Salton (NYSE:SFP)
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Salton, Inc. (NYSE: SFP) announced today fiscal results
for its third quarter ended April 1, 2006. The Company reported net
sales of $127.7 million for its fiscal 2006 third quarter compared to
net sales of $153.2 million for the fiscal 2005 third quarter. Net
sales decreased domestically by $23.0 million. This decrease includes
$5.7 million of tabletop product sales, as a result of the sale of the
tabletop business in September, 2005 and approximately $2 million of
discontinued personal care product lines. The remaining $15.3 million
decrease resulted primarily from post-holiday overstocks at retailers,
volume and mix shifts as a result of price increases and planned
reductions from other discontinued product lines. Despite weak
consumer demand in the United Kingdom, foreign sales increased by $1.2
million, which was offset by $3.7 million in unfavorable foreign
currency fluctuations.
The Company's pre-tax loss from continuing operations improved by
$13.1 million in the third quarter of fiscal 2006 compared to the same
period last year. Salton reported a net loss of $19.1 million, or
$1.40 per share in the quarter, compared to a net loss of $22.5
million, or $1.98 million per share for the same period in fiscal
2005.
The Company's worldwide gross profit, as a percentage of net
sales, was 20.3% for the third quarter of fiscal 2006, compared to
20.5% for the year earlier period. While core domestic margins were
stable, the sale of discontinued products at reduced prices as part of
the Company's plan to eliminate certain business lines and rationalize
SKU's, had an unfavorable impact. Foreign gross margin percentages
declined slightly due to weak market conditions in the United Kingdom.
In addition, Salton's business and its margins continue to be affected
by the high cost of steel, copper, corrugated and oil-based raw
materials. Despite these challenges, the Company has continued to
drive reductions in distribution and SG&A expenses. Distribution and
SG&A declined nearly $17 million in the third quarter of fiscal 2006
compared to the third quarter of fiscal 2005, primarily from the
Company's continued domestic cost improvements, an effort to align
expenditures in Europe with reduced demand in a weak market and
foreign currency fluctuations. Interest expense declined in the
quarter by $4.5 million versus the same period last year.
For the nine months ended April 1, 2006, Salton reported net sales
of $506.5 million, compared to $630.5 million for the first nine
months of fiscal 2005. Net sales decreased domestically by $94.5
million. This decrease includes $11.8 million of tabletop product
sales as a result of the sale of the tabletop business in September,
2005 and approximately $5.3 million of discontinued personal care
lines. The remaining $77.4 million decrease resulted primarily from
delays in production from suppliers and cautious customer ordering
patterns that impacted volume in the first quarter as well as in the
first half of the second quarter followed by some overstocks at
retailers in the third quarter and continued planned reductions of
discontinued product lines. Foreign sales declined by $29.6 million
and were impacted by weak consumer demand in the housewares sector in
the United Kingdom and $8.8 million of unfavorable foreign currency
fluctuations.
The Company's nine month pre-tax net loss from continuing
operations improved by $21.6 million in fiscal 2006 compared to fiscal
2005. For the nine months ended April 1, 2006, Salton reported a net
loss of $17.2 million, or $1.31 per share, which included a $28.1
million non-cash charge, or $2.14 per share, for recording a valuation
allowance on a portion of its deferred tax assets in the second
quarter, compared to a net loss of $23.0 million, or $2.02 per share,
for the same nine months in fiscal 2005. The Fiscal 2006 net loss was
reduced primarily as a result of $27.8 million in gains associated
with the sale of the Company's 52.6% ownership interest in AMAP and
$21.7 million from the early retirement of debt associated with the
Company's Exchange Offer. These gains in net income were partially
offset by the $28.1 million valuation allowance recorded on a portion
of the deferred tax assets.
The Company had approximately $294.9 million in indebtedness, net
of $36.4 million of cash and accrued interest on senior secured notes
at the end of the fiscal 2006 third quarter, compared to $429.3
million as of July 2, 2005, net of $14.9 million of cash. As of
December 31, 2005 the Company had approximately $328.9 million net of
$60.9 million of cash and accrued interest on senior secured notes.
"During the third quarter, we continued to pursue our plans to
improve the business and to make our operations more competitive for
the future," said William Rue, President and Chief Operating Officer.
"Our cost reduction programs have lowered domestic annual operating
expenses by more than $65 million since inception at the beginning of
fiscal year 2005. These declines in distribution and selling, general
and administrative expenses helped to offset weaker sales, which were
partially due to our decision to reduce inventories and exit certain
product lines in an effort to focus on our core business. We continue
to face rising material costs in our products and, as a result,
continuing margin pressure. We have implemented price increases in
many of our products and we are cautiously optimistic these increases
will be accepted by our customers. In the interim however, this has
affected volume until old lower cost inventory has worked through
retail channels. With a lower cost structure, reduced inventories and
an improved balance sheet, Salton continues to focus and respond to
the many challenges it faces in our effort to return our business back
to profitability."
Business Outlook:
"While we continued to face market and pricing challenges during
the third quarter, I am excited by the Company's prospects, our focus
remains to move our product mix to products that we can sell
profitably at good margins. Although we can not control the rising
costs of commodities, we will continue to drive efficiencies
throughout our operations, while maintaining the reputation for
innovation that has characterized Salton for nearly two decades." said
Salton CEO Leon Dreimann. "Customer response at the Housewares Show
was excellent, and the interest in many of the new products we
introduced is beginning to result in orders. Many of the 130 products
we launched at the event will be on retailers shelves for the Holiday
Season. In addition, we recently entered into an agreement with
Omachron Science Inc. and Cropley Holdings Ltd. through which we
acquired exclusive rights to proprietary technology enabling Salton to
manufacture and market a line of indoor and / or outdoor portable
grills which utilize a hydrogen flame in combination with electric
heat to provide a new dimension to barbequing. The grills plug into a
regular household outlet and utilize water and a novel electrolysis
process to make a small but intense clean-burning hydrogen flame
inexpensively and safely. The result is a great-tasting barbeque
experience without the harmful emissions associated with charcoal or
propane, thus making it ideal for use indoors, such as in apartments
and condominiums, as well as homes. The response from selected
retailers who witnessed the product's performance at the Housewares
Show was overwhelming. Two Foreman grills using this revolutionary
technology are targeted to be released in early 2007."
The Company will hold a conference call at 9 a.m. ET on Friday,
May 12th. Mr. Dreimann, Chief Executive Officer, Mr. Rue, President
and Chief Operating Officer and William Lutz, Chief Financial Officer
will host the call. Interested participants should call (800) 968-9265
when calling from the United States or (706) 679-3061 when calling
internationally. Please reference Conference I.D. Number 9184360.
There will be a playback available until midnight, June 11, 2006. To
listen to the playback, please call (800) 642-1687 when calling within
the United States or (706) 645-9291 when calling internationally.
Please use pass code 9184360 for the replay.
This call is also being webcast and can be accessed at Salton's
web site at www.saltoninc.com until June 11, 2006. The conference call
can be found under the subheadings, "Stock Quotes" and then "Audio
Archives."
About Salton, Inc.
Salton, Inc. is a leading designer, marketer and distributor of
branded, high quality small appliances, electronics, 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, picture frames and personal care and
wellness products. The Company sells its products under a portfolio of
well recognized brand names such as Salton(R), George Foreman(R),
Westinghouse(TM), Toastmaster(R), Melitta(R), Russell Hobbs(R),
Farberware(R), Ingraham(R) and Stiffel(R). 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.
Certain matters discussed in this press release are
forward-looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially
from those set forth in the forward-looking statements. These factors
include: Salton's ability to realize the benefits it expects from its
U.S. restructuring plan; Salton's substantial indebtedness and
restrictive covenants in Salton's debt instruments; Salton's ability
to access the capital markets on attractive terms or at all; Salton's
relationship and contractual arrangements with key customers,
suppliers and licensors; pending legal proceedings; cancellation or
reduction of orders; the timely development, introduction and customer
acceptance of Salton's products; dependence on foreign suppliers and
supply and manufacturing constraints; competitive products and
pricing; economic conditions and the retail environment; international
business activities; the risks related to intellectual property
rights; the risks relating to regulatory matters and other risks and
uncertainties detailed from time to time in Salton's Securities and
Exchange Commission Filings.
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SALTON, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
unaudited
ASSETS 4/1/06 7/2/05
------
CURRENT ASSETS:
---------------
Cash $ 10,908 $ 14,857
Compensating balances on deposit 39,265 34,355
Restricted cash 1,408 -
Accounts receivable, less allowance: 121,044 140,179
2006 - $8,885; 2005 - $7,695
Inventories 154,748 195,065
Assets held for sale - 998
Prepaid expenses and other current assets 16,070 16,048
Prepaid income taxes 1,344 -
Deferred income taxes 6,043 5,524
Current assets of discontinued operations - 101,927
-------- --------
Total current assets 350,831 508,953
Net Property, Plant and Equipment 42,029 50,227
Tradenames 179,169 180,041
Non-current deferred tax asset 2,488 49,275
Other assets 14,189 11,555
Non-current assets of discontinued operations - 7,737
-------- --------
TOTAL ASSETS $588,706 $807,788
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
--------------------
Revolving line of credit and other current
debt, including an adjustment of $10,971
and $0 for accrued interest on the senior
secured notes, respectively $ 30,215 $ 70,730
Senior subordinated notes due 2005 - Current - 45,990
Accounts payable 85,008 86,254
Accrued expenses 28,436 34,802
Accrued interest 6,246 13,589
0 0
Income Taxes Payable 1,695 4,375
Current liabilities of discontinued operations - 47,331
-------- --------
Total current liabilities 151,600 303,071
Non-current deferred income taxes 11,155 3,334
Senior subordinated notes due 2005 - 79,010
Senior subordinated notes due 2008, including an
adjustment of $2,079 and $7,082 to the carrying
value related to interest rate swap agreements,
respectively 61,756 156,387
Senior secured notes, including an adjustment
of $13,136 and $0 to the carrying value for
accrued interest, respectively 116,407 -
Series C preferred stock 8,646 -
Term loan and other notes payable 117,245 100,050
Other long term liabilities 19,530 20,283
Non-current liabilities of discontinued operations - 1,462
-------- --------
TOTAL LIABILITIES 486,340 663,597
Minority interest in discontinued operations - 24,263
Convertible preferred stock, $.01 par value;
authorized, 2,000,000 shares; 40,000
shares issued 40,000 40,000
STOCKHOLDERS' EQUITY:
---------------------
Common stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding
2006-13,694,140 shares, 2005-11,376,292 shares 172 148
Treasury stock - at cost (65,793) (65,793)
Capital Contribution 0 0
Additional paid-in capital 62,835 55,441
Accumulated other comprehensive income 3,746 11,513
Retained Earnings 61,406 78,619
-------- --------
Total stockholders' equity 62,366 79,928
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER EQUITY $588,706 $807,788
======== ========
SALTON, INC
CONSOLIDATED INCOME STATEMENTS
(Dollars in Thousands)
UNAUDITED
13 Weeks Ended 39 Weeks Ended
Apr 1, 2006 Apr 2, 2005 Apr 1, 2006 Apr 2, 2005
------------------------------------------------
Net Sales $ 127,657 $ 153,159 $ 506,461 $ 630,541
Cost of Sales 91,434 108,435 353,123 424,802
Total Distribution
Expense 10,374 13,331 33,589 42,840
----------- ----------- ----------- -----------
Gross Profit 25,849 31,393 119,749 162,899
Total Selling, General
& Administrative 37,022 50,982 131,012 163,217
Restructuring Costs 80 287 237 1,077
----------- ----------- ----------- -----------
Operating (Loss) (11,253) (19,876) (11,500) (1,395)
Interest Expense 8,351 12,855 28,596 38,605
Gain-Early settlement
of debt 0 0 (21,720) 0
----------- ----------- ----------- -----------
(Loss) from Continuing
Operations Before
Income Taxes (19,604) (32,731) (18,376) (40,000)
Income Taxes (540) (9,314) 28,388 (11,828)
----------- ----------- ----------- -----------
Net (Loss) from
Continuing Operations (19,064) (23,417) (46,764) (28,172)
Income from Discontinued
Operations, net of Tax 0 888 1,735 5,212
Gain on Sale of
Discontinued Operations,
net of Tax 0 - 27,816 -
----------- ----------- ----------- -----------
Net (Loss) $ (19,064)$ (22,529)$ (17,213)$ (22,960)
=========== =========== =========== ===========
Weighted avg common
shares outstanding 13,616,903 11,376,297 13,118,437 11,373,127
Weighted avg common &
common equiv share 13,616,903 11,376,297 13,118,437 11,373,127
Net (Loss) per common
share: Basic
(Loss) from
continuing
operations $ (1.40)$ (2.06)$ (3.56)$ (2.48)
Income from
discontinued
operations, net of
tax - 0.08 0.13 0.46
Gain on sale of
discontinued
operations - - 2.12 -
----------- ----------- ----------- -----------
Net (Loss) per common
share: Basic $ (1.40)$ (1.98)$ (1.31)$ (2.02)
=========== =========== =========== ===========
Net (Loss) per common
share: Diluted
(Loss) from
continuing
operations $ (1.40)$ (2.06)$ (3.56)$ (2.48)
Income from
discontinued
operations, net of
tax $ - $ 0.08 $ 0.13 $ 0.46
Gain on sale of
discontinued
operations $ - $ - $ 2.12 $ -
----------- ----------- ----------- -----------
Net (Loss) per common
share: Diluted $ (1.40)$ (1.98)$ (1.31)$ (2.02)
=========== =========== =========== ===========
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