Salton Reports Q2 Results
Feb 9, 2006
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Salton, Inc. announced fiscal results for its second quarter ended Dec. 31, 2005. The Company reported net sales of U.S. $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 percent for the second quarter of fiscal 2006, compared to 34.6 percent 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 6 months ended Dec. 31, 2005, Salton reported net sales of $378.8 million, compared to $477.4 million for the first 6 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 percent 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."

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