SFP Salton

Salton, Inc. (NYSE: SFP) announced today fiscal results for its second quarter ended December 31, 2005. The Company reported net sales of $230.4 million for its fiscal 2006 second quarter compared to net sales of $272.7 million for the fiscal 2005 second quarter. Net sales decreased domestically by $24.6 million, due to the sale of the tabletop business in September, 2005, product delays that impacted volume and the planned exit of several discontinued product lines, including personal care. Foreign sales declined by $17.7 million, as a result of weak market conditions in the United Kingdom, along with inventory shortages and $5 million of unfavorable foreign currency fluctuations. Salton reported a net loss of $27.8 million, or $2.06 per share, which included a $28.1 million non-cash charge, or $2.08 per share, for recording a valuation allowance on a portion of its deferred tax assets. This is compared to net income of $2.8 million, or $0.24 per share for the same period in fiscal 2005. The Company's worldwide gross margin, as a percentage of net sales, was 33.5% for the second quarter of fiscal 2006, compared to 34.6% for the year earlier period. The margins in the domestic core business lines have improved over the same period last year, however, foreign gross margin percentages have declined slightly due to the 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, corrugated and oil-based raw materials. Despite these challenges, the Company has continued to drive reductions in distribution and SG&A expenses, with declines of $15.7 million in the second quarter of fiscal 2006 compared to second quarter of fiscal 2005. This was primarily a result of the Company's domestic cost improvements. Interest expense declined in the quarter by $3.7 million versus the same period last year. For the six months ended December 31, 2005, Salton reported net sales of $378.8 million, compared to $477.4 million for the first six months of fiscal 2005. Salton reported net income of $1.9 million, or $0.14 per share, compared to a net loss of $0.4 million, or $0.04 per share, for the same six months in fiscal 2005. Fiscal 2006 net income increased 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 $328.9 million in indebtedness, net of cash and accrued interest on senior secured notes of $28.5 million at the end of the fiscal 2006 second quarter, compared to $429.3 million as of July 2, 2005. During the second quarter, the Company repurchased $9.2 million in aggregate principal amount of the outstanding 2005 Notes for $9.1 million and repaid the remaining $36.6 million of outstanding 2005 Notes upon maturity. "Our results were impacted in the holiday season by our previous restructuring activities. As a result of these efforts, Salton is a stronger company today," said William Rue, President and Chief Operating Officer. "While our suppliers have resumed production levels, it was too late to meet some of the demand from our customers. Our cost reduction programs have lowered domestic annual operating expenses by $60 million since inception at the beginning of fiscal year 2005. We plan to continue our cost reduction efforts, however we continue to face rising material costs in our products and as a result, continuing margin pressure. We believe the extensive restructuring activities and cost reduction programs we have completed have positioned the Company to be competitive in the marketplace." Business Outlook: "I am very encouraged by the performance in both sales and margins for the George Foreman(R) product line, including the "G5" Next Grilleration, the latest in a line of removable plate grills developed by the Company and George Foreman," said Leonhard Dreimann, Chief Executive Officer. "Although our results were impacted by product shortages which carried over from the first quarter, and weak market conditions in the United Kingdom, which affected the entire industry, we are highly encouraged by the improvements in margins and operating income domestically. The combination of our restructuring activities and cost increases at our suppliers has had an impact on the ability to develop new products. Even so, we are excited to be introducing new and innovative products at the Housewares Show in March as we refocus our efforts on strengthening our core business for future growth." The Company will hold a conference call today at 9 a.m. ET. 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 5170973. There will be a playback available until midnight, March 9, 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 5170973 for the replay. This call is also being webcast and can be accessed at Salton's web site at www.saltoninc.com until March 9, 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), Mellitta(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. -0- *T SALTON, INC CONSOLIDATED INCOME STATEMENTS (Dollars in Thousands) UNAUDITED 13 Weeks Ended 26 Weeks Ended Dec 31, 2005 Jan 1, 2005 Dec 31, 2005 Jan 1, 2005 --------------------------------------------------- Net Sales $ 230,388 $ 272,698 $ 378,804 $ 477,382 Cost of Sales 153,318 178,381 261,690 316,367 Total Distribution Expense 12,667 16,574 23,215 29,509 --------------------------------------------------- Gross Profit 64,403 77,743 93,899 131,506 Total Selling, General & Administrative 53,391 65,380 93,804 112,234 Impairment Loss on Goodwill and Intangible Assets 181 - 186 - Restructuring Costs 40 118 157 790 --------------------------------------------------- Operating (Loss) Income 10,791 12,245 (248) 18,482 Interest Expense 9,196 12,872 20,245 25,751 Gain-Early settlement of debt (65) 0 (21,721) 0 --------------------------------------------------- (Loss) Income from Continuing Operations Before Income Taxes 1,660 (627) 1,228 (7,269) Income Taxes 29,473 (318) 28,928 (2,515) --------------------------------------------------- Net (Loss) Income from Continuing Operations (27,813) (309) (27,700) (4,754) Income (Loss) from Discontinued Operations, net of Tax 0 3,066 1,735 4,324 Gain on Sale of Discontinued Operations, net of Tax 0 - 27,816 - --------------------------------------------------- Net Income (Loss) $ (27,813) $ 2,757 $ 1,851 $ (430) =================================================== Weighted avg common shares outstanding 13,522,498 11,372,138 12,869,204 11,371,542 Weighted avg common & common equiv share 13,522,498 11,372,138 12,869,204 11,371,542 Net income(loss) per common share: Basic Income(loss) from continuing operations $ (2.06) $ (0.03) $ (2.15) $ (0.42) Income from discontinued operations, net of tax - 0.27 0.13 0.38 Gain on sale of discontinued operations - - 2.16 - --------------------------------------------------- Net income(loss) per common share: Basic $ (2.06) $ 0.24 $ 0.14 $ (0.04) =================================================== Net income(loss) per common share: Diluted Income(loss) from continuing operations $ (2.06) $ (0.03) $ (2.15) $ (0.42) Income from discontinued operations, net of tax $ - $ 0.27 $ 0.13 $ 0.38 Gain on sale of discontinued operations $ - $ - $ 2.16 $ - --------------------------------------------------- Net income(loss) per common share: Diluted $ (2.06) $ 0.24 $ 0.14 $ (0.04) =================================================== SALTON, INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) UNAUDITED ASSETS 12/31/05 7/2/05 ------- CURRENT ASSETS: ---------------- Cash $ 32,364 $ 14,857 Compensating balances on deposit 39,028 34,355 Accounts Receivable, less allowance: 189,607 140,179 2006 - $8,779; 2005 - $10,130 Inventories 155,174 195,065 Asset held for sale - 998 Prepaid expenses and other current assets 15,835 16,048 Prepaid income taxes 1,410 Deferred income taxes 5,939 5,524 Current assets of discontinued operations - 101,927 -------------------- Total current assets 439,357 508,953 Net Property, Plant and Equipment 44,537 50,227 Tradenames 178,822 180,041 Non-current deferred tax asset 1,934 49,275 Other assets 13,698 11,555 Non-current assets of discontinued operations - 7,737 -------------------- TOTAL ASSETS $ 678,348 $807,788 ==================== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------- CURRENT LIABILITIES: --------------------- Revolving line of credit and other current debt, including an adjustment of $9,721 and $0 for accrued interest on the senior secured notes, respectively $ 83,042 $ 70,730 Senior subordinated notes-current 0 45,990 Accounts payable 84,829 86,254 Accrued expenses 48,033 48,391 Income Taxes Payable 1,488 4,375 Current liabilities of discontinued operations - 47,331 -------------------- Total current liabilities 217,392 303,071 Non-current deferred income taxes 11,155 3,334 Term loan and other notes payable 117,524 100,050 Senior subordinated notes due 2005 - 79,010 Senior subordinated notes due 2008, including an adjustment of $2,328 and $7,082 to the carrying value related to interest rate swap agreements, respectively 61,981 156,387 Second lien notes, including an adjustment of $18,756 and $0 to the carrying value for accrued interest, respectively 122,046 - Series C preferred stock 8,370 - Other long term liabilities 19,870 20,283 Non-current liabilities of discontinued operations - 1,462 -------------------- TOTAL LIABILITIES 558,338 663,597 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 2006-13,520,761 shares, 2005-11,376,292 shares 170 148 Treasury stock - at cost (65,793) (65,793) Additional paid-in capital 62,363 55,441 Accumulated other comprehensive income 2,800 11,513 Retained Earnings 80,470 78,619 -------------------- Total stockholders' equity 80,010 79,928 -------------------- TOTAL LIABILITIES AND STOCKHOLDER EQUITY $ 678,348 $807,788 ==================== *T