Jacuzzi Brands Announces Fourth Quarter and Full Year 2006 Financial Results

Business Wire, Dec 7, 2006

* Full year pre-tax income increased to $80.9 million

* Net debt reduced to $256.1 million

WEST PALM BEACH, Fla. -- Jacuzzi Brands, Inc. (NYSE: JJZ), a leading global producer of branded bath and plumbing products for the residential, commercial and institutional markets, today announced financial results for the fourth quarter and fiscal year ended September 30, 2006. Net sales for the fourth quarter of fiscal 2006 rose 7% to $313.5 million from $293.3 million for the fourth quarter of fiscal 2005. Operating income increased to $27.3 million from $17.1 million over the same period one year ago.

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Operating margin improved to 8.7% of net sales for the fourth quarter of fiscal 2006 from 5.8% of net sales in the fourth quarter of fiscal 2005. The improvement in operating margin was due to cost reduction efforts in the Bath segment, reduced corporate expenses and higher sales prices that helped offset increased raw material costs.

Earnings from continuing operations for the fourth quarter of fiscal 2006 rose to $25.6 million, or $0.33 per diluted share, from $4.9 million, or $0.06 per diluted share, in the fourth quarter of fiscal 2005. In the fourth quarter of fiscal 2006, the Company reversed $14.0 million ($0.18 per diluted share) of reserves against tax refunds due from the federal government of Italy. The Company also recorded interest income of $2.6 million related to these tax refunds. Earnings from continuing operations for the fourth quarter of fiscal 2005 included a $1.1 million adjustment to decrease the gain associated with the disposition of Rexair, which occurred in the third quarter of fiscal 2005, versus no such adjustment in the corresponding period of 2006.

Net income for the fourth quarter of fiscal 2006 improved to $29.5 million, or $0.38 per diluted share, from net income of $2.3 million, or $0.03 per diluted share, in the fourth quarter of fiscal 2005. Net income for the fourth quarter of fiscal 2006 included a gain from the disposal of discontinued operations of $3.5 million, or $0.05 per diluted share, largely related to the Company's previously announced sale of its investment in Spear & Jackson. Net income for the fourth quarter of fiscal 2005 included a loss from the disposal of discontinued operations of $2.8 million, or $0.03 per diluted share, primarily related to adjustments associated with the disposal of the Eljer operation, which was sold in the third quarter of fiscal 2005.

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Bath Products segment sales declined slightly in the fourth quarter of fiscal 2006 from the fourth quarter of fiscal 2005. The Bath Products segment successfully implemented price increases that largely offset higher commodity prices. Improved sales of U.K. sink products in the U.S. and in Europe partially offset weak demand for other bath products in the U.S.

Operating income increased 42.0% to $9.8 million in the fourth quarter of fiscal 2006 from $6.9 million in the fourth quarter of fiscal 2005. This improvement was due largely to cost containment initiatives and higher margins on new product introductions.

Pro forma operating income (excluding restructuring and other charges of $2.7 million in the fiscal 2006 fourth quarter and $1.5 million in the fiscal 2005 fourth quarter) increased to $12.5 million, or 6.5% of net sales, in the fourth quarter of fiscal 2006 from $8.4 million, or 4.3% of net sales, in the fourth quarter of fiscal 2005 (see table below for detailed reconciliation.) Pro forma operating margins for the fiscal 2006 fourth quarter increased by 220 basis points from the prior year period.

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Restructuring and other charges for the fourth quarter of fiscal 2006 mainly consisted of $0.6 million of accelerated depreciation (included in cost of goods sold), $1.8 million in cash restructuring charges related to the U.K. bath product line consolidation and reorganization, and an additional $0.3 million related to the continued downsizing of the U.S. bath product line. Restructuring and other charges for the fourth quarter of fiscal 2005 of $0.9 million were primarily related to staffing reductions in the U.K. and U.S. bath business, as well as other overhead reductions. Fiscal 2005 fourth quarter results also included $0.6 million of start up costs in China.

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Net sales increased 22.3% to $119.9 million in the fourth quarter of fiscal 2006 compared to the same period last year. The increase was driven by improved sales of existing and new products, both due to greater market penetration and industry growth. Further, price increases were implemented which partially offset higher raw materials costs.

Net sales for PEX products increased largely due to the continued market conversion from copper products to PEX. Higher net sales for backflow preventers, flush valves and the Zurn One Systems[TM] packages were primarily a result of increased market penetration, new product innovation, and a reputation for outstanding customer service.

Operating income for the fourth quarter of fiscal 2006 increased by 5.4% to $25.4 million from $24.1 million in the same period last year. The improvement was largely due to increased volume. Operating margins decreased due to a change in product mix as well as the fact that price increases did not fully offset increases in raw material costs. Zurn values its inventory using the last-in-first-out (LIFO) method which, because of raw material price increases, resulted in cost of sales that were $13.9 million more than if the inventory was valued using the first-in-first-out (FIFO) method.