------- ------ ----- -----
Net amount recognized $ 1.6 $ 0.2 $(3.7) $(4.1)
======= ====== ===== =====
AMOUNTS RECOGNIZED IN THE BALANCE SHEET CONSIST OF:
Prepaid benefits $ -- $ 5.5 $ - $ -
Accrued benefits (10.9) (8.1) (3.7) (4.1)
Intangible assets 2.0 1.1 -- --
Accumulated other comprehensive income 10.5 1.7 -- --
------- ------ ----- -----
Net amount recognized $ 1.6 $ 0.2 $(3.7) $(4.1)
======= ====== ===== =====
The aggregate projected benefit obligation and the aggregate fair value of
plan assets, for the plans that have a projected benefit obligation in excess of
plan assets, are $81.7 million and $64.0 million, respectively, in 2001 and
$58.5 million and $54.1 million, respectively, in 2000.
The aggregate accumulated benefit obligation and the aggregate fair value
of plan assets, for the plans that have an accumulated benefit obligation in
excess of plan assets, are $74.9 million and $64.0 million, respectively, in
2001 and $14.9 million and $12.2 million, respectively, in 2000.
13
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- PENSION AND OTHER POST-RETIREMENT PLANS (CONTINUED)
The Company's pension plan assets are included in a master trust managed
by USI, which principally invests in listed stocks and bonds, including common
stock of USI. USI's common stock included in plan assets was 1,333,100 and
1,253,100 shares at September 30, 2001 and 2000, respectively, representing $3.1
million or 1% and $12.5 million or 2% of the master trust's assets for the same
respective periods. During 2001 and 2000, $0.1 million and $0.2 million,
respectively, in dividends on USI stock was paid to the master trust.
The assumptions used and the net periodic pension cost for the Company's
defined benefit plans, as well as the total contributions charged to pension
expense for the defined contribution and multi-employer plans covering employees
in the United States are presented below:
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
WEIGHTED AVERAGE ASSUMPTIONS AS OF SEPTEMBER 30
Discount rate 7.5% 8.0% 7.5% 7.5% 7.5 7.5%
Rate of compensation increase 4.5% 4.5% 4.5% -- -- --
Expected return on assets 9.5% 9.5% 9.5% -- -- --
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
2001 2000 1999 2001 2000 1999
------ ------ ------ ---- ---- ----
(IN MILLIONS)
COMPONENTS OF NET PERIODIC BENEFIT COST
Defined benefit plans:
Service cost $ 3.0 $ 3.1 $ 3.4 $ -- $ -- $0.1
Interest cost 5.7 5.6 5.2 0.3 0.3 0.2
Expected return on plan assets (7.3) (6.9) (6.4) -- -- --
Prior service cost (income) 0.3 0.3 0.3 (0.3) (0.2) (0.2)
Amortization of unrecognized
transition asset (0.1) (0.1) (0.1) -- -- --
Net actuarial (gain) losses (0.1) -- 0.2 0.1 0.2 0.2
------ ------ ------ ---- ---- ----
Net periodic cost:
Defined benefit plans 1.5 2.0 2.6 0.1 0.3 0.3
Defined contribution plans 0.9 1.0 1.0 -- -- --
Multi-employer plans 0.5 0.5 0.5 -- -- --
------ ------ ------ ---- ---- ----
Net periodic cost $ 2.9 $ 3.5 $ 4.1 $0.1 $0.3 $0.3
====== ====== ====== ==== ==== ====
14
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- PENSION AND OTHER POST-RETIREMENT PLANS (CONTINUED)
The weighted average annual assumed rate of increase in the per capita
cost of covered benefits (i.e., the health care cost trend rate) for the other
post-retirement benefit plans was 8.5% for 2001 and is assumed to decrease at a
rate of 0.5% per year to 5.5%. A one-percentage-point change in the assumed
health care cost trend rate would have the following effects at, and for the
year ended, September 30, 2001 (in millions):
Effect of a 1% increase in the health care cost trend rate on:
Service cost plus interest cost $ -
Accumulated post-retirement benefit obligation $ 0.2
Effect of a 1% decrease in the health care cost trend rate on:
Service cost plus interest cost $ -
Accumulated post-retirement benefit obligation $ (0.2)
The tables above and on the previous page set forth the historical
components of net periodic pension cost and a reconciliation of the funded
status of the pension and other postretirement benefit plans for the employees
associated with the Company and is not necessarily indicative of the amounts to
be recognized by the Company on a prospective basis.
NOTE 8 -- LEASES
Rental expense for operating leases was $7.3 million, $7.5 million, and
$6.3 million for the fiscal years ended September 30, 2001, 2000, and 1999,
respectively.
Future minimum rental commitments under noncancellable operating leases as
of September 30, 2001 are:
(IN MILLIONS)
--------------
2002 $ 6.0
2003 4.4
2004 3.0
2005 1.9
2006 1.2
Thereafter 0.9
------
Total minimum lease payments $ 17.4
======
NOTE 9 -- INCOME TAXES
Income (loss) before income taxes consists of:
FOR THE FISCAL YEARS
ENDED SEPTEMBER 30,
-------------------
2001 2000 1999
----- ----- -----
(IN MILLIONS)
United States $ 5.2 $19.5 $20.8
Foreign 0.7 (0.3) 0.5
----- ----- -----
$ 5.9 $19.2 $21.3
===== ===== =====
15
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INCOME TAXES (CONTINUED)
The provision (benefit) for federal, foreign, and state income taxes
consist of:
For the fiscal years
Ended September 30,
-------------------
2001 2000 1999
----- ---- -----
(in millions)
Current:
Federal $ 5.8 $4.8 $ 9.3
Foreign 0.3 0.5 0.6
State - 0.3 0.8
----- ---- -----
6.1 5.6 10.7
Deferred 4.3 1.7 (2.6)
----- ---- -----
$10.4 $7.3 $ 8.1
===== ==== =====
The Company's income tax provision (benefit) differs from the statutory
federal income tax provision as follows:
FOR THE FISCAL YEARS
ENDED SEPTEMBER 30,
-------------------
2001 2000 1999
------- ------ ------
(IN MILLIONS)
Statutory federal income tax provision $ 2.1 $ 6.7 $ 7.5
State income taxes (net of federal benefit) -- 0.2 0.5
Foreign income tax differential 0.1 (0.6) (0.4)
Goodwill amortization 0.4 0.3 0.3
Valuation allowance 7.5 -- --
Miscellaneous 0.3 0.7 0.2
------- ------ ------
$ 10.4 $ 7.3 $ 8.1
======= ====== ======
AT SEPTEMBER 30,
----------------
2001 2000
--- ----
(IN MILLIONS)
Deferred tax liabilities:
Property , plant and equipment $(7.0) $(6.8)
Other (1.4) (1.1)
----- ----
Total deferred tax liabilities (8.4) (7.9)
----- ----
Deferred tax assets:
Net pension liability 0.1 0.3
Accruals and allowances 7.6 7.5
Inventory 2.8 1.3
Postretirement benefits 1.8 1.8
Deductible goodwill 3.6 0.1
----- -----
Total deferred tax assets 15.9 11.0
Valuation allowance (7.5) -
----- -----
Net deferred tax assets $ -- $ 3.1
===== =====
The Company has established a valuation allowance equal to the amount of
its net deferred tax assets at September 30, 2001, reflecting the uncertainty of
the future realization of these assets.
16
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to a wide range of environmental protection laws
and has remedial or investigatory activities underway at several sites including
certain superfund sites for which the Company has been named as a Potentially
Responsible Party ("PRP") pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or comparable statutes.
It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. The Company accrues for losses
associated with environmental remediation obligations when such losses are
probable and reasonably estimable. This practice is followed whether the claims
are asserted or unasserted. Reserves for estimated losses from environmental
remediation are, depending on the site, based primarily upon internal or third
party environmental studies, and estimates as to the number, participation level
and financial viability of any other PRP's, the extent of contamination and the
nature of required remedial actions. Such accruals are adjusted as further
information develops or circumstances change. Costs of future expenditures for
environmental remediation obligations are not discounted to their present fair
value. Recoveries of environmental remediation costs from other parties are
recognized as assets when their receipt is deemed probable. Management expects
that the amount reserved will be paid out over the periods of remediation for
the applicable sites and that such reserves are adequate based on all current
data. Each of the sites in question is at various stages of investigation or
remediation; however, no information currently available reasonably suggests
that projected expenditures associated with remedial action or compliance with
environmental laws for any single site or for all sites in the aggregate, will
have a material adverse affect on the Company's financial condition, results of
operations or cash flows.
At September 30, 2001, the Company has accrued approximately $0.1 million
as current liabilities with regard to its estimated liability as a PRP at a
superfund site. The Company believes that the liability for this matter is
approximately $0.1 million. Additionally, there are two sites which are owned or
operated by the Company at which investigatory activities are in progress.
Also, certain of the Company's subsidiaries are defendants or plaintiffs
in lawsuits that have arisen in the normal course of business. 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.
The Company's domestic subsidiaries participate in casualty insurance
programs of the Company and USI, which are principally self-insured. At
September 30, 2001, the Company's portion of these programs amounting to $3.6
million is included in other liabilities. The Company has issued standby letters
of credit guaranteeing financial responsibility for its self-insured casualty
programs amounting to $1.5 million. In addition, USI has issued standby letters
of credit guaranteeing financial responsibility for its self-insured casualty
programs.
In addition, at September 30, 2001, the Company has issued documentary
letters of credit and banker's acceptances totaling $7.6 million related to
shipments from the Far East.
17
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- SEGMENT DATA
The Company's operations are classified into one business segment. These
operations are conducted primarily in the United States, and to a lesser extent,
in Mexico and Canada. The following table presents certain data by geographic
areas (in millions):
MEXICO/
U.S. CANADA TOTAL
--- --- ---
FISCAL YEAR ENDED SEPTEMBER 30, 2001
Sales $ 578.4 $ 4.0 $ 582.4
Operating income (1) 18.0 0.7 18.7
Income before income taxes (1) 5.2 0.7 5.9
Total assets 306.9 15.4 322.3
Long-lived assets 122.6 9.3 131.9
Depreciation and goodwill amortization 15.3 0.3 15.6
Capital expenditures 11.0 8.2 19.2
FISCAL YEAR ENDED SEPTEMBER 30, 2000
Sales $ 618.3 $ 4.3 $ 622.6
Operating income (loss) 32.2 (0.3) 31.9
Income (loss) before income taxes 19.5 (0.3) 19.2
Total assets 378.2 5.3 383.5
Long-lived assets 142.3 0.5 142.8
Depreciation and goodwill amortization 15.3 0.1 15.4
Capital expenditures 13.1 0.1 13.2
FISCAL YEAR ENDED SEPTEMBER 30, 1999
Sales $ 606.0 $ 4.8 $ 610.8
Operating income 32.8 0.5 33.3
Income before income taxes 20.8 0.5 21.3
Total assets 382.1 4.4 386.5
Long-lived assets 146.3 0.5 146.8
Depreciation and goodwill amortization 12.2 0.1 12.3
Capital expenditures 17.7 0.1 17.8
(1) Includes goodwill impairment charges of $14.5 million in fiscal 2001.
Export sales represented 3%, 2% and 2% of the Company's total net sales
for the fiscal years 2001, 2000 and 1999, respectively.
As of September 30, 2001, approximately 59% of the Company's employees
were represented by unions.
18
USI LIGHTING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information for the fiscal years ended
September 30, 2001 and 2000 is as follows (in millions):
2001 2000
---- ----
Quarter Ended DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
------------- ------- -------- ------- -------- ------- -------- ------- ---------
Net sales $ 145.6 $ 143.1 $145.7 $148.0 $ 151.3 $ 157.6 $ 157.6 $ 156.1
Gross profit 37.3 37.9 42.0 44.7 39.0 37.3 40.2 37.9
Net Income (loss) (A) (B) 1.5 2.0 (5.5) (2.5) 2.7 1.8 2.2 5.2
--------------
(A) The quarter ended June 30, 2001 includes goodwill impairment charges of
$14.5 million.
(B) The Quarter ended September 30, 2001 includes the establishment of a
valuation allowance for deferred tax assets of $7.5 million.
NOTE 13 -- SUBSEQUENT EVENTS (UNAUDITED)
USI has entered into a letter of intent, pursuant to which it will sell
substantially all of the assets and operations of the Company for initial cash
consideration of approximately $250.0 million, excluding transaction costs. The
agreement also provides for an adjustment to the purchase price to the extent
net worth (as defined) at the closing date is less than or exceeds $235.0
million. The sale is expected to close on or about April 30, 2002. The
accompanying combined financial statements do not reflect any effects of the
sale transaction.
19
Item 7a-(2).
USI LIGHTING GROUP
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(IN MILLIONS)
(UNAUDITED) (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -----------------
Net sales $ 131.8 $ 145.6
Operating costs and expenses:
Cost of products sold 93.7 108.3
Selling, general and administrative expenses 30.3 30.4
Management fees 1.8 1.2
-------- --------
Operating income 6.0 5.7
Interest expense to Affiliates (3.2) (3.2)
-------- --------
Income before income taxes 2.8 2.5
Provision for income taxes (1.1) (1.0)
-------- --------
Net income $ 1.7 $ 1.5
======== ========
See notes to condensed combined financial statements.
20
USI LIGHTING GROUP
CONDENSED COMBINED BALANCE SHEETS
(IN MILLIONS)
(Unaudited)
December 31, 2001 September 30, 2001
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 0.9 $ 0.9
Trade receivables, net 81.3 93.5
Inventories 81.8 88.4
Deferred income taxes 2.2 2.2
Other current assets 4.4 2.7
-------- --------
Total current assets 170.6 187.7
Property, plant and equipment, net 82.6 86.7
Pension assets 2.0 2.0
Other assets 3.4 0.7
Goodwill, net 45.2 45.2
-------- --------
$ 303.8 $ 322.3
======== ========
LIABILITIES AND INVESTED CAPITAL
Current liabilities:
Notes payable $ 0.1 $ 0.1
Trade accounts payable 36.1 40.8
Accrued expenses and other liabilities 19.7 21.7
State and foreign taxes payable 0.7 0.5
-------- --------
Total current liabilities 56.6 63.1
Deferred income taxes 2.2 2.2
Pension liabilities 11.4 10.9
Other liabilities 8.0 7.7
Notes and interest payable to Affiliates 198.2 195.0
-------- --------
Total liabilities 276.4 278.9
-------- --------
Commitments and contingencies
Invested Capital 27.4 43.4
-------- --------
$ 303.8 $ 322.3
======== ========
See notes to condensed combined financial statements.
21
USI LIGHTING GROUP
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(Unaudited) (Unaudited)
For the Three Months For the Three Months
Ended Ended
December 31, 2001 December 31, 2000
----------------- ----------------------
OPERATING ACTIVITIES:
Net income $ 1.7 $ 1.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3.4 4.3
Provision for deferred income taxes -- 0.1
Provision for doubtful accounts 0.4 0.1
Changes in operating assets and liabilities:
Decrease in trade receivables 11.8 10.6
Decrease in inventories 6.6 3.2
Decrease (increase) in other current assets (1.7) 0.3
Increase in other assets (0.3) (0.1)
Decrease in trade accounts payable (4.7) (9.6)
Decrease (increase) in state and foreign taxes
payable 0.2 (0.4)
Decrease in accrued expenses and other liabilities (2.0) (1.3)
Decrease (increase) in other liabilities 0.8 (2.4)
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16.2 6.3
------ ------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1.6) (6.6)
------ ------
NET CASH USED IN INVESTING ACTIVITIES (1.6) (6.6)
------ ------
FINANCING ACTIVITIES:
Increase in notes and interest payable to Affiliates 3.1 3.2
Net transfers to Affiliates (17.7) (2.1)
------ ------
NET CASH USED IN FINANCING ACTIVITIES (14.6) 1.1
------ ------
CHANGE IN CASH AND CASH EQUIVALENTS -- 0.8
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 0.9 0.6
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 0.9 $ 1.4
====== ======
See notes to condensed combined financial statements.
22
USI LIGHTING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION AND DESCRIPTION OF COMPANY
Except as set forth in Note 7, these Notes to Condensed Combined Financial
Statements (Unaudited) are as of the last date of the periods presented and do
not reflect any effects of the transaction described in Note 7.
The accompanying condensed combined financial statements include the
combined operations of Lighting Corporation of America, Columbia Lighting
Inc., Dual-Lite Inc., Kim Lighting Inc., Architectural Area Lighting, Inc.,
Spaulding Lighting, Inc., Progress Lighting, Inc., Prescolite, Inc., and the
Progress Canada Division of USI Canada Inc. (together, the "USI Lighting
Group" or the "Company"), which is comprised of subsidiaries currently owned,
directly or indirectly by U.S. Industries, Inc. (the "Parent" or "USI").
The Company, through these entities, manufactures and distributes indoor and
outdoor lighting fixtures in North America.
At December 31, 2001 and 2000, the Company had no separate legal status or
existence as a combined group. These financial statements are presented on a
going concern basis as if the Company had existed as a corporation separate from
USI during the period presented and include the historical net assets and
results of operations directly related to the Company's operations.
The Company operates on a 52- or 53-week fiscal year ending on the Saturday
nearest to September 30. Any three-month data contained in this report reflects
the results of operations for the 13-week period ended on the Saturday nearest
December 31, 2001 and 2000, but are presented as of December 31 for convenience.
The Company's condensed combined financial statements as of December 31, 2001
and 2000 and for the 13-week period ending December 31, 2001 and 2000 are
unaudited. However, in the Company's opinion, these financial statements reflect
all normal, recurring adjustments necessary to provide a fair presentation of
its financial position, results of operations and cash flows for the period
presented. These financial statements are condensed, and thus do not include all
of the information and footnotes required by generally accepted accounting
principles for presentation of a complete set of financial statements.
Intercompany accounts and transactions are eliminated.
USI and certain subsidiaries of USI (referred to herein as "Affiliates")
have provided certain corporate general and administrative services to the
Company including legal, finance, tax, risk management and employee benefits. A
portion of the related costs has been allocated to the Company based on the
percentage of the Company's sales to the combined sales of USI as management
fees. The Company's management believes such amounts are reasonable; however,
they may not be indicative of the Company's ongoing costs as a separate entity.
The Company's operations are classified into one business segment. These
operations are conducted primarily in the United States, and to a lesser extent,
in Mexico and Canada.
23
USI LIGHTING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 -- INVENTORIES
AT DECEMBER 31, 2001 AT SEPTEMBER 30, 2001
-------------------- ---------------------
(IN MILLIONS)
Finished products $33.0 $38.1
In-process products 17.1 16.5
Raw materials 31.7 33.8
----- -----
$81.8 $88.4
===== =====
NOTE 3 -- GOODWILL
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for the fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. SFAS 141 is
effective commencing July 1, 2001, and the Company elected to adopt SFAS 142 as
of October 1, 2001. Accordingly, as of October 1, 2001, the Company no longer
amortizes goodwill. Goodwill amortization for the three months ended December
31, 2000 was $0.5 million. The reported net income of $1.5 million for the three
months ended December 31, 2000 would have increased to $1.8 million if adjusted
to exclude goodwill amortization.
24
USI LIGHTING GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 -- DEBT AND NOTES PAYABLE TO AFFILIATES
Notes and interest payable to Affiliates consist of the following:
At December 31, 2001 At September 30, 2001
-------------------- ---------------------
(In Millions)
6.5% Notes Payable $195.0 $195.0
Interest payable 3.2 --
------ ------
$198.2 $195.0
====== ======
The notes are unsecured and mature in fiscal 2005. No interest was paid
during the three months ending December 31, 2001 and 2000.
Pursuant to the terms of an August 15, 2001 restructuring of USI's bank
debt, USI has pledged substantially all of its assets, including all of the
shares of stock of its domestic subsidiaries and 65% of the shares of certain
foreign subsidiaries. Accordingly, all of the shares of the Company's domestic
entities and 65% of the shares of USI Canada were pledged under USI's debt
agreements. Additionally, the restructured debt agreements also require that the
proceeds of any asset sales by USI (including the sale of the Company) be
applied to reduce USI's debt.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to a wide range of environmental protection laws
and has remedial or investigatory activities underway at several sites including
certain superfund sites for which the Company has been named as a Potentially
Responsible Party ("PRP") pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or comparable statutes. At December 31,
2001 and September 30, 2001, the Company has accrued approximately $0.1 million
as current liabilities with regard to its estimated liability as a PRP at a
superfund site. The Company believes that the liability for this matter is
approximately $0.1 million. Additionally, there are two sites which are owned or
operated by the Company at which investigatory activities are in progress.
Also, certain of the Company's subsidiaries are defendants or plaintiffs in
lawsuits that have arisen in the normal course of business. In the opinion of
the Company's management, based on the advice of counsel, 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.
The Company's domestic subsidiaries participate in casualty insurance
programs of the Company and USI, which are principally self-insured. At December
31, 2001 and September 30, 2001, the Company's portion of these programs
amounting to $4.0 million and $3.6 million, respectively, are included in other
liabilities. The Company has issued standby letters of credit guaranteeing
financial responsibility for its self-insured casualty programs amounting to
$1.5 million. In addition, USI has issued standby letters of credit guaranteeing
financial responsibility for its self-insured casualty programs.
In addition, at December 31, 2001 and September 30, 2001, the Company has
issued documentary letters of credit and banker's acceptances totaling $5.2
million and $7.6 million, respectively, related to shipments from the Far East.
NOTE 6 -- COMPREHENSIVE INCOME
The Company's comprehensive income is equal to the net income for the
three months ended December 31, 2001 and 2000.
NOTE 7 -- SUBSEQUENT EVENT
On April 26, 2002, Hubbell Incorporated, Inc. acquired substantially all
of the assets and operations of the Company for a total estimated purchase price
of $252.4 million. The purchase price is subject to certain post-closing
adjustments based on a closing net worth calculation, which adjustments are
expected to be finalized by September 30, 2002.
25
Item 7b.
HUBBELL INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
On April 26, 2002, Hubbell Incorporated (the "Company"), through its
wholly-owned subsidiaries, acquired (the "Acquisition") the domestic lighting
division ("USI Lighting Group" or "LCA") of U.S. Industries, Inc. ("USI")
pursuant to a Stock and Asset Purchase Agreement, dated as of March 19, 2002, by
and among the Company, USI, JUSI Holdings, Inc. ("JUSI") and USI Canada, Inc.,
as amended by Amendment No. 1 to Stock and Asset Purchase Agreement, dated as of
April 26, 2002, by and between the Company and JUSI (as so amended, the
"Purchase Agreement"). The Acquisition was effected through a purchase by the
Company of (A) all of the issued and outstanding capital stock of LCA Group Inc.
and Dual-Lite Inc., each an indirect, wholly owned subsidiary of USI, and (B)
the assets and liabilities of the Progress division of USI Canada Inc., a wholly
owned subsidiary of USI.
The following unaudited pro forma condensed combined financial statements are
based upon the historical consolidated financial statements of the Company and
historical combined financial statements of the USI Lighting Group. The pro
forma information does not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements and therefore should be read in conjunction with
the historical financial statements of Hubbell included in its 2001 Annual
Report on Form 10-K, and the historical combined financial statements of the USI
Lighting Group included elsewhere in this document.
The unaudited pro forma condensed combined balance sheet as of the year
ended December 31, 2001 is presented to give effect to the Acquisition as if it
occurred on December 31, 2001 and, due to different fiscal periods, combines the
historical consolidated balance sheet for the Company at December 31, 2001 and
the historical combined balance sheet of the USI Lighting Group at September 30,
2001.
The unaudited pro forma condensed combined statement of earnings for the year
ended December 31, 2001 is presented as if the Acquisition had taken place on
January 1, 2001 and, due to different fiscal period ends, combines the
historical consolidated results of the Company for the year ended December 31,
2001 and the historical combined results of the USI Lighting Group for the year
ended September 30, 2001.
In giving effect to the Acquisition, the unaudited pro forma condensed combined
financial statements take into account the sources and uses of funds by Hubbell
including the issuance of approximately $200 million of senior unsecured notes,
payment of debt issuance costs of approximately $2.7 million, $50.0 million of
commercial paper borrowings and payment of transaction fees and expenses of
approximately $2.4 million.
Under the purchase method of accounting, the total estimated purchase price is
allocated to the net tangible and identifiable intangible assets of the USI
Lighting Group acquired in connection with the Acquisition, based on their fair
values as of April 26, 2002. The excess of the purchase price over the fair
value of the net tangible assets acquired has been allocated to patents,
trademarks/trade names and goodwill. The goodwill and trademarks/trade names
related to the Acquisition are not being amortized as the Acquisition occurred
subsequent to the adoption of Financial Accounting Standards Board Statement No.
142, "Goodwill and Other Intangible Assets", under which goodwill and
indefinite-lived intangible assets are not amortized.
This allocation is subject to change pending the completion of the final
analysis of the total purchase price and completion of appraisals of the fair
values of the assets acquired and liabilities assumed. The final allocation may
differ from that used in the unaudited pro forma condensed combined financial
statements. Changes in the allocations of the purchase price for the USI
Lighting Group and the related useful life of intangible assets could change pro
forma operating income, net income, and earnings per share.
The unaudited pro forma condensed combined financial statements are not
necessarily indicative of the results that would have been achieved had the
Acquisition been consummated as of the dates indicated, or that may be achieved
in the future, or the results that would have been realized had the entities
been a single entity during these periods.
26
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF EARNINGS
FISCAL 2001
(millions)
PRO FORMA
ADJUSTMENTS
HUBBELL -------------------
AS REPORTED LCA REF. PRO FORMA
DECEMBER 31, 2001 SEPTEMBER 30, 2001 FOOTNOTES AMOUNTS COMBINED
----------------- -------------------- --------- ------- ---------
NET SALES $1,312.2 $582.4 $1,894.6
Cost of Goods Sold 998.2 420.5 1b. 2.2
1c. 1.5
4. 0.1
9. 24.6 1,447.1
---------------- -------------------- ------- --------------
GROSS PROFIT 314.0 161.9 (28.4) 447.5
Special charges (credits), net 40.0 -- -- 40.0
Goodwill impairment charges -- 14.5 -- 14.5
Selling and administrative expenses 222.2 128.7 9. (24.6)
10. (1.8) 324.5
(Gain) on sale of business (4.7) -- -- (4.7)
---------------- -------------------- ------- --------------
OPERATING INCOME 56.5 18.7 (2.0) 73.2
---------------- -------------------- ------- --------------
OTHER INCOME / (EXPENSE):
Investment income 10.5 -- -- 10.5
Interest expense (15.5) (12.7) 6. 12.7
5. (14.2) (29.7)
Other income (expense), net 4.3 (0.1) -- 4.2
---------------- -------------------- ------- --------------
Total Other Income (Expense) (0.7) (12.8) (1.5) (15.0)
---------------- -------------------- ------- --------------
INCOME BEFORE INCOME TAXES 55.8 5.9 (3.5) 58.2
Provision for income taxes 7.5 10.4 7. (1.3) 16.6
---------------- -------------------- ------- --------------
NET INCOME $ 48.3 ($4.5) ($2.2) $ 41.6
================ ==================== ======= ==============
EARNINGS PER SHARE
BASIC $ 0.83 $ 0.71
================ ==============
DILUTED $ 0.82 $ 0.71
================ ==============
WEIGHTED AVERAGE SHARES
OUTSTANDING
BASIC 58.7 58.7
DILUTED 58.9 58.9
27
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
FISCAL 2001
(millions)
PRO FORMA
ADJUSTMENTS
HUBBELL --------------------
AS REPORTED LCA REF. PRO FORMA
DECEMBER 31, 2001 SEPTEMBER 30, 2001 FOOTNOTES AMOUNTS COMBINED
----------------- --------------------- --------- --------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 33.4 $ 0.9 5. $ (2.7) $ 31.6
Short-term investments 43.1 -- -- 43.1
Accounts receivable, net 163.4 93.5 -- 256.9
Inventories, net 242.6 88.4 1a. 3.4 334.4
Deferred income taxes and other 25.8 4.9 2. (2.2)
5. 2.7 31.2
----------------- --------------------- --------- --------------
Total Current Assets 508.3 187.7 1.2 697.2
----------------- --------------------- --------- --------------
Property, plant and equipment, net 264.2 86.7 1b. 15.7 366.6
OTHER NON-CURRENT ASSETS:
Investments 92.5 -- -- 92.5
Goodwill and Intangible assets 269.9 45.2 3. (8.6)
4. 20.7 327.2
Other 70.5 2.7 1c. (2.0) 71.2
----------------- --------------------- --------- --------------
Total Other Non-current Assets 432.9 47.9 10.1 490.9
----------------- --------------------- --------- --------------
TOTAL ASSETS $1,205.4 $322.3 $ 27.0 $1,554.7
================= ===================== ========= ==============
CURRENT LIABILITIES:
Commercial paper and other borrowings 67.7 0.1 5. 52.4 120.2
Trade accounts payable 55.5 40.8 -- 96.3
Accrued income taxes 43.7 0.5 -- 44.2
Dividends payable 19.4 -- -- 19.4
Other liabilities, current 97.6 21.7 -- 119.3
----------------- --------------------- --------- --------------
Total Current Liabilities 283.9 63.1 52.4 399.4
Long-term debt 99.8 -- 5. 200.0 299.8
Other liabilities, non-current 85.2 20.8 1c. 15.2
2. (2.2) 119.0
Notes and interest payable to Affiliates -- 195.0 6. (195.0) --
----------------- --------------------- --------- --------------
Total Liabilities 468.9 278.9 70.4 818.2
----------------- --------------------- --------- --------------
SHAREHOLDERS' EQUITY 736.5 43.4 8. (43.4) 736.5
----------------- --------------------- --------- --------------
----------------- --------------------- --------- --------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,205.4 $322.3 $ 27.0 $1,554.7
================= ===================== ========= ==============
28
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
BASIS OF PRO FORMA PRESENTATION
On April 26, 2002, Hubbell Incorporated (the "Company"), through its
wholly-owned subsidiaries, acquired (the "Acquisition") the domestic lighting
division ("USI Lighting Group" or "LCA") of U.S. Industries, Inc. ("USI")
pursuant to a Stock and Asset Purchase Agreement, dated as of March 19, 2002, by
and among the Company, USI, JUSI Holdings, Inc. ("JUSI") and USI Canada, Inc.,
as amended by Amendment No. 1 to Stock and Asset Purchase Agreement, dated as of
April 26, 2002, by and between the Company and JUSI (as so amended, the
"Purchase Agreement"). The Acquisition was effected through a purchase by the
Company of (A) all of the issued and outstanding capital stock of LCA Group Inc.
and Dual-Lite Inc., each an indirect, wholly owned subsidiary of USI, and (B)
the assets and liabilities of the Progress division of USI Canada Inc., a
wholly-owned subsidiary of USI.
The Acquisition will be accounted for under the purchase method of accounting.
The total estimated purchase price of the Acquisition is as follows (in
millions):
Cash $ 250.0
Total estimated transaction costs 2.4
--------
Estimated total purchase price $ 252.4
========
Under the purchase method of accounting, the total estimated purchase price as
shown in the table above is allocated to the net tangible and identifiable
intangible assets of the USI Lighting Group based on their estimated fair value
as of April 26, 2002. The estimated fair values have been determined by
preliminary independent valuations, and are subject to change based upon receipt
of the final valuations. The preliminary estimated purchase price is allocated
as follows (in millions):
Book value of net tangible assets acquired $ 193.2
(excluding Notes Payable to Affiliates)
Adjustments:
Inventory 3.4
Property, Plant and Equipment 15.7
Liabilities (17.2)
Patents 0.9
Trademarks/Trade Names 19.8
Goodwill 36.6
--------
Estimated total purchase price $ 252.4
========
The purchase price is subject to certain post closing adjustments, which are
expected to be finalized by September 30, 2002.
29
Approximately $56.4 million of the total preliminary purchase price has been
allocated to goodwill and identifiable intangible assets deemed to have
indefinite lives. Goodwill represents the excess of the purchase price of an
acquired business over the fair value of the underlying net tangible and
identifiable intangible assets. Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets," ("SFAS 142") is effective for all
business combinations that are completed after June 30, 2001. SFAS 142 requires
a non-amortization, impairment only approach for accounting for goodwill and
indefinite lived intangibles.
The Company adopted SFAS 142 beginning in the first quarter of fiscal 2002.
Application of the non-amortization provisions of SFAS 142 will eliminate
goodwill amortization expense, which was approximately $8.2 million in fiscal
2001 for the Company. No adjustment has been made to the historical financial
information for the Company as of and for the year ended December 31, 2001 as a
result of the adoption of SFAS 142.
PRO FORMA ADJUSTMENTS
The pro forma adjustments included in the unaudited pro forma condensed combined
financial statements are as follows (in millions):
1. NET TANGIBLE ASSETS
a. Adjustment to record the net increase in inventory based upon the
preliminary estimate of fair value, less costs of disposal and a
profit allowance for the selling effort.
b. Adjustment to record the net increase in property, plant and equipment
based on the preliminary estimate of fair value and the resulting
adjustment to depreciation expense, as follows:
Increase Useful Life
(years)
Land and Buildings $ 6.7 20
Machinery and Equipment 6.7 6
Furniture and Fixtures 2.3 3
TOTAL PROPERTY, PLANT AND
EQUIPMENT $15.7
The estimated increase in annual depreciation expense is approximately $2.2
million per year, calculated using the estimated fair value increases and
useful lives indicated above.
30
c. Adjustment to recognize the following:
Total unfunded pension liability assumed $23.5
Total unfunded post-retirement life and medical
benefits assumed 7.2
Less:
Net liability recorded (13.5)
------
Total adjustment $17.2
------
This adjustment was recorded in the Combined Balance Sheet as a reduction
of other non-current assets of $2.0 million and an increase in other
liabilities, non-current of $15.2 million.
The liability adjustment will result in an estimated $1.5 million of
additional net periodic pension and post-retirement medical cost primarily
due to the Company's incurring additional interest on the unfunded
liability at the Company's discount rate of 7%.
2. TAXES
Adjustment to eliminate the historical USI Lighting Group deferred tax assets
and liabilities at Acquisition. In connection with the Acquisition, both
parties have agreed to record the sale as an asset sale in accordance with
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended. As a
result, no deferred taxes have been recorded as a pro forma adjustment as the
tax and book bases in the acquired assets and liabilities are assumed to be
equal.
3. GOODWILL
Adjustment to eliminate the historical goodwill of the USI Lighting Group and
record the goodwill associated with the Acquisition as noted above, as
follows (in millions):
Elimination of historical goodwill $ (45.2)
Preliminary Goodwill at Acquisition 36.6
-------
Goodwill Adjustment $ (8.6)
-------
4. INTANGIBLE ASSETS
Adjustment to reflect the preliminary estimate of the fair value of
intangible assets and related amortization expense as follows (in millions):
Preliminary Annual Useful Life
Fair Value Amortization (years)
Patents $ 0.9 $0.1 10
Trademarks/Trade names 19.8 N/A N/A
TOTAL INTANGIBLE ASSETS $20.7 $0.1
31
The increase in annual amortization expense is approximately $0.1 million
per year, calculated using the increases and estimated useful lives
indicated above. Trademarks/trade names are deemed to have an indefinite
life and therefore are not amortized.
5. FINANCING AND DEBT ISSUE COSTS
Adjustment to record additional annual interest expense and debt issuance
cost amortization related to the $252.4 million in indebtedness incurred to
finance the acquisition of LCA and pay costs and expenses related to the
acquisition. The Unaudited Pro Forma Condensed Combined Financial Statements
assume that this indebtedness consists of:
- $200 million of senior unsecured notes with a fixed interest rate of
6.375% and a yield of 6.462% (after discount);
- $52.4 million of commercial paper borrowings under Hubbell's existing
commercial paper program at an estimated effective interest rate of
2.0%. A 1/8 of a point increase in the effective interest rate would
increase annual interest expense by approximately $200,000; and
- Debt issue costs of $2.7 million.
The debt issue costs of $2.7 million were funded with available cash.
6. INTERCOMPANY TRANSACTIONS
Adjustment to eliminate intercompany borrowings and associated interest
expense between the USI Lighting Group and its former parent, USI Industries,
Inc.
For the fiscal year ended September 30, 2001, USI Lighting Group was charged
$5.5 million of management fee expenses by the former parent to cover the
cost of services including legal, finance, tax, risk management and employee
benefits administration provided by the former parent. These amounts are
recorded in Selling and Administrative Expenses in the Statement of Earnings
of USI Lighting Group. The Company does not believe that 100% of these costs
will continue to be incurred by the combined entity due to the fact that
Hubbell provides all of these services to its existing portfolio of
companies. However, none of these costs have been eliminated due to the fact
that actual cost savings cannot be reasonably estimated at this time.
7. TAX EFFECTS ON STATEMENT OF EARNINGS
Adjustment to record the tax effect of adjustments reflected in the Statement
of Earnings at the statutory tax rate of 38%.
32
LCA's provision for income taxes for the fiscal year ended September 30, 2001
includes an expense of $7.5 million related to the recording of a valuation
allowance against net deferred tax assets, which has not been eliminated in
the Unaudited Pro Forma Condensed Combined Statement of Earnings.
8. SHAREHOLDERS' EQUITY
Adjustment to eliminate the USI Lighting Group's historical shareholders'
equity.
9. EXPENSE CLASSIFICATION CONFORMITY
Adjustment to reclassify USI Lighting Group's distribution, warehousing and
engineering costs as components of cost of goods sold from selling and
administrative expenses to conform with Hubbell's historical treatment of
such items.
10. HISTORICAL GOODWILL
Adjustment to eliminate historical goodwill amortization of the USI Lighting
Group.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HUBBELL INCORPORATED
By: /s/ Richard W. Davies
------------------------------
Name: Richard W. Davies
Title: Vice President, General
Counsel and Secretary
Date: July 9, 2002
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT DESCRIPTION
23.1 Consent of Ernst & Young LLP.