UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended April 3, 2004

or

For the transition period from ______ to ______

Commission file number: 1-14557

JACUZZI BRANDS, INC.

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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): Yes   x   No    o

As of April 30, 2004 Jacuzzi Brands, Inc. had one class of common stock, of which 75,355,866 shares were outstanding.

JACUZZI BRANDS, INC.

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

JACUZZI BRANDS, INC.

The accompanying notes are an integral part of these statements.

1

JACUZZI BRANDS, INC.

The accompanying notes are an integral part of these statements.

2

JACUZZI BRANDS, INC.

The accompanying notes are an integral part of these statements.

3

JACUZZI BRANDS, INC.

Note 1-Basis of Presentation

We manufacture and distribute a broad range of consumer and industrial products through our three business segments – Bath Products, Plumbing Products and Rexair. We serve residential markets through Jacuzzi, Inc.; Sundance Spas, Inc.; Eljer Plumbingware, Inc. and related subsidiaries (“Jacuzzi”), while we serve commercial/institutional markets through Zurn Industries, Inc. (“Zurn”). We also manufacture premium RAINBOW® vacuum cleaner systems through Rexair, Inc. (“Rexair”).

We operate on a 52- or 53-week fiscal year ending on the Saturday nearest to September 30. Any three-month data contained in this Report on Form 10-Q reflects the results of operations for the 13-week and 26-week or 27-week periods ended on the Saturday nearest March 31 of the respective year, but are presented as of March 31 for convenience. Our condensed consolidated interim financial statements as of March 31, 2004 and for the 13-week and 27-week periods ended March 31, 2004 (also referred to as the “Second Quarter of 2004” and “First Half of 2004”, respectively) and the 13-week and 26-week periods ended March 31, 2003 (also referred to as the “Second Quarter of 2003” and “First Half of 2003”, respectively) 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 accounting principles generally accepted in the United States for presentation of a complete set of financial statements. The balance sheet as of September 30, 2003 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.

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

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 September 30, 2003, which are included in our 2003 Annual Report on Form 10-K, filed on December 19, 2003.

Restatement

In October 2003, we completed a review of the accounting for our August 2001 re-acquisition of Rexair in response to comments received from the staff of the Securities and Exchange Commission as a result of their normal periodic review of our filings. As a result of our review, we revised the amount allocated to the Rexair distribution network, as well as the estimated life and the related amortization expense. We have restated our prior year results as a result of these changes. For additional information regarding this accounting change and re-allocation, refer to our amended 2002 Annual Report on Form 10-K/A, filed on November 25, 2003.

A reconciliation of the net loss and loss per share previously reported in our condensed consolidated statements of income for the second quarter and first half of fiscal 2003 to the net loss and loss per share in this Report on Form 10-Q is provided as follows:

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

Note 1-Basis of Presentation (continued)

The adjustments to net income for the second quarter and first half of fiscal 2003 consist of $0.3 million and $0.5 million, respectively, of additional amortization expense offset by amortization of the deferred tax benefit of $0.2 million in both periods.

Note 2- New Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board (“FASB”) issued Statement No. 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106 (“SFAS No. 132”). This Statement revises employers’ disclosures about pension plans and other post-retirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, Employers’ Accounting for Pensions, SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, or SFAS No. 106, Employers’ Accounting for Post-retirement Benefits Other Than Pensions. This Statement requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other post-retirement benefit plans. The required information should be provided separately for pension plans and for other post-retirement benefit plans. SFAS No. 132 is effective for annual financial statements with fiscal years ending after December 15, 2003. The interim-period disclosures required by this Statement are effective for interim periods beginning after December 15, 2003 and, as such, are included in Note 10.

In December 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). This Interpretation, and its subsequent revisions, of Accounting Research Bulletin No. 51, Consolidated Financial Statements, as amended, (“ARB 51”) addresses consolidation by business enterprises of variable interest entities. Under current practice, two enterprises generally have been included in consolidated financial statements because one enterprise controls the other through voting interests. FIN 46 defines the concept of “variable interests” and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among the parties involved. It also requires the deconsolidation of consolidated variable interest entities in certain circumstances if it is determined that the consolidating equity holder is not the primary beneficiary. We have evaluated our interests in our wholly-owned subsidiaries and continue to consolidate them under the guidelines set forth in ARB 51. We have also completed an evaluation of all of our variable interests and have determined that we do not have any interests in variable interest entities, as defined by FIN 46.

In January 2004, the FASB issued FASB Staff Position (“FSP”) No. FAS 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“FSP 106-1”). FSP 106-1 addresses the accounting and disclosure implications that are expected to arise as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”), which was enacted on December 8, 2003. In accordance with FSP 106-1, we have elected to defer recognizing the effects of the Act in the accounting for our post-retirement plan under FASB Statement No. 106, Employers’ Accounting for Post-retirement Benefits Other Than Pensions, until authoritative guidance on the accounting for the federal subsidy is issued. We plan to assess the impact of the Act on our post-retirement pension plan when the authoritative guidance is issued by the FASB.

Note 3-Inventories

Inventories consist of the following:

Note 4-Goodwill and Other Intangible Assets

As of March 31, 2004, we had net goodwill of $288.7 million compared to $283.1 million at September 30, 2003. The increase in the goodwill balance is due to exchange rate fluctuations.

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

5

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

Note 4-Goodwill and Other Intangible Assets (continued)

Finite-lived intangible assets include patented technology of $2.6 million and a distributor network of $36.0 million, which are being amortized over their estimated lives of 10 years and 40 years, respectively. The indefinite-lived intangible asset consists of a trade name.

Note 5-Long-Term Debt

Long-term debt consists of the following:

The Bank Facilities contain a subjective acceleration clause and a requirement to maintain a lockbox associated with our asset-based facility. As required by EITF Issue No. 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that Include both a Subjective Acceleration Clause and a Lockbox Arrangement, the entire balance of the asset-based facility is included in current maturities of long-term debt.

On July 15, 2003, we completed a comprehensive re-financing of our corporate debt by issuing $380.0 million in aggregate principal amount of 9.625% senior secured notes (the “Senior Notes”), as well as entering into a new five-year $200.0 million asset-based revolving credit facility and a five-year $65.0 million term loan (collectively the “Bank Facilities”).

The interest rate under the five-year asset-based credit facility is currently 2.25% over LIBOR or 0.25% over Prime. The rates over LIBOR and Prime will reset each quarter based on our Consolidated Leverage Ratio as defined in the agreement, and could range from 2.0% to 2.5% over LIBOR and 0.0% to 0.5% over Prime. The weighted average interest rate on borrowings under the asset-based credit facility was 3.8% for the first half of fiscal 2004. The $65.0 million term loan matures July 15, 2008 along with the asset-based facility and carries an interest rate of 5.0% over Prime with a minimum rate of 9.25%.

We incurred approximately $9.2 million in transaction and professional fees associated with the completion of the Bank Facilities. These costs were capitalized and are being amortized over the five-year term of the Bank Facilities.

At March 31, 2004, we had approximately $131.5 million committed under the asset-based facility, of which we had utilized approximately $73.7 million (including $42.4 million of letters of credit), leaving $57.8 million available for additional borrowings. In addition, we have outstanding bankers’ acceptances of $2.1 million which does not affect availability under the asset-based facility.

The Senior Notes, which are due July 1, 2010 and pay interest of $18.3 million on January 1 and July 1 of each year, were subject to registration with the Securities and Exchange Commission pursuant to a registration rights agreement. On February 17, 2004, we completed an offer to exchange new, registered Senior Notes for the then outstanding unregistered notes. The terms of the new, registered Senior Notes are identical, in all material respects, to the terms of the then outstanding unregistered notes, except that the new Senior Notes have been registered under the Securities Act, and the transfer restrictions and registration rights relating to the unregistered notes do not apply to the registered Senior Notes.

In the first half of fiscal 2004, we paid $21.9 million of interest on our borrowings. Additional information regarding our long-term debt structure can be found in our 2003 Annual Report on Form 10-K, filed on December 19, 2003.

6

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

Note 6-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 the warranty liability during the period are as follows:

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 lease payments totaled $3.7 million for fiscal 2003, 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 sold a number of assets and operating entities over the last several years and have, on occasion, provided indemnifications for liabilities relating to product liability, environmental and other claims. We have accrued approximately $9.2 million as of March 31, 2004 for asserted and potential unasserted claims related to these liabilities.

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 and environmental matters will not have a material adverse effect on our financial condition, results of operations or cash flows.

Litigation resulting from a dispute with the former owners of the Sundance Spas business has resulted in a judgment of approximately $5.1 million in our favor. The gain of $3.9 million resulting from the judgment is not included in the results of our operations in the second quarter of fiscal 2004 as it is still subject to appeal.

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

Legislation has been introduced in the Senate 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 the financial impact it could have on Zurn.

New claims filed against Zurn remained relatively constant period over period. For the second quarter and the first half of fiscal 2004, approximately 6,700 and 15,100, respectively, new asbestos claims were filed against Zurn. For the second quarter and the first half of fiscal 2003, approximately 5,300 and 14,900, respectively, new asbestos claims were filed against Zurn.

7

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

Note 6-Commitments and Contingencies (continued)

During the second quarter and the first half of fiscal 2004 and as of the end of such periods, approximately 18,000 and 22,900 claims, respectively, were paid and/or pending payment and approximately 1,100 and 1,400 claims, respectively, were dismissed and/or pending dismissal. During the second quarter and the first half of fiscal 2003 and as of the end of such periods, approximately 16,200 and 22,100 claims, respectively, were paid and/or pending payment and approximately 1,500 and 2,700 claims, respectively, were dismissed and/or pending dismissal.

As of March 31, 2004, the number of asbestos claims pending against Zurn was approximately 69,200 compared to 59,000 as of September 30, 2003. The increase in pending claims is a result of new claims exceeding the number of claims newly resolved during the period. The claims are handled pursuant to a defense strategy funded by Zurn’s insurers. Since Zurn received its first asbestos claim in the 1980s, Zurn has paid or dismissed or agreed to settle or dismiss approximately 94,000 asbestos claims including dismissals or agreements to dismiss of approximately 7,200 of such claims through March 31, 2004 compared to 84,000 and 6,400, respectively, through September 30, 2003.

The pending claims against Zurn as of March 31, 2004 were included in approximately 4,800 lawsuits, in which Zurn and an average of 100 other companies are named as defendants, and which cumulatively allege damages of approximately $13 billion against all defendants. The pending claims against Zurn as of September 30, 2003 were included in approximately 5,600 lawsuits, in which Zurn and an average of 100 other companies are named as defendants, and which cumulatively allege damages of approximately $12 billion against all defendants. 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.

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

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

Zurn estimates that its available insurance to cover its potential asbestos liability as of March 31, 2004 is approximately $305 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. However, there is no assurance that this amount of insurance will ultimately be available or that Zurn’s asbestos liabilities will not ultimately exceed this amount. Factors that could cause a decrease in the amount of available coverage include 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, certain gaps exist in Zurn’s insurance coverage but only if and after Zurn uses approximately $233 million of its remaining approximate $305 million of insurance coverage, based on its coverage analysis. As noted above, the actuarial estimate of Zurn’s potential liability for asbestos claims pending against it and for claims estimated to be filed through 2013 is $160 million. In order to use approximately $280 million of the $305 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 $305 million of coverage. We will pursue, if necessary, any available recoveries on our approximately $148 million of coverage with insolvent carries, which includes approximately $83 million of coverage attributable to the gaps discussed above. These estimates are subject to the factors noted above.

8

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

Note 6-Commitments and Contingencies (continued)

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.

Note 7-Comprehensive Income

The components of comprehensive income are as follows:

Note 8-Income Per Share

The basic and diluted weighted average number of common shares outstanding are as follows:

Options to purchase 1.5 million and 1.7 million shares in the second quarter and first half of fiscal 2004, respectively, and options to purchase 4.9 million shares in both the second quarter and first half of fiscal 2003 were not included in the computation of diluted income (loss) per share because the exercise prices of these options exceeded the average market price of the common shares during the respective periods.

9

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

Note 9-Employee Stock Options

We apply Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for our stock-based compensation plans. Thus, we use the intrinsic value method to determine the compensation cost for our stock-based awards to employees. Had compensation cost for awards under our stock-based compensation plans been determined using the fair value method prescribed by FASB Statement No. 123, Accounting for Stock-Based Compensation, and subsequent revision, our net income (loss) and income (loss) per share would have been reduced to the pro forma amounts presented below:

     The fair value of each stock option granted is established on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions for grants for 2004 and 2003:

•

expected volatility rates of 67% for 2004 and 63% for 2003;

•

risk-free interest rates of 2.80% for 2004 and 2.80% for 2003;

•

expected option lives of 4 years for both years; and

•

expected dividend yield of 0% for both years.

On March 17, 2004, in connection with our option exchange program, we accepted for cancellation options to purchase 1,903,337 shares of our common stock, and granted 435,730 restricted shares of our common stock in exchange. Participants tendered 100% of the options eligible to be exchanged under the program. We subsequently cashed-out options to purchase 469,887 shares of our common stock held by former employees for $0.4 million.

In accordance with EITF No. 23, Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25, Accounting for Stock Issued to Employees, and FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, employee stock options issued within six months of the option exchange program are considered replacement awards and are subject to variable accounting until the award is exercised, forfeited or canceled. As of March 31, 2004, there are 91,250 employee stock options being accounted for under these provisions.

The restricted stock awards will vest in quarterly increments over the next four years. The restricted stock’s intrinsic value of $3.8 million at the grant date will be amortized over the vesting period in tranches consistent with our accounting policy of recognizing expense for awards with graded vesting under the expense attribution method in FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans. In the second quarter of fiscal 2004, we recognized $0.1 million of amortization associated with these awards.

10

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

Note 10-Pension and Retirement Plans

We sponsor a number of non-contributory defined benefit pension plans and a number of defined contribution plans, including foreign defined benefit pension 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.

The components of net periodic benefits and costs for the second quarter and first half of fiscal 2004 and fiscal 2003 for our pension and other post-retirement benefit plans are as follows:

We contributed $0.2 million to our pension and post-retirement benefit plans during the second quarter of fiscal 2004 and $0.4 million during the first half of fiscal 2004. We anticipate contributing an additional $2.6 million in the second half of fiscal 2004 bringing our total estimated contribution for the year to $3.0 million.

11

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

Note 11-Accrued Restructuring Costs

As of March 31, 2004, we had accruals of $10.9 million for restructuring costs. The activity in the restructuring liability accounts by cost category is as follows:

During the second quarter and first half of fiscal 2004, we recorded restructuring charges of $3.0 million and $5.7 million, respectively. These charges include:

•

Pension and post-retirement curtailment charges of $1.0 million recorded in the second quarter of fiscal 2004 associated with our plan to downsize the Ford City, PA facility, thereby eliminating high-cost manufacturing through lower-cost sourcing. These curtailment charges reduced the balance of our pension asset;

•

Plant shut down and restructuring charges associated with the planned closure of our Salem, OH manufacturing plant of $2.2 million in the second quarter and $3.7 million in the first half of fiscal 2004;

•

Severance related to our new shared services center in Dallas, TX of $0.1 million in the second quarter and $1.0 million in the first half of fiscal 2004; and

•

A favorable adjustment to our lease and contract related accruals of $0.3 million in the second quarter of fiscal 2004, which offsets a first quarter severance charge of $0.3 million, related to the relocation and consolidation of the Jacuzzi Inc. headquarters in Walnut Creek, CA into our principal offices in West Palm Beach, FL.

Approximately $8.5 million of the accrued restructuring costs at March 31, 2004 are included in the balance sheet caption “Accrued expenses and other current liabilities,” while the remaining $2.4 million are recorded in the balance sheet caption “Other non-current liabilities.” We expect the remaining accruals to be paid with cash over the periods provided by the severance and lease agreements over the next four years.

Note 12-Income Taxes

During the first quarter of fiscal 2004, we had an initial meeting with the IRS to begin their audit for the fiscal years 1998 through 2002. The IRS is currently at the information gathering stage of the audit process and has not communicated any areas of concern or proposed adjustments. The IRS anticipates completing their audit in June 2005. During the second quarter of fiscal 2004, we received a refund of $4.0 million relating to the examination of the federal income tax returns for the fiscal years 1995 through 1997. This amount was already included in our tax rates in prior periods. In addition to the tax refund, we received $2.5 million in interest relating to the refund, which is included in interest income. For the first and second quarters of fiscal 2004, we provided for taxes at an effective tax rate of approximately 39% on income from continuing operations.

During the first quarter of fiscal 2003, the IRS completed its examination of the federal income tax returns for fiscal years 1995 through 1997. As a result of the audit settlement, a tax benefit of $13.6 million was recorded. A substantial portion of the proposed adjustments derived from the spin-off of the Company from Hanson plc in 1995. Excluding this adjustment, we provided for taxes at an effective tax rate of 39% on income from continuing operations.

12

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

Note 13- Discontinued Operations

On December 28, 2001, the Board of Directors approved a formal disposal plan, which called for the sale of five businesses, including SiTeco Lighting which was sold in October 2002.

In March 2003, the Board of Directors approved the disposal of our swimming pool and equipment, hearth and water systems businesses. During the third quarter of fiscal 2003, we disposed of the swimming pool & equipment and hearth businesses in two separate transactions. The net cash proceeds from these transactions totaled $16.7 million. In October 2003, we sold our water systems business for $3.1 million in cash. In connection with the disposal plans, we recorded a charge of $39.9 million in March 2003, which represented the difference between the historical net carrying value (including goodwill) and the estimated net realizable value of the net assets of the businesses, less costs to sell. These discontinued businesses were previously included in our Bath Products segment.

The operating results of these businesses are included in loss from discontinued operations for all periods presented, in accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

Summarized results of these businesses are as follows:

Included in assets held for sale at March 31, 2004 and September 30, 2003 are excess properties held for sale of $3.0 million and $5.4 million, respectively. These properties are currently being marketed for sale and meet all of the criteria for classification as held for sale as required by SFAS No. 144. The properties are recorded at the lower of their carrying value or fair value less cost to sell. Assets held for sale and liabilities associated with assets held for sale at September 30, 2003 include assets of $11.4 million and liabilities of $8.7 million for our water systems business, which was sold in October 2003.

Note 14-Segment Data

We currently operate in three reportable business segments – Bath Products, Plumbing Products and Rexair. The following is a summary of the significant accounts and balances by segment, reconciled to the consolidated totals.

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

Note 15-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 March 31, 2004 and September 30, 2003 and for each of the three and six months ended March 31, 2004 and 2003. 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 (referred to as Notes Collateral). The Senior Notes are also secured by a second-priority lien on and security interest in the Bank Collateral (see our 2003 Annual Report on Form 10-K, filed on December 19, 2003). Separate consolidated financial statements of each guarantor are not presented, as we have determined that they would not be material to investors.

14

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

Note 15–Supplemental Joint Issuer and Guarantor Financial Information (Continued)

15

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

Note 15–Supplemental Joint Issuer and Guarantor Financial Information (Continued)

16

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

Note 15–Supplemental Joint Issuer and Guarantor Financial Information (Continued)

17

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

Note 15–Supplemental Joint Issuer and Guarantor Financial Information (Continued)