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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934 For the Quarterly Period Ended October 2, 2004 or
[ ] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934 For the Transition Period
From __________ to _________.
Commission file number: 0-19557
Salton, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3777824
--------- ----------
(State of other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1955 Field Court 60045
Lake Forest, IL (Zip Code)
(Address of principal executive offices)
(847) 803-4600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by the check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 8, 2004,
11,371,197 shares of its $0.01 par value Common Stock.
1
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - October 2,
2004 and July 3, 2004 3
Consolidated Statements of Income - Thirteen weeks
ended October 2, 2004 and September 27, 2003 4
Consolidated Statements of Cash Flows - Thirteen weeks
ended October 2, 2004 and September 27, 2003 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 3: Quantitative and Qualitative Disclosures About Market Risk 24
Item 4: Controls and Procedures 24
PART II OTHER INFORMATION
Item 1: Legal Proceedings 25
Signature 27
Item 6: Exhibits
2
SALTON, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA) OCTOBER 2, 2004 JULY 3, 2004
--------------- -------------
ASSETS
CURRENT ASSETS:
Cash $ 26,536 $ 46,847
Compensating balances on deposit 34,451 34,000
Accounts receivable, less allowances 248,975 180,391
Inventories 298,838 253,627
Prepaid expenses and other current assets 21,516 21,267
Deferred income taxes 23,333 25,742
------------- -------------
Total Current Assets 653,649 561,874
Property, Plant and Equipment, net 79,759 81,152
Tradenames 183,738 184,421
Non-Current Deferred Tax Asset 13,192 11,589
Other Assets 14,453 15,516
------------- -------------
TOTAL ASSETS $ 944,791 $ 854,552
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit and other current debt $ 105,049 $ 48,667
Accounts payable 158,750 137,671
Accrued expenses 75,187 60,627
Income taxes payable 9,467 8,805
------------- -------------
Total Current Liabilities 348,453 255,770
Senior Subordinated Notes Due 2005 125,000 125,000
Senior Subordinated Notes due 2008, including an adjustment of
$8,957 and $9,581 to the carrying value related
to interest rate swap agreements, respectively 158,078 158,642
Term Loan and Other Notes Payable 101,843 100,761
Other Long Term Liabilities 16,855 17,288
------------- -------------
750,229 657,461
Minority Interest 23,221 23,515
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 par value; authorized, 2,000,000
shares; 40,000 shares issued - -
Common Stock, $0.01 par value; authorized, 40,000,000
shares; issued and outstanding: 2005-11,371,197 shares;
2004-11,370,282 shares 148 148
Treasury Stock - at cost (65,793) (65,793)
Additional Paid-In Capital 96,040 96,147
Accumulated Other Comprehensive Income 13,727 12,668
Retained Earnings 127,219 130,406
------------- -------------
Total Stockholders' Equity 171,341 173,576
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 944,791 $ 854,552
============= =============
See Notes to Consolidated Financial Statements.
3
SALTON, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA) 13 WEEKS ENDED
--------------------------------------
October 2, 2004 September 27, 2003
--------------- ---------------
NET SALES $ 274,135 $ 238,539
Cost of Goods Sold 194,850 157,956
Distribution Expenses 15,768 16,400
--------------- ---------------
GROSS PROFIT 63,517 64,183
Selling, General and Administrative Expenses 53,087 51,792
Restructuring Costs 672 -
--------------- ---------------
OPERATING INCOME 9,758 12,391
Interest Expense, net 13,038 9,678
--------------- ---------------
(LOSS) INCOME BEFORE INCOME TAXES (3,280) 2,713
Income Tax (Benefit) Expense (1,149) 882
Minority Interest, net of tax 1,056 1,090
--------------- ---------------
NET (LOSS) INCOME $ (3,187) $ 741
=============== ===============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,370,946 11,187,155
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 11,370,946 15,099,949
Net (Loss) Income per Common Share: Basic $ (0.28) $ 0.07
Net (Loss) Income per Common Share: Diluted $ (0.28) $ 0.05
See Notes to Consolidated Financial Statements.
4
SALTON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA) 13 WEEKS ENDED
--------------------------------
OCTOBER 2, SEPTEMBER 27,
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (3,187) $ 741
Adjustments to Reconcile Net (Loss) Income to Net Cash from Operating Activities:
Imputed interest on notes payable and other non-cash items (458) (447)
Deferred income tax provision (1,784) 276
Depreciation and amortization 5,968 5,172
Bad debt (recovery) provision (1,634) 4
Loss on disposal of equipment 52 58
Inventory valuation adjustment (2,252) 962
Foreign currency gains and losses (478) 551
Minority interest 1,056 1,090
Changes in assets and liabilities:
Accounts receivable (69,453) (44,047)
Inventories (46,657) (35,660)
Prepaid expenses and other current assets (489) (2,367)
Decrease in other non-current assets (238) (328)
Accounts payable 24,799 35,016
Taxes payable 1,293 6,092
Accrued expenses 21,161 9,515
------------ ------------
NET CASH FROM OPERATING ACTIVITIES (72,301) (23,372)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,102) (5,129)
Proceeds from sale of property and equipment 9 -
Additional payment for tradenames (126) (21,500)
------------ ------------
NET CASH FROM INVESTING ACTIVITIES (4,219) (26,629)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit and other debt 57,883 51,000
Repayment of long term debt (220) (121)
Costs associated with refinancing - (347)
Common stock issued 18 4
Increase in compensating balances on deposit (451) (5,600)
------------ ------------
NET CASH FROM FINANCING ACTIVITIES 57,230 44,936
------------ ------------
Effect of Exchange Rate Changes on Cash (1,021) 56
------------ ------------
Net Change in Cash (20,311) (5,009)
Cash, Beginning of Period 46,847 35,702
------------ ------------
Cash, End of Period $ 26,536 $ 30,693
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid (Received) During the Period for:
Interest $ 3,004 $ 929
Income taxes, net of (refunds) $ (387) $ (5,417)
See Notes to Consolidated Financial Statements.
5
SALTON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying consolidated balance sheets
and related interim consolidated statements of income and cash flows
include all adjustments, consisting only of normal recurring items,
necessary for their fair presentation in conformity with principles,
generally accepted in the United States of America. Preparing financial
statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses.
Actual results may differ from these estimates. Our business is highly
seasonal, with operating results varying from quarter to quarter. Interim
results are not necessarily indicative of results for a full year. The
information included in this Form 10-Q should be read in conjunction with
Management's Discussion and Analysis and consolidated financial statements
and notes thereto included in the Salton, Inc. 2004 Annual Report on Form
10-K. Certain reclassifications have been made for consistent
presentation.
2. CREDIT FACILITY
On September 28, 2004 Salton Europe, Limited ("Salton Europe"), the
Company's wholly owned subsidiary, amended its facility (the "Facility
Letter") agreement with Hong Kong Shanghai Bank. The amended Facility
Letter includes an overdraft facility of up to Great Britain Pound (GBP)8
million ($14.4 million) and a money market borrowing facility of up to
(GBP)7 million ($12.6 million). In addition, Salton Europe has an invoice
finance facility of between (GBP)15 and (GBP)40 million ($27.0 million and
$72.0 million) depending on seasonality and level of accounts receivable.
As of October 2, 2004, there was $32.3 million outstanding under the
facility included in other current debt.
3. STOCK-BASED COMPENSATION
At October 2, 2004, the Company had various stock-based employee
compensation plans which are described more fully in Note 10 of the Notes
to Consolidated Financial Statements in the Company's 2004 Annual Report
on Form 10-K. The Company accounts for those plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and related Interpretations. No stock-based employee
compensation cost is reflected in net income, as no options granted under
those plans had an exercise price less than the market value of the
underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation."
13 WEEKS ENDED
-------------------------------
October 2 September 27
(In thousands except share data) 2004 2003
------------ ------------
Net(loss) income - as reported $ (3,187) $ 741
Less: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related taxes 285 427
------------ ------------
Net (loss) income - pro forma $ (3,472) $ 314
============ ============
(Loss) Earnings per share - basic
As reported $ (0.28) $ 0.07
Pro forma (0.31) 0.03
(Loss) Earnings per share - diluted
As reported $ (0.28) $ 0.05
Pro forma (0.31) 0.02
6
4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Basic net income per common share is computed based upon the weighted
average number of common shares outstanding. Diluted net income per common
share is computed based upon the weighted average number of common shares
outstanding, adjusted for dilutive common stock equivalents applying the
treasury stock method for options and warrants and the if-converted method
for convertible securities.
For the thirteen-weeks ended October 2, 2004 the dilutive effect of the
Company's outstanding common stock equivalents, options and warrants were
excluded from the computation of diluted earnings per share because they
had an anti-dilutive effect due to the Company's losses in this period.
The computation of diluted shares outstanding for the thirteen weeks ended
October 2, 2004 excludes incremental shares of 3,796,184 related to the
Company's common stock equivalents, options and warrants. These shares are
excluded due to their anti-dilutive effect.
Options and warrants to purchase 1,329,600 shares of common stock at a
price range of $10.44 to $37.00 per share were also not included in the
computation of diluted shares for the thirteen weeks ended September 27,
2003 because the exercise prices were greater than the average market
price of the common shares during the period. Options to purchase 270,000
common shares at a price of $29.25 per share were not included in the
computation of diluted shares for the thirteen weeks ended September 27,
2003 because the options were contingent upon the Company's share price
reaching specified targets for a specified period of time.
5. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage foreign
currency risk. The Company does not enter into derivative financial
instruments for trading purposes. The Company uses forward exchange
contracts to hedge foreign currency payables for periods consistent with
the expected cash flow of the underlying transactions. The contracts
generally mature within one year and are designed to limit exposure to
exchange rate fluctuations, primarily related to the Great Britain Pound
and the South Africa Rand to the U.S. Dollar.
All foreign exchange contracts have been recorded in the consolidated
balance sheets within accrued expenses at a fair value of $1.5 million and
$8.7 million at October 2, 2004 and July 3, 2004, respectively. The change
in the fair value of contracts in the first quarter was $7.2 million.
There was $(0.4) million and $(6.0) million at October 2, 2004 and July 3,
2004, respectively, recorded in accumulated other comprehensive income,
net of tax, related to these contracts. The Company anticipates that all
gains and losses deferred in accumulated other comprehensive income
related to foreign exchange contracts will be reclassified into earnings
within the next twelve months as the related inventories are sold. At
October 2, 2004, the Company had foreign exchange forward contracts for
the purchase of 117.0 million U.S. dollars. Contracts for the purchase of
61.7 million U.S. dollars were entered into during the first quarter of
fiscal 2005.
7
6. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
For the thirteen weeks ended October 2, 2004 and September 27, 2003,
components of other comprehensive income include foreign currency
translation adjustments of $(4.6) million and $2.6 million, respectively
and unrealized gains (losses) on derivatives of $5.7 million and $0.0
million, respectively.
13 Weeks Ended
-------------------------------
(In thousands) 10/2/2004 9/27/2003
------------ ------------
Net (Loss) Income $ (3,187) $ 741
Other Comprehensive Income, net of tax of $1,700 and $0, respectively 1,059 2,628
------------ ------------
Comprehensive Income $ (2,128) $ 3,369
============ ============
Accumulated other comprehensive income is comprised of the following:
As Of
--------------------------------
(In thousands) 10/2/2004 7/3/2004
------------ ------------
Minimum Pension Liability, net of tax of $4,830 and $4,888, respectively $ (10,037) $ (10,172)
Unrealized Loss on Derivative, net of tax of $253 and $2,663, respectively (380) (6,030)
Foreign Currency Translation 24,144 28,870
------------ ------------
$ 13,727 $ 12,668
============ ============
7. PENSION BENEFIT PLANS
The components of net periodic pension cost are as follows:
(In thousands) Domestic Salton Europe Total
13 Weeks Ended: 10/2/2004 9/27/2003 10/2/2004 9/27/2003 10/2/2004 9/27/2003
---------- --------- ------------- --------- --------- ---------
Service cost-benefits earned during the year $ 42 $ 42 $ 77 $ 73 $ 119 $ 115
Interest cost on projected benefit obligation 176 179 541 466 717 645
Actuarial return on plan assets (156) (166) (419) (346) (575) (512)
Net amortization and deferral 65 99 182 177 247 276
---------- --------- ------------- --------- --------- ---------
Net pension cost $ 127 $ 154 $ 381 $ 370 $ 508 $ 524
========== ========= ============= ========= ========= =========
The Company previously disclosed in its financial statements for the year
ended July 3, 2004, that it expected to contribute $0.7 million to its
domestic pension plans and $0.3 million to the Salton Europe pension plan
in fiscal 2005. As of October 2, 2004, $0.5 million and $0.1 million of
contributions have been made to the domestic and Europe plans,
respectively.
8
8. OPERATING SEGMENTS AND MAJOR CUSTOMERS
Salton consists of a single operating segment which designs, sources,
markets and distributes a diversified product mix for use in the home. The
product mix consists of small kitchen and home appliances, electronics for
the home, tabletop products, time products, lighting products, picture
frames and personal care and wellness products. The Company believes this
segmentation is appropriate based upon Management's operating decisions
and performance assessment. Nearly all of the Company's products are
consumer goods within the housewares market, procured through independent
manufacturers, primarily in the Far East. Salton's products are
distributed through similar distribution channels and customer base using
the marketing efforts of its Global Marketing Team.
Major Customers - For the thirteen weeks ended October 2, 2004, two
customers accounted 12.3% and 10.5% of net sales, respectively. For the
thirteen weeks ended September 27, 2003, no one customer accounted for
more than 10% of net sales.
9. LEGAL PROCEEDINGS
In May 2004, two stockholder lawsuits, named Mariss Partners, LLP v.
Salton, Inc., Leonhard Dreimann and David M. Mulder and Warren Beeler v.
Salton, Inc., Leonhard Dreimann and David Mulder, were filed in the United
States District Court for the Northern District of Illinois against the
Company and certain Salton executives. The complaints allege that the
defendants violated the federal securities laws, specifically Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 of
the Securities and Exchange Commission, by making certain alleged false
and misleading statements. The plaintiffs seek unspecified damages on
behalf of a purported class of purchasers of our securities during the
period from November 11, 2002 through May 11, 2004. The Company believes
that these lawsuits are without merit and that it has compelling defenses
to the allegations contained in the complaints. Salton intends to
vigorously defend the Company. The outcome of the class action lawsuits
cannot be predicted with certainty, however, Salton does not believe that
this matter will have a material adverse affect on its business, financial
condition or results of operations. Therefore, no amounts have been
accrued for such claims. The plaintiffs have voluntarily dismissed the
Mariss Partners lawsuit.
In June 2003, the Company received a letter from Philips Domestic
Appliances and Personal Care B.V. (Philips) accusing Salton of interfering
in a contractual relationship between Philips and a manufacturing source
for Salton, Electrical and Electronics (E&E), misappropriating trade
secrets and infringing other unspecified intellectual property rights in
connection with its development and marketing of the One:One single serve
coffee maker. On August 14, 2003, Salton filed a complaint in the United
States District Court for the Northern District of Illinois seeking a
declaratory judgment that the Company had not infringed the alleged trade
secret rights of Philips and had not tortuously interfered with the
contractual relationship between Philips and E&E.
Philips response has been to file a series of lawsuits against Salton. On
October 23, 2003, Philips filed a counterclaim against Salton in the
Northern District of Illinois, Declaratory Judgment case, reiterating the
allegations of Philips' June letter and adding a claim for copyright
infringement. The counterclaim sought to enjoin the distribution of the
One:One in the United States and money damages. On January 5, 2004, the
Court dismissed the action for failure to join E&E and suggested that the
matter should be litigated in the courts of Hong Kong. Philips has
appealed the Court's decision to the United States Court of Appeals for
the Seventh Circuit. A decision on this appeal is not expected for a
number of months. In view of the District Court's ruling, the Company
sought and obtained the consent of E&E to join in the action previously
filed by Philips in Hong Kong in May 2003, against E&E, alone. That Hong
Kong suit alleges that E&E misappropriated trade secrets, infringed
intellectual property and
9
breached its contract with Philips in the process of developing and
manufacturing the One:One coffee maker for Salton.
On January 6, 2004, Philips filed a new action in the United States
District Court for the Northern District of Illinois, against Salton
alleging violations of U.S. Copyright Law seeking to enjoin the Company
from selling the One:One coffee maker and any monetary damages that the
Court deems proper. Contemporaneously, Philips sought a preliminary
injunction. On January 30, 2004, the Court dismissed Philips' new action
on the grounds that it was barred by the Court's dismissal decision in the
prior action. Philips appealed this dismissal and the appeal was
consolidated with the appeal of the earlier case in the United States
Court of Appeals for the Seventh Circuit.
On November 24, 2003, Philips and Sara Lee NV also filed a patent
infringement suit against Salton asserting that the One:One infringed a
U.S. patent. Like the other actions, this case seeks damages and
injunctive relief. The case is pending as in the United States District
Court for the Northern District of Illinois.
Philips has also filed an action for copyright infringement in the United
Kingdom. This suit alleges that the software on the electronic controller
of the One:One infringes Philips copyright and seeks unspecified money
damages and injunctive relief. At issue were the 55,624 units initially
introduced into the United Kingdom; Salton has discontinued the sales of
these units. This case is currently pending in the United Kingdom. E&E has
intervened in this action, and E&E's motion to dismiss or in the
alternative stay this action in favor of the Hong Kong action described
above was denied. On October 14, 2004, Salton offered to submit to
judgment in this action, and in the event the parties cannot agree on a
royalty for the use of this software in the 55,624 units, a judicial
determination will have to be made of any monetary award.
The outcome of the foregoing legal matters cannot be predicted with
certainty, however Salton does not believe that these actions will have a
material adverse affect on its business, financial condition or results of
operations. Therefore, no amounts have been accrued for such claims.
Homeplace of America, a company in liquidation under the United States
Bankruptcy Code, brought a lawsuit for recovery of preferential payments
made to Salton and its subsidiary, Toastmaster, during the 90 day
"preference" period prior to filing for bankruptcy. Homeplace's total
claimed preferences are approximately $3.5 million. The trial started the
first week of November 2004 in the U.S. Bankruptcy Court for the District
of Delaware. Settlement discussions to date have not, in Salton's view,
been meaningful. Salton does not believe that this matter will have a
material adverse affect on its business, financial condition or results of
operations. Therefore, no material amounts have been accrued for such
claims.
The Company has accrued approximately $0.2 million for the anticipated
costs of environmental remediation at four of our sites. Although such
costs could exceed that amount, Salton believes any such excess will not
have a material adverse effect on the financial condition or annual
results of operations of the Company.
The Company is a party to various other actions and proceedings incident
to our normal business operations. The Company believes that the outcome
of any litigation will not have a material adverse effect on our business,
financial condition or results of operations. The Company also has product
liability and general liability insurance policies in amounts believed to
be reasonable given its current level of business. Although historically
the Company has not had to pay any material product liability claims, it
is conceivable that we could incur claims for which we are not insured.
10
10. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
The payment obligations of the Company under the senior secured revolving
credit facility and the senior subordinated notes are guaranteed by
certain of the Company's wholly-owned domestic subsidiaries (Subsidiary
Guarantors). Such guarantees are full, unconditional and joint and
several. Separate financial statements of the Subsidiary Guarantors are
not presented because the Company's management has determined that they
would not be material to investors. The following supplemental financial
information sets forth, on a combined basis, balance sheets, statements of
income and statements of cash flows for Salton, Inc. (Parent), the
Guarantor Subsidiaries, and the Company's Non-Guarantor subsidiaries
(Other Subsidiaries).
11
CONSOLIDATING BALANCE SHEET AS OF OCTOBER 2, 2004
(IN THOUSANDS)
GUARANTOR
PARENT SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ---------
ASSETS
Current Assets:
Cash $ 187 $ 538 $ - $ 725
Compensating balances on deposits - - - -
Accounts receivable, net of allowances 314 122,729 - 123,043
Inventories 16,338 166,189 (26,557) 155,970
Prepaid expenses and other current assets 3,265 2,678 - 5,943
Intercompany 116,274 (87,806) 216 28,684
Deferred income taxes 1,314 16,577 - 17,891
--------- --------- ---------- ---------
Total Current Assets 137,692 220,905 (26,341) 332,256
Property, Plant and Equipment, net 9,756 14,280 - 24,036
Investments in Subsidiaries 398,657 53,654 (452,311) -
Tradenames 134,849 10,313 145,162
Non-current deferred tax asset - - - -
Other Assets 11,300 451 - 11,751
--------- --------- ---------- ---------
Total Assets $ 692,254 $ 299,603 $ (478,652) $ 513,205
========= ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit and other current debt $ - $ 68,179 $ - $ 68,179
Accounts payable 1,989 4,534 388 6,911
Accrued expenses 17,845 16,397 - 34,242
Income taxes payable (2,282) (1,496) - (3,778)
--------- --------- ---------- ---------
Total current liabilities 17,552 87,614 388 105,554
Non-current Deferred Income Taxes (10,407) (9,167) - (19,574)
Senior subordinated notes due 2005 125,000 - - 125,000
Senior subordinated notes due 2008, including an adjustment
of $8,957 to the carrying value related to interest rate swap
agreements 158,078 - - 158,078
Term loan and other notes payable - 100,128 100,128
Other Long Term Liability 544 3,602 4,146
--------- --------- ---------- ---------
Total liabilities 290,767 182,177 388 473,332
Minority interest - - - -
Stockholders' Equity 401,487 117,426 (479,040) 39,873
--------- --------- ---------- ---------
Total Liabilities and Stockholders' Equity $ 692,254 $ 299,603 $ (478,652) $ 513,205
========= ========= ========== =========
OTHER CONSOLIDATED CONSOLIDATED
SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------
ASSETS
Current Assets:
Cash $ 25,811 $ - $ 26,536
Compensating balances on deposits 34,451 - 34,451
Accounts receivable, net of allowances 125,932 - 248,975
Inventories 142,868 - 298,838
Prepaid expenses and other current assets 15,573 - 21,516
Intercompany (28,684) - -
Deferred income taxes 5,442 - 23,333
--------- ------------ ---------
Total Current Assets 321,393 - 653,649
Property, Plant and Equipment, net 55,723 - 79,759
Investments in Subsidiaries - - -
Tradenames 38,576 - 183,738
Non-current deferred tax asset - 13,192 13,192
Other Assets 2,702 - 14,453
--------- ------------ ---------
Total Assets $ 418,394 $ 13,192 $ 944,791
========= ============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit and other current debt $ 36,870 $ - $ 105,049
Accounts payable 151,839 - 158,750
Accrued expenses 40,945 - 75,187
Income taxes payable 13,245 9,467
--------- ------------ ---------
Total current liabilities 242,899 - 348,453
Non-current Deferred Income Taxes 6,382 13,192 -
Senior subordinated notes due 2005 - - 125,000
Senior subordinated notes due 2008, including an adjustment
of $8,957 to the carrying value related to interest rate swap
agreements - - 158,078
Term loan and other notes payable 1,715 - 101,843
Other Long Term Liability 12,709 - 16,855
--------- ------------ ---------
Total liabilities 263,705 13,192 750,229
Minority interest 23,221 - 23,221
Stockholders' Equity 131,468 - 171,341
--------- ------------ ---------
Total Liabilities and Stockholders' Equity $ 418,394 $ 13,192 $ 944,791
========= ============ =========
12
CONSOLIDATING BALANCE SHEET AS OF JULY 3, 2004
(IN THOUSANDS)
GUARANTOR
PARENT SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ---------
ASSETS
Current Assets:
Cash $ 1 $ 903 $ - $ 904
Compensating balances on deposit - - - -
Accounts receivable, net of allowances 311 96,905 - 97,216
Inventories 5,133 165,189 (28,341) 141,981
Prepaid expenses and other current assets 5,054 2,597 - 7,651
Intercompany 131,818 (104,380) (756) 26,682
Deferred income taxes 913 16,577 - 17,490
--------- --------- ---------- ---------
Total current assets 143,230 177,791 (29,097) 291,924
Property, Plant and Equipment,
Net of Accumulated Depreciation 11,016 14,910 - 25,926
Investments in Subsidiaries 390,773 53,646 (444,419) -
Tradenames 134,723 10,313 - 145,036
Non-current deferred tax asset - - - -
Other Assets 12,442 274 - 12,716
--------- --------- ---------- ---------
Total Assets $ 692,184 $ 256,934 $ (473,516) $ 475,602
========= ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit and other current debt $ - $ 33,189 $ - $ 33,189
Accounts payable 2,922 2,039 (584) 4,377
Accrued expenses 9,491 13,478 - 22,969
Income taxes payable (2,336) (1,496) - (3,832)
--------- --------- ---------- ---------
Total current liabilities 10,077 47,210 (584) 56,703
Non-current Deferred Income Taxes (8,840) (9,167) - (18,007)
Senior subordinated notes due 2005 125,000 - - 125,000
Senior subordinated notes due 2008, including an adjustment
of $9,581 to the carrying value related to
interest rate swap agreements 158,642 - - 158,642
Long-term debt-revolving credit agreement - 100,000 - 100,000
Other notes payable - 175 - 175
Other long term liabilities 418 3,932 - 4,350
--------- --------- ---------- ---------
Total liabilities 285,297 142,150 (584) 426,863
Minority Interest - - - -
Stockholders' Equity 406,887 114,784 (472,932) 48,739
--------- --------- ---------- ---------
Total Liabilities and Stockholders' Equity $ 692,184 $ 256,934 $ (473,516) $ 475,602
========= ========= ========== =========
OTHER CONSOLIDATED CONSOLIDATED
SUBSIDIARIES ELIMINATIONS TOTALS
------------ ------------ ------------
ASSETS
Current Assets:
Cash $ 45,943 $ - $ 46,847
Compensating balances on deposit 34,000 34,000
Accounts receivable, net of allowances 83,175 - 180,391
Inventories 111,646 - 253,627
Prepaid expenses and other current assets 13,616 - 21,267
Intercompany (26,682) - -
Deferred income taxes 8,252 - 25,742
--------- ------------ ---------
Total current assets 269,950 - 561,874
Property, Plant and Equipment,
Net of Accumulated Depreciation 55,226 - 81,152
Investments in Subsidiaries - - -
Tradenames 39,385 - 184,421
Non-current deferred tax asset - 11,589 11,589
Other Assets 2,800 - 15,516
--------- ------------ ---------
Total Assets 367,361 11,589 $ 854,552
========= ============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit and other current debt $ 15,478 - $ 48,667
Accounts payable 133,294 - 137,671
Accrued expenses 37,658 - 60,627
Income taxes payable 12,637 - 8,805
--------- ------------ ---------
Total current liabilities 199,067 - 255,770
Non-current Deferred Income Taxes 6,418 11,589 -
Senior subordinated notes due 2005 - - 125,000
Senior subordinated notes due 2008, including an adjustment
of $9,581 to the carrying value related to
interest rate swap agreements - - 158,642
Long-term debt-revolving credit agreement - - 100,000
Other notes payable 586 - 761
Other long term liabilities 12,938 - 17,288
--------- ------------ ---------
Total liabilities 219,009 11,589 657,461
Minority Interest 23,515 - 23,515
Stockholders' Equity 124,837 - 173,576
--------- ------------ ---------
Total Liabilities and Stockholders' Equity $ 367,361 $ 11,589 $ 854,552
========= ============ =========
13
CONSOLIDATING STATEMENT OF INCOME FOR THE THIRTEEN WEEKS ENDED OCTOBER 2, 2004
(IN THOUSANDS)
GUARANTOR OTHER
PARENT SUBSIDIARIES ELIMINATIONS TOTAL SUBSIDIARIES
--------------------------------------------------------------------------------------
Net Sales $ 48,080 $ 149,559 $ (82,150) $ 115,489 $ 236,812
Cost of Goods Sold 39,341 124,289 (83,934) 79,696 189,036
Distribution Expenses 8,654 - 8,654 7,114
--------------------------------------------------------------------------------------
Gross Profit 8,739 16,616 1,784 27,139 40,662
Selling, General and Administrative expenses 14,342 10,286 - 24,628 32,743
Restructuring Costs 455 217 - 672 -
--------------------------------------------------------------------------------------
Operating Income (6,058) 6,113 1,784 1,839 7,919
Interest Expense, Net 7,307 3,479 - 10,786 2,252
(Income) Loss from Subsidiary (5,043) (8) 5,051 - -
--------------------------------------------------------------------------------------
(Loss) Income Before Income Taxes (8,322) 2,642 (3,267) (8,947) 5,667
Income Tax (Benefit) Expense (1,969) - - (1,969) 820
Minority interest - - - - 1,056
--------------------------------------------------------------------------------------
Net (Loss) Income $ (6,353) $ 2,642 $ (3,267) $ (6,978) $ 3,791
--------------------------------------------------------------------------------------
CONSOLIDATED CONSOLIDATED
ELIMINATIONS TOTALS
-------------------------------
Net Sales $ (78,166) $ 274,135
Cost of Goods Sold (73,882) 194,850
Distribution Expenses 15,768
------------------------------
Gross Profit (4,284) 63,517
Selling, General and Administrative expenses (4,284) 53,087
Restructuring Costs 672
------------------------------
Operating Income - 9,758
Interest Expense, Net - 13,038
(Income) Loss from Subsidiary - -
------------------------------
(Loss) Income Before Income Taxes - (3,280)
Income Tax (Benefit) Expense - (1,149)
Minority interest - 1,056
------------------------------
Net (Loss) Income $ - $ (3,187)
-------------------------------
CONSOLIDATING STATEMENT OF INCOME FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 27,
2003 (IN THOUSANDS)
GUARANTOR OTHER
PARENT SUBSIDIARIES ELIMINATIONS TOTAL SUBSIDIARIES
-----------------------------------------------------------------------------------
Net Sales $ 72,640 $ 175,878 $ (120,774) $ 127,744 $ 206,827
Cost of Goods Sold 55,898 151,057 (116,576) 90,379 162,109
Distribution Expenses - 10,981 - 10,981 5,419
-----------------------------------------------------------------------------------
Gross Profit 16,742 13,840 (4,198) 26,384 39,299
Selling, General and Administrative expenses 11,247 23,318 - 34,565 18,727
Impairment Loss on Intangible Asset - - - - -
-----------------------------------------------------------------------------------
Operating Income (Loss) 5,495 (9,478) (4,198) (8,181) 20,572
Interest Expense, Net 7,232 916 - 8,148 1,530
Fair Market Value Adjustment on Derivatives - - - - -
(Income) loss from subsidiary (5,914) 392 5,522 - -
-----------------------------------------------------------------------------------
Income (Loss) Before Income Taxes 4,177 (10,786) (9,720) (16,329) 19,042
Income Tax (Benefit) Expense (370) (2,839) - (3,209) 4,091
Minority interest - - 1,090
-----------------------------------------------------------------------------------
Net Income (Loss) $ 4,547 $ (7,947) $ (9,720) $ (13,120) $ 13,861
===================================================================================
CONSOLIDATED CONSOLIDATED
ELIMINATIONS TOTALS
-------------------------------
Net Sales $ (96,032) $ 238,539
Cost of Goods Sold (94,532) 157,956
Distribution Expenses - 16,400
-------------------------------
Gross Profit (1,500) 64,183
Selling, General and Administrative expenses (1,500) 51,792
Impairment Loss on Intangible Asset -
-------------------------------
Operating Income (Loss) - 12,391
Interest Expense, Net - 9,678
Fair Market Value Adjustment on Derivatives - -
(Income) loss from subsidiary - -
-------------------------------
Income (Loss) Before Income Taxes - 2,713
Income Tax (Benefit) Expense - 882
Minority interest 1,090
-------------------------------
Net Income (Loss) $ - $ 741
===============================
14
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED OCTOBER
2, 2004 (IN THOUSANDS)
GUARANTOR
PARENT SUBSIDIARIES ELIMINATIONS TOTAL
---------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(6,353) 2,642 $ (3,267) $ (6,978)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Imputed interest on notes payable (564) - - (564)
Deferred income tax provision (1,968) - - (1,968)
Depreciation and amortization 2,461 834 - 3,295
Bad debt (recovery) provision - (1,694) - (1,694)
Loss on disposal of equipment - 54 - 54
Equity in net income of unconsolidated affiliate/
consolidated subsidiaries (5,043) (8) 5,051 -
Inventory valuation adjustment - (2,252) - (2,252)
Foreign currency gains and losses - (478) - (478)
Minority interest - - - -
Changes in assets and liabilities:
Accounts receivable (3) (23,654) - (23,657)
Inventories (11,205) 1,252 (1,784) (11,737)
Prepaid expenses and other current assets 1,790 (81) - 1,709
Decrease in other non-current assets - (177) - (177)
Accounts payable (934) 3,468 - 2,534
Taxes payable 54 1 - 55
Accrued expenses 22,123 (14,959) - 7,164
--------------------------------------------------------------
NET CASH FROM OPERATING ACTIVITIES 358 (35,052) - (34,694)
--------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (64) (255) - (319)
Proceeds from sale of equipment - - - -
Additional payment for tradenames (126) - - (126)
--------------------------------------------------------------
NET CASH FROM INVESTING ACTIVITIES (190) (255) - (445)
--------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit and other debt - 35,119 - 35,119
Repayment of long-term debt - (178) - (178)
Common stock issued 18 - - 18
Increase in compensating balance on deposit - - - -
--------------------------------------------------------------
NET CASH FROM FINANCING ACTIVITIES 18 34,941 - 34,959
--------------------------------------------------------------
Effect of Exchange Rate Changes on Cash - - - -
Net Change in Cash 186 (366) - (180)
Cash, Beginning of Period 1 903 - 904
--------------------------------------------------------------
Cash, End of Period $ 187 538 $ - $ 725
==============================================================
OTHER CONSOLIDATED CONSOLIDATED
SUBSIDIARIES ELIMINATIONS TOTALS
-----------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income 3,791 - (3,187)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Imputed interest on notes payable 106 - (458)
Deferred income tax provision 184 - (1,784)
Depreciation and amortization 2,673 - 5,968
Bad debt (recovery) provision 60 - (1,634)
Loss on disposal of equipment (2) - 52
Equity in net income of unconsolidated affiliate/
consolidated subsidiaries - - -
Inventory valuation adjustment - - (2,252)
Foreign currency gains and losses - - (478)
Minority interest 1,056 - 1,056
Changes in assets and liabilities:
Accounts receivable (45,796) - (69,453)
Inventories (34,920) - (46,657)
Prepaid expenses and other current assets (2,198) - (489)
Decrease in other non-current assets (61) - (238)
Accounts payable 22,265 - 24,799
Taxes payable 1,238 - 1,293
Accrued expenses 13,997 - 21,161
--------------------------------------------------
NET CASH FROM OPERATING ACTIVITIES (37,607) - (72,301)
--------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,783) - (4,102)
Proceeds from sale of equipment 9 - 9
Additional payment for tradenames - - (126)
--------------------------------------------------
NET CASH FROM INVESTING ACTIVITIES (3,774) - (4,219)
--------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit and other debt 22,764 - 57,883
Repayment of long-term debt (42) - (220)
Common stock issued - - 18
Increase in compensating balance on deposit (451) - (451)
--------------------------------------------------
NET CASH FROM FINANCING ACTIVITIES 22,271 - 57,230
--------------------------------------------------
Effect of Exchange Rate Changes on Cash (1,021) - (1,021)
Net Change in Cash (20,131) - (20,311)
Cash, Beginning of Period 45,943 - 46,847
--------------------------------------------------
Cash, End of Period 25,811 - 26,536
==================================================
15
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 27,
2003 (IN THOUSANDS)
GUARANTOR OTHER
PARENT SUBSIDIARIES ELIMINATIONS TOTAL SUBSIDIARIES
-------- ------------ ------------ ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,547 $ (7,947) $ (9,720) $ (13,120) $ 13,861
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Imputed interest on notes payable and other non-cash items (565) - - (565) 118
Deferred income tax provision 1 - - 1 275
Foreign currency gains and losses - 551 - 551 -
Depreciation and amortization 2,340 842 - 3,182 1,990
Loss on disposal of equipment - - - - 58
Equity in net income of unconsolidated affiliate/
consolidated subsidiaries (5,914) 392 5,522 - -
Minority interest - - - - 1,090
Changes in assets and liabilities:
Accounts receivable - (25,120) - (25,120) (18,923)
Inventories (8,426) (21,193) 4,198 (25,421) (9,277)
Prepaid expenses and other current assets 140 (1,800) - (1,660) (707)
Increase in other non-current assets (71) (257) - (328) -
Accounts payable 1,223 684 - 1,907 33,109
Taxes payable 5,765 (3,558) - 2,207 3,885
Accrued expenses 23,762 2,859 - 26,621 (17,106)
---------------------------------------------------------
NET CASH FROM OPERATING ACTIVITIES 22,802 (54,547) - (31,745) 8,373
---------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (957) (841) - (1,798) (3,331)
Additional payment for patents and trademarks (21,500) - - (21,500) -
---------------------------------------------------------
NET CASH FROM INVESTING ACTIVITIES (22,457) (841) - (23,298) (3,331)
---------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit and other debt - 51,000 - 51,000 -
Repayment of long-term debt - (121) - (121) -
Costs associated with refinancing (347) - - (347) -
Common stock issued 4 - - 4 -
Increase in compensating balances on deposit - - - - (5,600)
---------------------------------------------------------
NET CASH FROM FINANCING ACTIVITIES (343) 50,879 - 50,536 (5,600)
---------------------------------------------------------
Effect of Exchange Rate Changes on Cash - - - - 56
---------------------------------------------------------
Net Change in Cash 2 (4,509) - (4,507) (502)
Cash, Beginning of Period - 8,972 - 8,972 26,730
---------------------------------------------------------
Cash, End of Period $ 2 $ 4,463 $ - $ 4,465 $ 26,228
=========================================================
CONSOLIDATED CONSOLIDATED
ELIMINATIONS TOTALS
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ - $ 741
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Imputed interest on notes payable and other non-cash items - (447)
Deferred income tax provision - 276
Foreign currency gains and losses - 551
Depreciation and amortization - 5,172
Loss on disposal of equipment - 58
Equity in net income of unconsolidated affiliate/
consolidated subsidiaries - -
Minority interest - 1,090
Changes in assets and liabilities: -
Accounts receivable - (44,043)
Inventories (34,698)
Prepaid expenses and other current assets - (2,367)
Increase in other non-current assets - (328)
Accounts payable - 35,016
Taxes payable - 6,092
Accrued expenses - 9,515
----------------
NET CASH FROM OPERATING ACTIVITIES - (23,372)
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (5,129)
Additional payment for patents and trademarks - (21,500)
----------------
NET CASH FROM INVESTING ACTIVITIES - (26,629)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit and other debt - 51,000
Repayment of long-term debt - (121)
Costs associated with refinancing - (347)
Common stock issued - 4
Increase in compensating balances on deposit - (5,600)
----------------
NET CASH FROM FINANCING ACTIVITIES - 44,936
----------------
Effect of Exchange Rate Changes on Cash - 56
----------------
Net Change in Cash - (5,009)
Cash, Beginning of Period - 35,702
----------------
Cash, End of Period $ - $ 30,693
================
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As used in this quarterly report on Form 10-Q, "we," "us," "our," "Salton"
and "the Company" refer to Salton, Inc. and our subsidiaries, unless the
context otherwise requires.
INTRODUCTION
Salton designs, sources, markets and distributes small appliances and
electronics for the home, home decor and personal care products under
recognized brand names in the International Housewares Industry. Our
product mix consists of kitchen and home appliances, electronics, tabletop
products, time products, lighting products, picture frames and personal
care and wellness products. In recent years, we have expanded our
international presence and strengthened our product offerings through
strategic acquisitions, alliances and internal international growth.
DISCUSSION OF CRITICAL ACCOUNTING POLICIES
Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America, which
require us to make estimates and judgments that significantly affect the
reported amounts of assets, liabilities, revenues and expenses and related
disclosure of contingent assets and liabilities. We regularly evaluate
these estimates, including those related to our allowance for doubtful
accounts, reserve for inventory valuation, reserve for returns and
allowances, valuation of intangible assets having indefinite lives,
cooperative advertising accruals, valuation reserves against deferred tax
assets, pension benefits and depreciation and amortization. We base these
estimates on historical experience and on assumptions that are believed by
management to be reasonable under the circumstances. Actual results may
differ from these estimates, which may impact the carrying value of assets
and liabilities.
The following critical accounting policies required the most significant
estimates used in the preparation of our consolidated financial statements
ALLOWANCE FOR DOUBTFUL ACCOUNTS - We calculate allowances for estimated
losses resulting from the inability of our customers to make required
payments. We utilize a number of tools to evaluate and mitigate our
customer credit risk. Management evaluates each new customer account using
a combination of some or all of the following sources of information:
credit bureau reports, industry credit group reports, customer financial
statement analysis, customer supplied credit references and bank
references. Appropriate credit limits are set in accordance with our
credit risk policy and monitored on an on-going basis. Existing customers
are monitored and credit limits are adjusted according to changes in their
financial condition. We calculate additional accounts receivable
allowances for anticipated future customer returns and claims. This
additional accrual covers defective product (warranty), sales returns and
other customer allowances. The amounts and trends are analyzed to develop
appropriate percentages that are applied against future sales. Based on
the procedures outlined herein, and the fact that only one customer
accounted for 10.2% of the gross accounts receivable at October 2, 2004
and no customer accounted for 10.0% or more of the gross accounts
receivable at July 3, 2004, we believe there is no concentration of credit
risk.
DERIVATIVE INSTRUMENTS - Our exposure to credit loss on our foreign
currency forward contracts in the event of non-performance by the
counterparties is believed to be remote due to the requirements that the
counterparties consist only of major financial institutions that have a
long-term credit rating of single-A or better from both Moody's and
Standard & Poor's. Additionally, our foreign currency forward contracts
generally have terms of one year or less.
17
INVENTORY VALUATION - The Company's domestic inventories are generally
determined using the last-in, first-out (LIFO) method. These inventories
account for approximately 46.6% and 53.7% of the Company's inventories as
of first quarter of fiscal 2005 and first quarter of fiscal 2004,
respectively. All remaining inventory cost is determined on the first-in,
first-out basis. The Company records inventory at the lower of its cost or
net realizable value. Management regularly evaluates the composition of
inventory to identify slow-moving and obsolete inventories and for items
that we are unable to sell at prices above their original cost. When such
items are identified, a charge to operations results to reduce the book
value to the net amount expected to be realized upon the sale of such
items. There is inherent subjectivity and uncertainty in this estimation
process.
COMMITMENTS AND CONTINGENCIES - We are subject to lawsuits and other
claims related to product and other matters that are being defended and
handled in the ordinary course of business. We maintain reserves and or
accruals for such costs that may be incurred, which are determined on a
case-by-case basis, taking into consideration the likelihood of adverse
judgments or outcomes, as well as the potential range of probable loss.
The reserves and accruals are monitored on an ongoing basis and are
updated for new developments or new information as appropriate.
INTANGIBLE ASSETS - We record intangible assets through transactions and
acquisitions. The cost of acquisitions are allocated to the assets and
liabilities acquired, including identifiable intangible assets, with the
remaining amount being classified as goodwill. Goodwill and other
intangible assets that have an indefinite life are assessed annually for
impairment during the fourth quarter. The allocation of the acquisition
cost to intangible assets and goodwill therefore has a significant impact
on our future operating results. The allocation process requires the
extensive use of estimates and assumptions, including estimates of future
cash flows expected to be generated by the acquired assets. Further, when
impairment indicators are identified with respect to previously recorded
intangible assets, the values of the assets are determined using a variety
of techniques including discounted future cash flows, which are based on
estimated future operating results. Significant management judgment is
required in the forecasting of future operating results, which are used in
the preparation of projected discounted cash flows.
INCOME TAXES - Significant management estimates and judgments are required
in determining income tax expense for financial statement purposes. These
estimates and judgments occur in the calculation of certain deferred tax
assets and liabilities, which arise from differences in the timing of
recognition of revenue and expense for tax and financial statement
purposes. We must assess the likelihood that we will be able to recover
our deferred tax assets. If recovery is not likely, we must increase our
provision for taxes by recording a valuation allowance against the
deferred tax assets that we estimate will not ultimately be recoverable.
As changes occur in our assessments regarding our ability to recover our
deferred tax assets, the valuation allowance and the tax provision are
adjusted accordingly.
18
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN No. 46), which addresses consolidation by
business enterprises of variable interest entities (VIEs). FIN No.46 is
applicable immediately for VIEs created after January 31, 2003 and are
effective for reporting periods ending after December 15, 2003, for VIEs
created prior to February 1, 2003. In December 2003, the FASB published a
revision to FIN 46 (FIN 46R) to clarify some of the provisions of the
interpretation and to defer the effective date of implementation for
certain entities. Under the guidance of FIN 46R, public companies that
have interests in VIEs that are commonly referred to as special purpose
entities are required to apply the provisions of FIN 46R for periods
ending after December 15, 2003. A public company that does not have any
interests in special purpose entities but does have a variable interest in
a VIE created before February 1, 2003, must apply the provisions of FIN
46R by the end of the first interim or annual reporting period ending
after March 14, 2004. The Company adopted FIN 46 and FIN 46R during the
year ended July 3, 2004. The adoption of FIN 46 had no impact on the
financial condition or results of operations since the Company does not
have investments in VIEs.
QUARTER IN REVIEW
For the first quarter of fiscal 2005 (thirteen weeks ended October 2,
2004), Salton continued its focus on increasing international
opportunities and reducing domestic operating costs in an effort to align
U.S. costs with current sales levels and return the domestic business to
profitability.
We continued to implement the U.S. restructuring plan by additional
headcount reductions and facility closures in the domestic operations.
When fully implemented later this fiscal year, our U.S. restructuring plan
is expected to generate at least $40.0 million in annual cost savings
through a reduction in operating expenses and a consolidation of U.S.
operations.
In connection with the U.S. restructuring, we recorded pretax charges of
$0.7 million in the first quarter of fiscal 2005 for consulting and legal
fees and termination and severance costs associated with the headcount
reduction in the U.S. These costs affected comparability of reported
operating income, net income and earnings per share for the first quarter
of fiscal 2005.
RESULTS OF OPERATIONS
The following table sets forth our results of operations as a percentage
of net sales for the quarters ended:
13 WEEKS ENDED
--------------------------
OCTOBER 2, SEPTEMBER 27,
2004 2003
---------- -------------
Net sales 100.0% 100.0%
Cost of goods sold 71.1 66.2
Distribution expenses 5.8 6.9
----- -----
Gross profit 23.1 26.9
Selling, general and administrative expense 19.4 21.7
----- -----
Operating income 3.7% 5.2%
===== =====
19
FIRST QUARTER 2005 COMPARED TO FIRST QUARTER 2004
NET SALES AND GROSS PROFIT
Sales for first quarter of 2005 were $274.1 million compared to $238.5
million in first quarter of 2004. The $35.6 million increase was primarily
a result of foreign sales increases including $10.4 million of foreign
currency fluctuations. Domestic sales were relatively flat quarter over
quarter.
Foreign sales increases were primarily driven by the Sansui, Russell
Hobbs, Carmengirls.com and George Foreman product lines. Management
believes Foreman will continue its success overseas as we expand our
foreign operations and introduce the Foreman Grill in new markets. In
addition, in the first quarter of 2005, we launched the new George Foreman
Grills with removable plates (The Next Grilleration) which is expected to
help accelerate the replacement cycle among existing customers in North
America and further stabilize domestic sales volumes.
As a percent of net sales, gross profit declined to 23.1% in 2005 compared
to 26.9% in 2004, a decrease of 3.8%. This decrease is attributable
primarily to rising product costs as a result of increased raw material
and petroleum costs and the movement of excess and discontinued product
as a result of inventory reduction plans. The Company is pursuing price
increases to cover the rise in product costs.
As a percent of sales, worldwide distribution expenses declined 1.1%.
Distribution expense as a percent of net sales was down as a result of
U.S. restructuring efforts and increased direct imports.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percent of net sales
decreased to 19.4% of net sales or $53.1 million in 2005 compared to 21.7%
of net sales or $51.8 million for 2003. Cost reductions achieved under the
U.S. restructuring plan were partially offset by increases driven by
international expansion and foreign currency fluctuations.
For first quarter of 2005, as a percent of sales, expenditures for
television, royalty expense, certain other media and cooperative
advertising and promotional activities decreased to 7.8% from 8.2% of
sales for first quarter of 2004. Larger decreases in promotional
categories such as cooperative advertising and infomercial expense were
partially offset by increases in direct advertising expenditures for
planned new product launches.
RESTRUCTURING COSTS
As a result of our U.S. restructuring plan, we incurred $0.7 million in
restructuring costs associated with consulting and legal fees and
termination and severance costs incurred as a result of headcount
reduction and consolidation of U.S. operations.
NET INTEREST EXPENSE
Net interest expense was $13.0 million for first quarter of fiscal 2005
compared to $9.7 million for first quarter of fiscal 2004. Our rate of
interest on amounts outstanding under the revolver, term loan and senior
subordinated debt was a weighted average annual rate of 10.3% in first
quarter of fiscal 2005 compared to 9.5% in first quarter of fiscal 2004.
The average amount of all debt outstanding was $428.3 million for first
quarter of fiscal 2005 compared to $390.9 million for first quarter of
fiscal 2004. This was a result of higher average borrowings under the
revolver.
20
INCOME TAXES
The effective tax rate for federal, state, and foreign income taxes was
approximately 35.0% for the first quarter of fiscal 2005 versus
approximately 32.5% for the first quarter of fiscal 2004. The Company's
provision for income taxes is based upon estimated annual tax rates for
the year applied to federal, state, and foreign income. The Company
expects its effective tax rate for fiscal 2005 to be approximately 35.0%,
which is 16.3% higher than the fiscal 2004 annual effective rate due to a
shift in income mix from foreign jurisdictions to the U.S in 2005 as well
as non-deductible goodwill impairment charges and the establishment of
deferred tax asset valuation allowances recorded in 2004.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
Our primary sources of liquidity are our cash flow from operations and
borrowings under our senior secured revolving credit facility. In first
quarter of fiscal 2005, Salton's operations used $72.3 million in cash
flow, compared with $23.4 million in first quarter of fiscal 2004. This
increase is largely a result of higher inventories and accounts receivable
associated with larger worldwide sales. Given the seasonal nature of our
business, borrowings and availability tend to be highest in mid-Fall and
early Winter.
Our cash flow from operations for the periods discussed have not been
materially affected by inflation or foreign currency fluctuation. We
generally negotiate our purchase orders with our foreign manufacturers in
United States dollars. Thus, our cost under any purchase order is not
subject to change after the time the order is placed due to exchange rate
fluctuations. However, the weakening of the United States dollar against
local currencies could result in certain manufacturers increasing the
United States dollar prices for future product purchases. In addition, the
Company has recently experienced an upward trend in raw material prices.
As a result, the Company may use working capital to build inventories to
take advantage of current lower prices.
The Company also currently uses foreign exchange contracts to hedge
anticipated foreign currency transactions, primarily U.S. dollar inventory
purchases. The contracts generally mature within one year and are designed
to limit exposure to exchange rate fluctuations, primarily the Great
Britain Pound and South Africa Rand against United States Dollars.
INVESTING ACTIVITIES
In fiscal 2004, we made the final installment payment associated with the
acquisition of the George Foreman tradename. This was the primary reason
for the reduction of cash flow usage of $22.4 million in first quarter of
2005 compared to first quarter of 2004.
We incurred approximately $4.1 million for capital expenditures during
first quarter of fiscal 2005 including approximately $2.6 million in
construction-in-progress for a warehouse renovation in Europe.
FINANCING ACTIVITIES
We had net proceeds from worldwide credit facilities of $57.9 million. The
increase in facility usage represents a seasonal increase in working
capital that was financed through our credit facilities in the U.S. and
the U.K.
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REVOLVING CREDIT FACILITY
On June 15, 2004, we entered into an amended and restated $275.0 million
senior secured revolving credit facility, which initially provides us with
the ability to borrow up to $207.0 million (including $10.0 million for
letters of credit). Advances under the senior secured revolving credit
facility are primarily based upon percentages of eligible accounts
receivable and inventories. The facility has a maturity date of June 15,
2007 and is subject to a prepayment premium of 3.0% of $275.0 million if
the facility is repaid by June 15, 2005, 2.0% if the facility is repaid
between June 16, 2005 and June 15, 2006 and 1.0% if the facility is repaid
between June 16, 2006 and June 15, 2007.
As of October 2, 2004, we had borrowed $167.8 million under the senior
secured revolving credit facility, $100.0 million of which is included in
long-term liabilities. We had approximately $19.0 million available under
this facility for future borrowings.
Our senior indebtedness contains a number of significant covenants that,
among other things, restrict our ability to dispose of assets, incur
additional indebtedness, prepay other indebtedness, pay dividends,
repurchase or redeem capital stock, enter into certain investments, enter
into sale and lease-back transactions, make certain acquisitions, engage
in mergers and consolidations, create liens, or engage in certain
transactions with affiliates and otherwise restrict our corporate and
business activities. In addition, under our senior secured revolving
credit facility, we are required to comply with a minimum EBITDA,
consolidated fixed charge coverage ratio and foreign leverage ratio. We
are also required to deposit all proceeds from collection of accounts
receivable and sale of collateral with an account under the exclusive
dominion and control of the senior lenders.
Borrowings under our senior secured credit facility accrue interest, at
our option, at either: LIBOR, plus 5.0%, equaling 7.0% at October 2, 2004;
or the Base Rate (prime rate), plus 3.0%, equaling 7.75% at October 2,
2004. The Company has the option to convert any base rate loan to LIBOR
rate loan, which includes an applicable margin of 5.0%. LIBOR rate loans
are to be no lower than a rate of 7.0%.
Events of default under our senior secured revolving credit facility
include, but are not limited to: (a) our failure to pay principal or
interest when due; (b) our material breach of any representation or
warranty; (c) covenant defaults; (d) our default with respect to any other
debt with an outstanding principal amount in excess of $1.0 million if the
effect thereof is to accelerate or permit the acceleration of such debt;
and (e) events of bankruptcy.
The senior secured revolving credit facility is secured by all of our
tangible and intangible assets and all of the tangible and intangible
assets of our domestic subsidiaries and a pledge of the capital stock of
our domestic subsidiaries and 65.0% of the capital stock of certain of our
foreign subsidiaries. The senior secured revolving credit facility is
unconditionally guaranteed by each of our direct and indirect domestic
subsidiaries.
SENIOR SUBORDINATED NOTES
In addition to borrowings under our senior secured revolving credit
facility, we have $125.0 million of 10 -3/4% senior subordinated notes due
December 15, 2005 outstanding and $150.0 million of 12 -1/4% senior
subordinated notes due April 15, 2008 outstanding (excluding $9.0 million
related to the fair value of interest rate swap agreements that have been
monetized).
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The indenture governing our 12 -1/4% senior subordinated notes due 2008
and 10 -3/4% senior subordinated notes due 2005 contains, covenants that,
among other things, limit our ability and the ability of our restricted
subsidiaries to incur additional indebtedness and issue preferred stock,
pay dividends or make certain other restricted payments, create certain
liens, enter into certain transactions with affiliates, enter into sale
and lease-back transactions, sell assets or enter into certain mergers and
consolidations.
Interest is payable on the 10 -3/4 % senior subordinated notes on June
15th and December 15th of each year in an amount equal to approximately
$6.7 million on each payment date. Interest is payable on the 12 -1/4 %
senior subordinated notes on April 15th and October 15th of each year in
an amount equal to approximately $9.2 million on each payment date.
Our senior subordinated notes are general unsecured obligations and are
subordinated to all our current and future senior debt, including all
borrowings under our senior secured revolving credit facility. The
subordinated notes rank equally with all our other existing and future
senior subordinated indebtedness.
Events of default under our senior subordinated notes include, but are not
limited to: (a) our default for 30 days in the payment when due of
interest; (b) our default in payment when due of principal or premium; (c)
covenant defaults; (d) default under any indebtedness that (1) is caused
by a failure to pay principal or interest or (2) results in the
acceleration of such indebtedness and, in each of clause (1) and (2), the
principal amount of such indebtedness exceeds $2.5 million; and (e) events
of bankruptcy.
Our current and future domestic restricted subsidiaries jointly and
severally guarantee our payment obligations under the senior subordinated
notes on a senior subordinated basis. The guarantees rank junior to all
senior debt of the guarantors (including guarantees under our senior
secured revolving credit facility) and equally with all other senior
subordinated indebtedness of the guarantors.
OTHER CREDIT FACILITIES
We maintain credit facilities outside of the United States that locally
support our foreign subsidiaries operations and working capital
requirements. These facilities are at current market rates in those
localities and at certain peak periods of the year, are secured by various
assets.
On September 28, 2004 Salton Europe, Limited ("Salton Europe"), the
Company's wholly owned subsidiary, amended their facility agreement with
Hong Kong Shanghai Bank. As of October 2, 2004, there was $32.3 million
utilized under the facility included in other current debt.
FORWARD LOOKING
We anticipate capital expenditures on an ongoing basis to be at historical
levels in relation to net sales.
One or more of our overseas manufacturers, including some of our major
suppliers, have recently been experiencing financial difficulties due to
challenging business and economic conditions. If we are required to, or
decide to, transition some of our production to different suppliers, the
cost and availability of certain of our products during such a transition
could be adversely affected.
We believe that future cash flow from operations based on our current
level of operations and anticipated growth, available borrowings under our
senior secured revolving credit facility and other sources of debt funding
and sale or monetization of certain assets, will be adequate to meet our
anticipated requirements for current capital expenditures, potential
acquisitions and alliances, working capital requirements, interest and
income tax payments and scheduled debt payments for the next twelve
months. Our anticipated earnings and growth are subject to general
economic, financial,
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competitive and other factors that are beyond our control. If we are
unable to satisfy such liquidity needs, we could be required to adopt one
or more alternatives, such as reducing or delaying capital expenditures,
borrowing additional funds, restructuring indebtedness, selling other
assets or operations and/or reducing expenditures for new product
development, cutting other costs, and some or such actions would require
the consent of our senior lenders and/or the holders of our senior
subordinated notes. We cannot assure you that any of such actions could be
effected, or if so, on terms favorable to us, that such actions would
enable us to continue to satisfy our liquidity needs and/or that such
actions would be permitted under the terms of our senior secured revolving
credit facility or the indentures governing our senior subordinated notes.
We have $125.0 million of 10 -3/4% senior subordinated notes outstanding
with a maturity date of December 15, 2005. We may incur additional debt,
or may issue debt or equity securities, to repay and/or refinance the 10
-3/4% senior subordinated notes on or before maturity. The availability
and attractiveness of any outside sources of funds will depend on a number
of factors, some of which relate to our financial condition and
performance, and some of which are beyond our control, such as prevailing
interest rates and general economic conditions. We cannot assure you that
such additional funds will be available, or if available, that such funds
will be on terms we find acceptable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We use derivative financial instruments to manage interest rate and
foreign currency risk. Our objectives in managing our exposure to interest
rate changes are to limit the impact of interest rate changes on earnings
and cash flows and to lower our overall borrowing costs through the use of
interest rate swaps. Our objectives in managing our exposure to foreign
currency fluctuations is to reduce the impact of changes in foreign
exchange rates on consolidated results of operations and future foreign
currency denominated cash flows. We do not enter into derivative financial
instruments for trading purposes. Our policy is to manage interest rate
risk through the use of a combination of fixed and variable rate debt and
hedge foreign currency commitments of future payments and receipts by
purchasing foreign currency forward contracts.
All foreign exchange contracts have been recorded in the consolidated
balance sheets within accrued expenses at a fair value of $1.5 million and
$8.7 million at October 2, 2004 and July 3, 2004, respectively. The change
in the fair value of contracts in the first quarter was $7.2 million.
There was $(0.4) million and $(6.0) million at October 2, 2004 and July 3,
2004, respectively, recorded in accumulated other comprehensive income,
net of tax, related to these contracts. The Company anticipates that all
gains and losses deferred in accumulated other comprehensive income
related to foreign exchange contracts will be reclassified into earnings
within the next twelve months as the related inventories are sold. At
October 2, 2004, the Company had foreign exchange forward contracts for
the purchase of 117.0 million U.S. dollars. Contracts for the purchase of
61.7 million U.S. dollars were entered into during the first quarter of
fiscal 2005.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this
Quarterly Report on Form 10-Q, the Company's principal executive officer
and principal financial officer have concluded that the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act"))
are effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
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(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
In May 2004, two stockholder lawsuits, named Mariss Partners, LLP v.
Salton, Inc., Leonhard Dreimann and David M. Mulder and Warren Beeler v.
Salton, Inc., Leonhard Dreimann and David Mulder, were filed in the United
States District Court for the Northern District of Illinois against the
Company and certain Salton executives. The complaints allege that the
defendants violated the federal securities laws, specifically Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 of
the Securities and Exchange Commission, by making certain alleged false
and misleading statements. The plaintiffs seek unspecified damages on
behalf of a purported class of purchasers of our securities during the
period from November 11, 2002 through May 11, 2004. The Company believes
that these lawsuits are without merit and that it has compelling defenses
to the allegations contained in the complaints. Salton intends to
vigorously defend the Company. The outcome of the class action lawsuits
cannot be predicted with certainty, however, Salton does not believe that
this matter will have a material adverse affect on its business, financial
condition or results of operations. Therefore, no amounts have been
accrued for such claims. The plaintiffs have voluntarily dismissed the
Mariss Partners lawsuit.
In June 2003 the Company received a letter from Philips Domestic
Appliances and Personal Care B.V. (Philips) accusing Salton of interfering
in a contractual relationship between Philips and a manufacturing source
for Salton, Electrical and Electronics (E&E), misappropriating trade
secrets and infringing other unspecified intellectual property rights in
connection with its development and marketing of the One:One single serve
coffee maker. On August 14, 2003, Salton filed a complaint in the United
States District Court for the Northern District of Illinois seeking a
declaratory judgment that the Company had not infringed the alleged trade
secret rights of Philips and had not tortuously interfered with the
contractual relationship between Philips and E&E.
Philips response has been to file a series of lawsuits against Salton. On
October 23, 2003, Philips filed a counterclaim against Salton in the
Northern District of Illinois, Declaratory Judgment case, reiterating the
allegations of Philips' June letter and adding a claim for copyright
infringement. The counterclaim sought to enjoin the distribution of the
One:One in the United States and money damages. On January 5, 2004, the
Court dismissed the action for failure to join E&E and suggested that the
matter should be litigated in the courts of Hong Kong. Philips has
appealed the Court's decision to the United States Court of Appeals for
the Seventh Circuit. A decision on this appeal is not expected for a
number of months. In view of the District Court's ruling, the Company
sought and obtained the consent of E&E to join in the action previously
filed by Philips in Hong Kong in May 2003, against E&E, alone. That Hong
Kong suit alleges that E&E misappropriated trade secrets, infringed
intellectual property and breached its contract with Philips in the
process of developing and manufacturing the One:One coffee maker for
Salton.
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On January 6, 2004, Philips filed a new action in the United States
District Court for the Northern District of Illinois, against Salton
alleging violations of U.S. Copyright Law seeking to enjoin the Company
from selling the One:One coffee maker and any monetary damages that the
Court deems proper. Contemporaneously, Philips sought a preliminary
injunction. On January 30, 2004, the Court dismissed Philips' new action
on the grounds that it was barred by the Court's dismissal decision in the
prior action. Philips appealed this dismissal and the appeal was
consolidated with the appeal of the earlier case in the United States
Court of Appeals for the Seventh Circuit.
On November 24, 2003, Philips and Sara Lee NV also filed a patent
infringement suit against Salton asserting that the One:One infringed a
U.S. patent. Like the other actions, this case seeks damages and
injunctive relief. The case is pending as in the United States District
Court for the Northern District of Illinois.
Philips has also filed an action for copyright infringement in the United
Kingdom. This suit alleges that the software on the electronic controller
of the One:One infringes Philips copyright and seeks unspecified money
damages and injunctive relief. At issue were the 55,624 units initially
introduced into the United Kingdom; Salton has discontinued the sales of
these units. This case is currently pending in the United Kingdom. E&E has
intervened in this action, and E&E's motion to dismiss or in the
alternative stay this action in favor of the Hong Kong action described
above was denied. On October 14, 2004, Salton offered to submit to
judgment in this action, and in the event the parties cannot agree on a
royalty for the use of this software in the 55,624 units, a judicial
determination will have to be made of any monetary award.
The outcome of the foregoing legal matters cannot be predicted with
certainty, however Salton does not believe that these actions will have a
material adverse affect on its business, financial condition or results of
operations. Therefore, no amounts have been accrued for such claims.
Homeplace of America, a company in liquidation under the United States
Bankruptcy Code, brought a lawsuit for recovery of preferential payments
made to Salton and its subsidiary, Toastmaster, during the 90 day
"preference" period prior to filing for bankruptcy. Homeplace's total
claimed preferences are approximately $3.5 million. The trial started the
first week of November 2004 in the U.S. Bankruptcy Court for the District
of Delaware. Settlement discussions to date have not, in Salton's view,
been meaningful. Salton does not believe that this matter will have a
material adverse affect on its business, financial condition or results of
operations. Therefore, no material amounts have been accrued for such
claims.
The Company has accrued approximately $0.2 million for the anticipated
costs of environmental remediation at four of our sites. Although such
costs could exceed that amount, Salton believes any such excess will not
have a material adverse effect on the financial condition or annual
results of operations of the Company.
The Company is a party to various other actions and proceedings incident
to our normal business operations. The Company believes that the outcome
of any litigation will not have a material adverse effect on our business,
financial condition or results of operations. The Company also has product
liability and general liability insurance policies in amounts believed to
be reasonable given its current level of business. Although historically
the Company has not had to pay any material product liability claims, it
is conceivable that we could incur claims for which we are not insured.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 12, 2004 SALTON, INC.
/s/ DAVID M. MULDER
David M. Mulder
Executive Vice President, Chief Administrative
Officer and Senior Financial Officer
(Duly Authorized Officer of the Registrant)
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
12(A) Computation of Ratio of Earnings to Fixed Charges
31.1 Certification By The Chief Executive Officer Pursuant To
Section 302 Of The Sarbanes-Oxley Act Of 2002
31.2 Certification By The Senior Financial Officer Pursuant To
Section 302 Of The Sarbanes-Oxley Act Of 2002
32.1 Certification of The Chief Executive Officer Pursuant to 18
U.S.C. 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of The Senior Financial Officer Pursuant to 18.
U.S.C. 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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