SFP Salton

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. -0- *T 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) =========== =========== =========== =========== *T