Jacuzzi (NYSE:JJZ)
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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.
Net Sales for the
3 Months Ended
Operating Income forthe 3 Months Ended
September 30,
September 30,
2006
2005
2006
2005
(in millions)
Bath Products
$ 193.6
$ 195.3
$ 9.8
$ 6.9
Plumbing Products
119.9
98.0
25.4
24.1
Corporate & Other
-
-
(7.9)
(13.9)
$ 313.5
$ 293.3
$ 27.3
$ 17.1
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.
Bath Products
3 Months Ended
12 Months Ended
September 30,
September 30,
2006
2005
2006
2005
(in millions)
Net Sales
$ 193.6
$ 195.3
$ 766.6
$ 780.8
Operating Income
$ 9.8
$ 6.9
$ 38.5
$ 30.1
Capital Expenditures
$ 3.3
$ 3.2
$ 8.4
$ 18.0
Depreciation & Amortization
$ 4.2
$ 4.8
$ 17.2
$ 15.6
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.
Three Months Ended
Twelve Months Ended
September 30,
September 30,
2006
2005
2006
2005
Bath Products Segment:
(in millions)
Operating Income
$
9.8
$
6.9
$
38.5
$
30.1
Restructuring and Other Charges
2.7
0.9
7.0
4.5
Retirement benefit adjustment
-
-
1.0
-
Warranty Benefit
-
-
-
(2.2)
China Start Up Costs
-
0.6
-
1.9
Pro forma Operating Income
$
12.5
$
8.4
$
46.5
$
34.3
% of Net Sales, as reported
5.1%
3.5%
5.0%
3.9%
% of Net Sales, pro forma
6.5%
4.3%
6.1%
4.4%
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.
Plumbing Products
Three Months Ended
Twelve Months Ended
September 30,
September 30,
2006
2005
2006
2005
(in millions)
Net Sales
$
119.9
$
98.0
$
435.8
$
353.1
Operating Income
$
25.4
$
24.1
$
90.9
$
75.3
Capital Expenditures
$
0.9
$
1.1
$
4.0
$
4.0
Depreciation & Amortization
$
1.1
$
1.3
$
4.4
$
5.2
Operating Income as % of Net Sales
21.2%
24.6%
20.9%
21.3%
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™
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.
Corporate Expenses and Other
Corporate expenses decreased to $7.9 million in the fourth quarter of
fiscal 2006 from $13.9 million in the same period last year. Corporate
expenses for the current period included approximately $2.6 million of
costs related to the previously announced retirement of the former
Chairman and Chief Executive Officer of the Company in the fourth
quarter of fiscal 2006. Approximately $1.2 million is related to the
non-cash accelerated vesting of restricted stock, while the remainder
are cash charges. The fourth quarter of fiscal 2005 included
restructuring charges of $4.9 million related to the elimination of
certain executive positions as well as $2.0 million related to
establishing a reserve for an intangible tax settlement. The remaining
decrease is primarily due to lower spending associated with
Sarbanes-Oxley compliance.
The increase in interest income of $2.9 million is primarily related to
the recording of $2.6 million of interest receivable on the Italian tax
refunds that the Company now considers collectible.
The Company reversed $14.0 million of previously established tax
reserves for Italian tax refunds in the fourth quarter of fiscal 2006 as
a result of receiving $7.9 million of these refunds in the first quarter
of fiscal 2007.
The table below summarizes the non-recurring items that comprise
adjusted earnings from continuing operations for the three month periods
ended September 30, 2006 and 2005.
Computation of Adjusted Earnings from Continuing Operations
(in millions, except per share data)
Three Months Ended September 30,
2006
2005
$
EPS
$
EPS
Earnings from continuing operations
$
25.6
$
0.33
$
4.9
$
0.06
Restructuring and other charges, net of tax
1.4
0.02
3.2
0.04
27.0
0.35
8.1
0.10
CEO retirement agreement, net of tax
1.4
0.02
-
-
Non-cash reserve for deferred tax assets
1.4
0.02
-
-
Italian tax interest income, net of tax
(1.4)
(0.02)
-
-
Italian tax reserve adjustment
(14.0)
(0.18)
-
-
Loss on sale of business
-
-
1.1
0.01
Tax benefit on audit settlement
-
-
(1.5)
(0.02)
Adjusted earnings from continuing operations
$
14.4
$
0.19
$
7.7
$
0.09
Net Debt
September 30,
2006
2005
(in millions)
Notes payable
$
19.8
$
22.0
Current maturities of long-term debt
1.7
1.5
Long-term debt
381.8
383.5
Total debt
403.3
407.0
Less:
Cash and cash equivalents
147.2
110.2
Restricted cash collateral accounts
-
12.4
Net Debt
$
256.1
$
284.4
Net debt decreased by $28.3 million from September 30, 2005. Total debt
declined by $3.7 million as a result of scheduled repayments. Restricted
cash collateral was released during fiscal 2006 as a result of the
required offer to repurchase the Company’s
senior notes with the proceeds from the 2005 sale of Rexair. No senior
notes were tendered in response to the offer. Cash and cash equivalents
increased as a result of free cash generated by the Company.
Free Cash Flow
The Company generated $37.4 million of positive free cash flow ($29.8
million of cash generated in operating activities plus cash provided by
investing activities of $7.6 million) in the fourth quarter of fiscal
2006. During the quarter, the Company received $7.6 million related to
its investment in Rexair, of which $4.4 million was included as
operating activities and $3.2 million was included in investing
activities. Investing activities also included net proceeds from the
sale of Spear & Jackson of $3.7 million. Free cash flow for all of
fiscal 2006 was $25.8 million (cash flow provided by operating
activities of $16.7 million plus cash provided by investing activities
of $9.1 million).
Fiscal Year Summary
Net sales for fiscal 2006 remained virtually unchanged at approximately
$1.2 billion as compared to fiscal 2005. During fiscal 2006, a $82.7
million (23.4%) increase in Plumbing Products sales compensated for a
$14.2 million (1.8%) decline in Bath Products sales, as well as the loss
of $76.1 million in sales from Rexair, which was sold in the third
quarter of fiscal 2005. Lower sales at the Bath Products segment
primarily resulted from weak overall demand in markets served, partially
offset by new product introductions and price increases. Approximately
$6.5 million of the Bath Products sales decline was due to unfavorable
translation effects of foreign currency. Higher sales at the Plumbing
Products segment reflected greater market penetration, industry growth,
price increases implemented to help offset higher raw material costs,
and the introduction of new products.
The Bath Products and Plumbing Products segments each reported
significant increases in operating income as overall operating income
increased 9.7% to $103.6 million in fiscal 2006 from $94.4 million in
fiscal 2005. The increase in operating income at the Bath Products
segment was the result of cost reductions, sourcing initiatives and
price increases implemented to offset higher raw materials costs and
volume shortfalls. The Bath Products segment pro forma operating margins
improved by 170 basis points to 6.1% for the year. Operating income at
the Plumbing Products segment increased as a result of increased volume
of existing products, while price increases offset substantially all of
the increases in raw materials costs. Corporate expenses declined a net
$4.2 million versus the prior year due primarily to reduced professional
fees of $3.4 million.
The table below reconciles the earnings from continuing operations to
adjusted earnings from continuing operations.
Jacuzzi Brands, Inc.
Computation of Adjusted Earnings from Continuing Operations
(in millions, except per share data)
Twelve Months Ended September 30,
2006
2005
$
EPS
$
EPS
Earnings from continuing operations
$
43.8
$
0.56
$
58.0
$
0.76
Restructuring and other charges, net of tax
3.9
0.05
5.3
0.07
47.7
0.61
63.3
0.83
Adjustment to retirement benefits, net of tax
1.6
0.02
-
-
Gain from ruling on environmental site, net of tax
(1.9)
(0.02)
-
-
Foreign currency loss, net of tax
0.9
0.01
-
-
Gain from the settlement of a property tax liability, net of tax
(1.2)
(0.02)
-
-
Net non-operating asset gains, net of tax
(5.1)
(0.07)
-
-
Non-cash reserve for deferred tax assets
15.9
0.21
-
-
CEO retirement agreement, net of tax
1.4
0.02
-
-
Italian tax interest, net of tax
(1.4)
(0.02)
Italian tax reserve adjustment
(14.0)
(0.18)
-
-
Gain on sale of business, net of tax
-
-
(24.7)
(0.32)
Debt retirement costs, net of tax
-
-
1.8
0.02
Tax benefit on audit settlement
-
-
(8.8)
(0.12)
Adjusted earnings from continuing operations
$
43.9
$
0.56
$
31.6
$
0.41
Forecast
The Company is currently forecasting earnings per share from continuing
operations of $0.75 per share for fiscal 2007. This forecast includes
$0.04 per share of income from non-recurring items that primarily relate
to the sale of surplus properties. This forecast is a “forward-looking
statement”, and accordingly is subject to the
qualifications noted below. The major assumptions for the forecast
include the successful execution of business strategies to outperform
the residential housing market, which the Company expects to decline but
moderate while the renovation market improves; continued growth in
domestic commercial and institutional construction activity; successful
new product introductions driving sales and profit margins for the Bath
segment, which has experienced increasingly difficult trading
conditions; successful marketing initiatives and dealer enhancements to
increase spa market share, in a significantly declining domestic market,
together with increased penetration of European markets; continued
conversion of copper plumbing to PEX, consistent with recent industry
trends, sufficient to overcome both increased competition and a
declining residential construction market; the return to profitability
of the U.K. operations following a 2-year trend of increasing losses;
product price increases to offset continued overall inflationary cost
pressures on commodities including energy; continued reductions of
corporate overhead costs; and increased non-cash pension income,
primarily due to a higher discount rate.
On October 11, 2006, the Company announced that a definitive merger
agreement had been signed under which affiliates of private equity firm
Apollo Management L.P. will purchase Jacuzzi Brands for $12.50 per
share. The acquisition is subject to certain closing conditions,
including the approval of the Company’s
shareholders, regulatory approval, and the receipt by Apollo of all
necessary debt financing, and is expected to close in the first quarter
of calendar 2007.
Conference Call
The Company will host a conference call on December 7, 2006 at 11:00 am
(Eastern Standard Time) to review the operating results. The dial-in
number is (630) 395-0023. The pass code to participate is “2835156”
and the leader’s name is Al Marini. A replay
of the call will be available through January 6, 2007 by calling (402)
220-3015. The call will be webcast by Thomson StreetEvents Network.
Individual investors can listen to the call at www.earnings.com
and institutional investors can access the call via Thomson
StreetEvents, www.streetevents.com,
a password-protected event management site, through January 6, 2007.
Jacuzzi Brands, Inc., through its subsidiaries, is a global manufacturer
and distributor of branded bath and plumbing products for the
residential, commercial and institutional markets. These include
whirlpool baths, spas, showers, sanitary ware and bathtubs, as well as
professional grade drainage, water control, commercial faucets and other
plumbing products. Our products are marketed under our portfolio of
brand names, including JACUZZI®,
SUNDANCE®, ZURN®
and ASTRACAST®.
Learn more at www.jacuzzibrands.com.
Jacuzzi Brands, Inc. operates on a 52- or 53-week fiscal year ending on
the Saturday nearest to September 30. The periods presented in this
press release ended the Saturday nearest September 30 of the respective
year, but are presented as of September 30 for convenience.
This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including the Company’s current expectations
with respect to future market conditions, future operating results and
other plans. Words such as “expects,”
“intends,” “anticipates,”
“plans,” “projects,”
“probably,” “believes,”
“estimates,” “may,”
“will,” “should,”
“shall,” and
similar expressions typically identify such forward-looking statements.
Even though the Company believes the expectations reflected in such
forward-looking statements are based on reasonable assumptions, it can
give no assurance that its expectations will be attained. In particular,
various economic and competitive factors, including those outside our
control, such as interest rates, foreign currency exchange rates,
inflation rates, instability in domestic and foreign financial markets,
acts of war, terrorist acts, outbreaks of new diseases, consumer
spending patterns, energy costs and availability, freight costs,
availability of consumer and commercial credit, adverse weather, levels
of residential and commercial construction, changes in raw material and
component costs, and the credit worthiness of our customers, insurers,
and investees, and other factors contained in the Company’s
filings with the Securities and Exchange Commission could cause our
actual results to differ materially from those expressed in this press
release.
Jacuzzi Brands, Inc. prepares its financial statements in accordance
with accounting principles generally accepted in the United States
(GAAP). Adjusted earnings from continuing operations, pro forma
operating income for the Bath Products segment, net debt and free cash
flow are non-GAAP financial measures, which exclude certain charges and
have material limitations. Items excluded from earnings from continuing
operations to arrive at adjusted earnings from continuing operations
(both historical and estimated) include restructuring and other charges,
net of tax, non-cash reserve for deferred tax assets and the other items
set forth in the reconciliations attached to this release. Pro forma
operating income for the Bath Products segment excludes restructuring
and other items set forth in the reconciliation included in this
release. Net debt excludes cash, cash equivalents and restricted cash
collateral accounts from total debt. Free cash flow includes net cash
provided by operations and net cash provided by investing activities.
Adjusted earnings from continuing operations and related per share
information, pro forma operating income for the Bath Products segment,
net debt and free cash flow, are key measures used by management to
evaluate its operations. Management does not consider the items excluded
from the non-GAAP measures of operating performance to be normal
operating costs and therefore, excludes them from the evaluation of the
Company's operating performance. Adjusted earnings from continuing
operations, pro forma operating income for the Bath Products segment,
net debt and free cash flow have material limitations, and should not be
considered measures of financial condition or performance in isolation
or as an alternative to earnings from continuing operations, operating
income, cash flow from operations, net earnings, earnings per share from
continuing operations or total debt as reported in accordance with GAAP,
and as presented, may not be comparable to similarly titled measures of
other companies. Items excluded from earnings from continuing
operations, operating income, cash flow from operations, earnings per
share from continuing operations or total debt are significant
components in understanding and assessing financial performance.
Jacuzzi Brands, Inc.
Condensed Consolidated Statements of Earnings
(in millions, except per share data)
Three Months Ended
Twelve Months Ended
September 30,
September 30,
2006
2005
2006
2005
(unaudited)
Net sales
$
313.5
$
293.3
$
1,202.4
$
1,210.0
Operating costs and expenses:
Cost of products sold (1)
213.0
199.2
821.9
820.4
Selling, general and administrative expenses
71.1
71.2
271.5
285.8
Restructuring charges
2.1
5.8
5.4
9.4
Operating income
27.3
17.1
103.6
94.4
Interest expense
(10.7)
(11.2)
(42.2)
(48.1)
Interest income
4.4
1.5
8.2
3.0
(Loss) gain on sale of business
-
(1.1)
-
24.7
Rexair equity earnings
1.3
0.6
3.8
0.6
Other (expense) income, net
(0.9)
(0.7)
7.5
(6.6)
Earnings before income taxes
21.4
6.2
80.9
68.0
Benefit (provision) for income taxes
4.2
(1.3)
(37.1)
(10.0)
Earnings from continuing operations
25.6
4.9
43.8
58.0
Income (loss) from discontinued operations,net of tax benefit
(provision) of $0.0, ($0.1), $0.0 , and $2.3, respectively
0.4
0.2
(3.4)
(4.5)
Gain (loss) from disposal of discontinued operations, net of tax
benefit (provision) of $0.1, ($1.8), $1.9 and ($0.6), respectively
3.5
(2.8)
-
(59.1)
Net earnings (loss)
$
29.5
$
2.3
$
40.4
$
(5.6)
Basic earnings (loss) per share:
Continuing operations
$
0.34
$
0.06
$
0.57
$
0.77
Discontinued operations
0.05
(0.03)
(0.04)
(0.84)
$
0.39
$
0.03
$
0.53
$
(0.07)
Diluted earnings (loss) per share:
Continuing operations
$
0.33
$
0.06
$
0.56
$
0.76
Discontinued operations
0.05
(0.03)
(0.04)
(0.83)
$
0.38
$
0.03
$
0.52
$
(0.07)
(1) The three and twelve months ended September
30, 2006 includes inventory write-downs and accelerated depreciation of
$0.6 million and $1.8 million, respectively, associated with the
consolidation of the Bradford, U.K. plant.
Jacuzzi Brands, Inc.
Condensed Consolidated Balance Sheets
(in millions)
September 30,
2006
2005
ASSETS
Current assets:
Cash and cash equivalents
$
147.2
$
110.2
Trade receivables, net
205.0
200.5
Inventories
194.6
165.0
Deferred income taxes
25.6
27.9
Assets held for sale
7.4
69.7
Other current assets
21.9
22.6
Total current assets
601.7
595.9
Restricted cash collateral accounts
-
12.4
Property, plant and equipment, net
92.5
103.7
Goodwill
231.4
228.2
Insurance for asbestos claims
136.0
153.0
Pension assets
150.0
147.8
Other non-current assets
42.1
48.5
TOTAL ASSETS
$
1,253.7
$
1,289.5
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable
$
19.8
$
22.0
Current maturities of long-term debt
1.7
1.5
Trade accounts payable
108.5
105.7
Income taxes payable
9.9
24.7
Liabilities associated with assets held for sale
0.8
66.9
Accrued expenses and other current liabilities
109.3
114.4
Total current liabilities
250.0
335.2
Long-term debt
381.8
383.5
Deferred income taxes
28.3
5.6
Asbestos claims
136.0
153.0
Other non-current liabilities
112.1
127.0
Total liabilities
908.2
1,004.3
Commitments and contingencies
Stockholders’ equity
345.5
285.2
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
1,253.7
$
1,289.5
Jacuzzi Brands, Inc.
Supplemental Segment Information
(in millions)
Bath
Plumbing
Corporate
Consolidated
Products
Products
Rexair
and Other
Total
Net Sales
Fourth Quarter
2006
$
193.6
$
119.9
$
-
$
-
$
313.5
2005
195.3
98.0
-
-
293.3
Fiscal Year
2006
$
766.6
$
435.8
$
-
$
-
$
1,202.4
2005
780.8
353.1
76.1
-
1,210.0
Total Operating Income
Fourth Quarter
2006
$
9.8
$
25.4
$
-
$
(7.9)
$
27.3
2005
6.9
24.1
-
(13.9)
17.1
Fiscal Year
2006
$
38.5
$
90.9
$
-
$
(25.8)
$
103.6
2005
30.1
75.3
19.0
(30.0)
94.4
Capital Expenditures
Fourth Quarter
2006
$
3.3
$
0.9
$
-
$
0.1
$
4.3
2005
3.2
1.1
-
-
4.3
Fiscal Year
2006
$
8.4
$
4.0
$
-
$
0.1
$
12.5
2005
18.0
4.0
0.4
0.3
22.7
Depreciation and Amortization
Fourth Quarter
2006
$
4.2
$
1.1
$
-
$
1.4
$
6.7
2005
4.8
1.3
-
0.6
6.7
Fiscal Year
2006
$
17.2
$
4.4
$
-
$
2.8
$
24.4
2005
15.6
5.2
2.3
3.2
26.3
Restructuring and Other Charges Included In Operating Income (1)
Fourth Quarter
2006
$
2.7
$
-
$
-
$
-
$
2.7
2005
0.9
-
-
4.9
5.8
Fiscal Year
2006
$
7.0
$
-
$
-
$
0.2
7.2
2005
4.5
-
-
4.9
9.4
(1) The fourth quarter and year to date periods
of fiscal 2006 includes $0.6 million and $1.8 million, respectively, of
inventory write-downs and accelerated depreciation included in cost of
goods sold associated with the Bradford, U.K. consolidation.