Salton (NYSE:SFP)
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Salton, Inc. (NYSE: SFP) announced today fiscal results for its third
quarter ended March 31, 2007. The Company reported net sales of $95.2
million in the third quarter of fiscal 2007 versus $127.7 million in the
third quarter of fiscal 2006. Salton recorded a net loss of $31.9
million, or $2.11 per share, compared to a net loss of $19.1 million or
$1.40 per share for the same period in fiscal 2006.
Earlier in the third quarter, on February 7, 2007, Salton, its
wholly-owned subsidiary SFP Merger Sub, Inc., and APN Holding Company,
Inc. (APN Holdco) entered into a definitive merger agreement whereby SFP
Merger Sub will merge with and into APN Holdco, the entity that acquired
all of the outstanding common shares of Applica Incorporated on January
23, 2007. The merger would result in Applica and its subsidiaries
becoming subsidiaries of Salton. Applica Incorporated is a marketer and
distributor of a wide range of small appliances for use in and outside
the home. Applica markets products under licensed brand names such as
Black & Decker®, company-owned brand names
such as Littermaid® and Infrawave®,
and various private label brand names, primarily in North America, Latin
America and the Caribbean. The transaction, which is subject to certain
conditions, is expected to be completed in June or July 2007.
Net sales for the quarter decreased domestically by $34.3 million,
primarily due to lower sales of the George Foreman brand resulting from
a loss of business due to supply shortages caused by liquidity
constraints, as well as pricing issues on certain products in the
Foreman line. In addition, there was a general decline in sales of lower
margin products in other product lines at the opening price point. Other
factors that impacted sales included an overall slowdown in orders from
customers due to uncertainty associated with the pending merger and an
increase in the provision for returns and allowances due to a change in
management’s estimate of the collectibility of
certain disputed retailer deductions and chargebacks.
Foreign sales showed a net increase of $1.8 million, which consisted of
$4.7 million in favorable foreign currency fluctuations, offset by $2.9
million in actual sales decline.
Gross profit for the third quarter declined from $25.8 million (20.2% of
sales) in fiscal 2006 to $15.8 million (16.6% of sales) in fiscal 2007,
due to lower sales and the increase in the accounts receivable reserve.
As a percent of net sales, gross profit was negatively affected by 4.3%
due to the impact on net sales from the increase in the provision for
returns and allowances.
Selling, general and administrative expenses decreased to $29.3 million
for the third quarter of fiscal 2007 compared to $37.0 million for the
third quarter of fiscal 2006. U.S. operations reduced selling, general
and administrative expenses by $6.1 million due to a decline in
promotional expenditures including trade show expense and cooperative
advertising expenses, lower salaries and benefits due to lower average
headcount and a decline in other operating expenses due to cost cutting
initiatives. The remaining reduction from the foreign entities was
primarily a result of decreased promotional spending and lower salaries
and benefits due to lower average headcount in Europe.
In the third quarter of fiscal 2007, management performed an interim
evaluation of its indefinite-lived intangible assets, comprised entirely
of the Company’s brand names. It was
determined that the uncertainty associated with the pending merger,
along with the drop in domestic sales resulted in a non-cash impairment
charge totaling $12.5 million associated with its brand names. The
Company plans to complete its independent annual test for impairment at
the end of the fourth quarter of fiscal 2007.
Net interest expense was $9.0 million for the third quarter of fiscal
2007 compared to $8.4 million for the third quarter of fiscal 2006.
Excluding amortization of fees, interest expense as a percent of the
average carrying value of debt outstanding was a weighted average annual
rate of 8.1% in the third quarter of fiscal 2007 compared to 7.7% in
fiscal 2006. The increase in the rate is due to the increase in the
LIBOR rate in the U.S. and Europe. Debt outstanding, net of cash, was
$278.9 million as of March 31, 2007 compared to $294.9 million as of
April 1, 2006.
For the nine months ended March 31, 2007, Salton’s
worldwide sales were $424.4 million compared to $506.5 million in the
first nine months of fiscal 2006. Salton recorded a net loss of $48.3
million, or $3.30 per share, compared to a net loss of $17.2 million, or
$1.31 per share in the first nine months of fiscal 2006.
Net sales for the nine months decreased domestically by $95.5 million
due to $16.8 million of planned reductions of discontinued non-core
products, including reductions associated with the sale of the tabletop
business at the end of the first quarter of fiscal 2006 and the
discontinuation of the U.S. personal care product lines. Additional
factors contributing to the decline included higher levels of product
shortages that occurred during the first quarter of fiscal 2007 when
liquidity constraints caused inventory shortages, followed by acceptance
issues associated with price increases that occurred due to higher raw
material costs at our suppliers. Recent decreases in the George Foreman
brand and broader reductions of lower margin opening price point
products added to the decline coupled with the aforementioned slowdown
in orders from customers due to the pending merger and an increase in
the provision for returns and allowances.
Foreign sales showed a net increase of $13.5 million, which consisted of
$14.2 million in favorable foreign currency fluctuations, offset by $0.7
million in actual sales decline.
Gross profit for the first nine months of fiscal 2007 declined from
$119.8 million in fiscal 2006 to $100.1 million in 2007 due primarily to
lower sales volumes and the increase in the provision for returns and
allowances.
“The third quarter results reflect the very
challenging nature of the small appliance industry as well as the
additional uncertainties that are typically associated with a pending
merger,” said William M. Lutz, Salton’s
Chief Executive Officer and Chief Financial Officer. “We
believe that the combination with Applica, once completed, will greatly
improve our overall competitiveness through an improved cost and capital
structure. Salton’s business, in spite of
showing recent declines, is focused on the strength of the core product
lines and brands that will go forward at the time of the merger. We
expect to benefit from the strengths of our combined brand portfolios,
improved international presence and a more prominent position with our
customers and suppliers. We are diligently working to complete the
transaction."
About Salton, Inc.
Salton, Inc. is a leading designer, marketer and distributor of branded,
high-quality small appliances, home decor and personal care products.
Its product mix includes a broad range of small kitchen and home
appliances, electronics for the home, time products, lighting products
and personal care and wellness products. The Company sells its products
under a portfolio of well recognized brand names such as Salton®,
George Foreman®, Westinghouse (TM),
Toastmaster®, Melitta®,
Russell Hobbs®, Farberware®,
Ingraham® and Stiffel®.
It believes its strong market position results from its well-known brand
names, high-quality and innovative products, strong relationships with
its customer base and its focused outsourcing strategy.
The statements contained in the news release that are not historical
facts are "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These forward-looking statements are made subject to
certain risks and uncertainties, which could cause actual results to
differ materially from those presented in these forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
Salton undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date
hereof. Among the factors that could cause plans, actions and results to
differ materially from current expectations are, without limitation:
Merger-Related Risk Factors:
the failure of APN Holdco to obtain the financing contemplated by
financing commitments received or alternative financing may result in
the termination of the merger agreement;
the failure to obtain approval of the merger from Salton stockholders;
the failure to obtain required third party consents to the merger;
the ability of the two businesses to be integrated successfully;
the ability of the combined company to fully realize the cost savings
and synergies from the proposed transaction within the proposed time
frame;
disruption from the merger may make it more difficult to maintain
relationships with customers, employees or suppliers;
completion of the merger may result in dilution of future earnings per
share to the stockholders of Salton;
the combined Company’s common stock may not
be listed on the New York Stock Exchange upon completion of the merger;
the combined company’s net operating loss
carryforwards may be limited as a result of the merger; and
costs associated with the merger are difficult to estimate, may be
higher than expected and may harm the financial results of the
combined company.
Operational and Other Risk Factors:
our ability to repay or refinance our indebtedness as it matures and
satisfy the redemption obligations under our preferred stock;
our ability to find other strategic alternatives, in the event the
merger does not close as anticipated;
our ability to continue to realize the benefits we expect from our
U.S. restructuring;
our substantial indebtedness and our ability to comply with
restrictive covenants in our debt instruments;
our ability to access the capital markets on attractive terms or at
all;
our relationship and contractual arrangements with key customers,
suppliers, strategic partners and licensors;
unfavorable outcomes from pending legal proceedings;
cancellation or reduction of orders;
the timely development, introduction and delivery to and acceptance by
customers of our products;
dependence on foreign suppliers and supply and marketing constraints;
competitive products and pricing;
economic conditions and the retail environment;
international business activities;
the cost and availability of raw materials and purchased components
for our products;
our ability to continue the listing of our common stock on the New
York Stock Exchange. If we are delisted by the New York Stock
Exchange, the price and liquidity of our common stock will be
negatively affected;
the risks related to intellectual property rights; and
the risks relating to regulatory matters and other risks and
uncertainties detailed from time to time in our Securities and
Exchange Commission Filings.
Investors and security holders are urged to read the proxy statement
when it becomes available and any other relevant documents to be filed
with the SEC in connection with the proposed transaction because it will
contain important information about Salton, Applica Incorporated and the
proposed transaction.
Investors and security holders may obtain free copies of these documents
when they become available through the website maintained by the SEC at www.sec.gov.
In addition, the documents filed with the SEC by Salton may be obtained
free of charge by directing such requests to Salton, Inc., 1955 Field
Court, Lake Forest, Illinois 60045, Attention: Corporate Secretary,
Telephone (847) 803-4600, or from Salton's website at www.saltoninc.com.
Salton and certain of its directors, executive officers and other
members of management may be deemed to be participants in the
solicitation of proxies from Salton stockholders with respect to the
proposed transaction. Information regarding the interests of these
officers and directors in the proposed transaction will be included in
the proxy statement. In addition, information about Salton's directors,
executive officers and members of management is contained in Salton's
most recent proxy statement, which is available on Salton's website and
at www.sec.gov. Additional information regarding the interests of such
potential participants will be included in the proxy statement and other
relevant documents filed with the SEC.
SALTON, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
ASSETS
Unaudited
3/31/07
7/1/06
CURRENT ASSETS:
Cash
$16,765
$18,103
Compensating balances on deposit
40,753
39,516
Accounts receivable, less allowance:
2007 - $14,247; 2006 - $9,440
81,518
117,094
Inventories
112,507
143,997
Prepaid expenses and other current assets
10,594
14,809
Prepaid income taxes
3,156
1,332
Deferred income taxes
5,401
5,433
Total current assets
270,694
340,284
Net Property, Plant and Equipment
36,196
40,460
Tradenames
149,679
159,675
Non-current deferred tax asset
3,852
3,269
Other assets
7,641
9,844
TOTAL ASSETS
$468,062
$553,532
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit and other current debt
$111,191
$21,547
Senior secured notes - including an adjustment of $13,013 and
$10,971 for
accrued interest
116,284
10,971
Accounts payable
76,204
91,308
Accrued expenses
28,768
28,081
Accrued interest
6,092
5,028
Income taxes payable
2,276
702
Total current liabilities
340,815
157,637
Non-current deferred income taxes
11,104
16,271
Senior subordinated notes due 2008, including an adjustment of
$1,050 and $1,829
to the carrying value related to interest rate swap agreements,
respectively
59,116
61,531
Second lien notes, including accrued interest
of $0 and $13,136, respectively
0
116,407
Series C preferred stock, $.01 par value;
authorized 150,000 shares; 135,217 shares issued
9,750
8,922
Term loan and other notes payable
13,387
117,908
Other long term liabilities
16,019
15,668
TOTAL LIABILITIES
450,191
494,344
Redeemable convertible preferred stock, $.01 par value;
authorized, 2,000,000 shares; 40,000 shares issued
40,000
40,000
STOCKHOLDERS' (DEFICIT) EQUITY:
Common stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding
2007-15,218,861 shares, 2006-14,386,390 shares
187
178
Treasury stock, 7,885,845 shares, at cost
(65,793)
(65,793)
Additional paid-in capital
66,881
63,854
Accumulated other comprehensive income
14,221
10,297
Retained earnings (deficit)
(37,625)
10,652
Total stockholders' (deficit) equity
(22,129)
19,188
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
$468,062
$553,532
SALTON, INC
CONSOLIDATED INCOME STATEMENTS
(in thousands, except share and per share data)
(unaudited)
13 Weeks Ended
39 Weeks Ended
Mar 31, 2007
Apr 1, 2006
Mar 31, 2007
Apr 1, 2006
Net Sales
95,155
$
127,657
$
424,411
$
506,461
Cost of Sales
70,445
91,434
294,602
353,123
Total Distribution Expense
8,880
10,374
29,731
33,589
Gross Profit
15,830
25,849
100,078
119,749
Total Selling, General & Administrative Expense
29,289
37,004
109,034
130,807
Impairment Loss on Intangible Assets
12,478
18
12,579
205
Restructuring Costs
81
80
988
237
Operating Loss
(26,018)
(11,253)
(22,523)
(11,500)
Interest Expense, Net
8,963
8,351
28,817
28,596
Gain-Early Settlement of Debt
-
-
-
(21,720)
Loss from Continuing Operations Before Income Taxes
(34,981)
(19,604)
(51,340)
(18,376)
Income Tax (Benefit) Expense
(3,070)
(540)
(3,063)
28,388
Net Loss from Continuing Operations
(31,911)
(19,064)
(48,277)
(46,764)
Income from Discontinued Operations, net of Tax
-
-
-
1,735
Gain on Sale of Discontinued Operations, net of Tax
-
-
-
27,816
Net Loss
$
(31,911)
$
(19,064)
$
(48,277)
$
(17,213)
Weighted avg common shares outstanding
15,141,059
13,616,903
14,641,821
13,118,437
Weighted avg common & common equiv share
15,141,059
13,616,903
14,641,821
13,118,437
Net Loss per common share: Basic and Diluted
Loss income from continuing operations
$
(2.11)
$
(1.40)
$
(3.30)
$
(3.56)
Income from discontinued operations, net of tax
-
-
-
0.13
Gain on sale of discontinued operations
-
-
-
2.12
Net Loss per common share: Basic and Diluted
$
(2.11)
$
(1.40)
$
(3.30)
$
(1.31)