Applica Incorporated Reports 2004 Second-Quarter and First Half
Financial Results MIAMI LAKES, Fla., Aug. 5 /PRNewswire-FirstCall/
-- Applica Incorporated (NYSE:APN) today announced that
second-quarter sales for 2004 were $159.0 million, an increase of
16.2% from the same period in 2003. The increase in sales in the
second quarter resulted primarily from several new product launches
and increased sales of Black & Decker(R) branded products. For
the first six months of 2004, sales were $291.5 million, an
increase of 12.9% over the first half of 2003. The increase was
largely the result of growth in sales of Black & Decker(R)
branded products benefiting from better point-of-sale of such
products, as well as retailers beginning the year at lower
inventory levels. As previously announced, as a result of the
decision to exit its Chinese manufacturing operations, Applica has
changed its position with regard to permanently investing $85.5
million of previously undistributed foreign earnings outside of the
United States. As a result, there was an additional tax charge in
the second quarter of approximately $24.0 million ($1.00 per
share), which reflects the U.S. taxes on those earnings. Management
believes that the cash impact of these taxes in 2004 will be less
than $2.0 million as the result of the use of net operating losses
carry forward and foreign tax credits. Also as previously
announced, in the second quarter of 2004, the Company recognized a
non-cash adjustment to goodwill of $62.8 million (or $46.4 million
after tax) as the result of its annual test of its existing
goodwill for impairment in accordance with Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." The adjustment was reported as an impairment of goodwill
and reduced reported earnings by $1.93 per share for the quarter.
The impairment did not impact the Company's cash position.
Additionally, in accordance with SFAS No. 109, "Accounting for
Income Taxes," Applica evaluated the realization of its deferred
tax assets. Based on the events discussed above and recent
historical losses, Applica increased its allowance related to such
assets to $51.4 million in the second quarter, resulting in a
non-cash tax expense of $2.14 per share. Applica reported a net
loss for the 2004 second quarter of $123.8 million, or $5.16 per
share, compared with a loss of $2.8 million, or $0.12 per share,
for the 2003 second quarter. The second-quarter 2003 earnings
included $1.5 million of equity in the net earnings of a joint
venture in which Applica owned a 50% interest. For the first half
of 2004, Applica reported a net loss of $128.3 million, or $5.38
per share, as compared to net income of $16.8 million, or $0.71 per
diluted share for the same period last year. The 2003 first-half
earnings included $39.0 million of equity in the net earnings of a
joint venture. Applica's gross profit margin increased to 30.5% in
the three-month period ended June 30, 2004 as compared to 27.8% for
the same period in 2003. The increase was primarily attributed to
lower product costs resulting from moving core products from Mexico
to China, the launch of new products carrying higher margins and
better overhead absorption at our manufacturing facilities during
2004. The increases were offset by increases in raw materials
costs, higher inbound freight expenses and start-up expenses
related to the launch of the Home Caf�(TM) single cup brewing
system. For the first half of the year, the gross profit margin
increased to 29.5% as compared to 29.1% for the same period in
2003. Harry D. Schulman, President and Chief Executive Officer
stated, "The combination of inflation in raw materials prices,
along with the deflationary pressures from the retail environment,
has caused the most severe margin pressure in recent memory. We
have been making changes since 2003 to address this matter. We are
focusing on more innovative products with higher margins, we have
been rationalizing our manufacturing and sourcing strategy and we
are attempting to improve our pricing to our customers. The sale of
our Chinese manufacturing facilities will allow us to reduce our
fixed overhead and risk profile, and will allow us to become more
flexible in our ability to react to a rapidly changing global
marketplace." At June 30, 2004, total debt as a percentage of total
capitalization was 56.3%, with total debt of $143.4 million and
shareholders' equity of $111.3 million. Capital expenditures for
the first six months ended June 30, 2004 and 2003 were $8.3 million
and $7.6 million, respectively. Applica will hold a conference call
today at 11:00 a.m., Eastern Daylight Time, to discuss its
second-quarter and year-to-date results and to give guidance on
future results and trends in operations. Live audio of the
conference call will be simultaneously broadcast over the Internet
and will be available to members of the news media, investors and
the general public. The conference call is expected to last
approximately one hour. Broadcast of the event can be accessed on
the Company's website, http://www.applicainc.com/ by clicking on
the Investor Relations page. You may also access the call via CCBN,
at http://www.streetevents.com/ . The event will be archived and
available for replay through Thursday, August 12, 2004, at
midnight. Applica Incorporated and its subsidiaries are marketers
and distributors of a broad range of branded small electric
consumer goods. Applica markets and distributes kitchen products,
home products, pest control products, pet care products and
personal care products. Applica markets products under licensed
brand names, such as Black & Decker(R), its own brand names,
such as Windmere(R), LitterMaid(R) and Applica(R), and other
private-label brand names. Applica's customers include mass
merchandisers, specialty retailers and appliance distributors
primarily in North America, Latin America and the Caribbean. The
Company operates manufacturing facilities in Mexico. Additional
information regarding the Company is available at
http://www.applicainc.com/ . Certain matters discussed in this news
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 uncertainties regarding our transition from
manufacturers to a company that purchases all of its products from
third party sources; the relocation of our Miami Lakes, Florida
offices; success or failure of our growth strategy; increases in
cost and availability of raw materials and components;
complications resulting from our implementation of the new ERP
system; our dependence on purchases from large customers; our
ability to renew the Black & Decker(R) trademark license
agreement; the strength of the U.S. retail market; currency
fluctuations in our international operations; the potential for
product recalls and product liability claims against us; the
bankruptcy or loss of a major retail customer, distributor or
supplier; the risks of our international operations; changes in
trade relations with China; our dependence on the timely
development, introduction and customer acceptance of products;
competitive products and pricing; dependence on foreign suppliers
and supply and manufacturing constraints; cancellation or reduction
of orders; and other risks and uncertainties detailed from time to
time in the Company's Securities and Exchange Commission filings,
including the Annual Report on Form 10-K for the year ended
December 31, 2003. Readers are cautioned not to place undue
reliance on forward-looking statements. Applica undertakes no
obligation to publicly revise any forward-looking statements to
reflect events or circumstances that arise after the date hereof.
Applica Incorporated and Subsidiaries CONSOLIDATED BALANCE SHEETS
Assets June 30, 2004 December 31, (Unaudited) 2003 (In thousands)
Current Assets: Cash and cash equivalents $4,993 $12,735 Accounts
and other receivables, less allowances of $11,587 in 2004 and
$12,543 in 2003 115,144 131,021 Notes receivable - officers 1,533
1,615 Inventories 154,350 106,326 Prepaid expenses and other 12,266
13,593 Refundable income taxes 3,335 4,823 Future income tax
benefits 1,820 11,616 Total current assets 293,441 281,729
Investment in Joint Venture 4,200 5,389 Property, Plant and
Equipment - at cost, less accumulated depreciation of $109,275 in
2004 and $103,894 in 2003 71,349 70,389 Future Income Tax Benefits,
Non-Current 5,312 49,695 Goodwill -- 62,812 Other Intangibles, Net
5,388 6,146 Other Assets 2,185 2,676 Total Assets $381,875 $478,836
Liabilities and Shareholders' Equity Current Liabilities: Accounts
payable $69,604 $39,273 Accrued expenses 53,753 61,362 Notes and
acceptances payable 9,025 -- Current maturities of long-term debt
158 151 Current taxes payable 2,578 2,172 Deferred rent 468 301
Total current liabilities 135,586 103,259 Other Long-Term
Liabilities 827 1,327 Long-Term Debt, Less Current Maturities
134,182 136,637 Shareholders' Equity: Common stock -
authorized:75,000 shares of $.10 par value; issued and outstanding:
24,068 shares in 2004 and 23,687 shares in 2003 2,407 2,369 Paid-in
capital 158,750 156,604 (Accumulated deficit) retained earnings
(41,823) 86,474 Note receivable - officer (1,496) (1,496)
Accumulated other comprehensive earnings (loss) (6,558) (6,338)
Total shareholders' equity 111,280 237,613 Total Liabilities and
Shareholders' Equity $381,875 $478,836 Applica Incorporated and
Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, 2004 2003 (In thousands, except per
share data) Net sales $158,993 100.0% $136,847 100.0% Cost of goods
sold 110,505 69.5 98,742 72.2 Gross profit 48,488 30.5 38,105 27.8
Selling, general and administrative expenses: Operating expenses
50,339 31.7 40,544 29.6 Impairment of goodwill 62,812 39.5 -- --
Operating loss (64,663) (40.7) (2,439) (1.8) Other expense
(income): Interest expense 2,243 1.4 3,947 2.9 Interest and other
income (642) (0.4) (244) (0.2) 1,601 1.0 3,703 2.7 Loss before
equity in net earnings of joint venture and income taxes (66,264)
(41.7) (6,142) (4.5) Equity in net earnings of joint venture -- --
1,500 1.1 Loss before income taxes (66,264) (41.7) (4,642) (3.4)
Income tax provision (benefit) 57,554 36.2 (1,857) (1.4) Net loss
$(123,818) (77.9)% $(2,785) (2.0)% Earnings (loss) per common
share: Loss per common share - basic and diluted $(5.16) $(0.12)
Applica Incorporated and Subsidiaries CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited) Six Months Ended June 30, 2004 2003 (In
thousands, except per share data) Net sales $291,486 100.0%
$258,086 100.0% Cost of goods sold 205,527 70.5 182,959 70.9 Gross
profit 85,959 29.5 75,127 29.1 Selling, general and administrative
expenses: Operating expenses 93,883 32.2 78,881 30.6 Repositioning
charge (563) (0.2) -- -- Impairment of goodwill 62,812 21.5 -- --
Operating loss (70,173) (24.1) (3,754) (1.5) Other expense
(income): Interest expense 4,358 1.5 7,834 3.0 Interest and other
income (989) (0.3) (648) (0.3) Loss on early extinguishment of debt
187 0.1 -- -- 3,556 1.2 7,186 2.8 Loss before equity in net
earnings of joint venture and income taxes (73,729) (25.3) (10,940)
(4.2) Equity in net earnings of joint venture -- -- 39,000 15.1
(Loss) earnings before income taxes (73,729) (25.3) 28,060 10.9
Income tax provision 54,568 18.7 11,224 4.3 Net (loss) earnings
$(128,297) (44.0)% $16,836 6.5% Earnings (loss) per common share :
(Loss) earnings per common share - basic $(5.38) $0.72 (Loss)
earnings per common share - diluted $(5.38) $0.71 DATASOURCE:
Applica Incorporated CONTACT: Investor Relations Department of
Applica Incorporated, +1-305-362-2611, or Web site:
http://www.applicainc.com/
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