MIDDLEBURY, Conn., March 14 /PRNewswire-FirstCall/ -- Katy Industries, Inc. (NYSE: KT) today reported a net loss in the fourth quarter of 2005 of ( $3.3 ) million [( $0.42 ) per share diluted], versus a net loss of ( $0.9 ) million [( $0.11 ) per share diluted], in the fourth quarter of 2004, as adjusted to exclude restructuring and other non-recurring or unusual items, which are discussed below. Including these items and payment-in-kind dividends on convertible preferred stock, Katy reported a net loss attributable to common stockholders of ( $3.8 ) million [( $0.48 ) per share diluted], in the fourth quarter of 2005, versus a net loss attributable to common stockholders of ( $37.9 ) million [( $4.80 ) per share diluted], in the same period of 2004. Operating income, as adjusted to exclude restructuring and other non-recurring or unusual items, was $0.3 million [0.3% of net sales] in the fourth quarter of 2005, compared to an operating loss, as adjusted, of ( $0.4 ) million [(0.4%) of net sales] in the same period in 2004. Net income (loss), as adjusted, and operating loss, as adjusted, are non-GAAP financial measures and are further discussed below.
Katy also reported a net loss for the year ended December 31, 2005 of ( $12.8 ) million [( $1.61 ) per share diluted], versus net loss of ( $0.1 ) million [( $0.01 ) per share diluted], for the year ended December 31, 2004 , as adjusted to exclude restructuring and other non-recurring or unusual items, which are discussed below. Including these items and payment-in-kind dividends on convertible preferred stock, Katy reported a net loss attributable to common stockholders of ( $13.2 ) million [( $1.66 ) per share diluted], for the year ended December 31, 2005 , versus a net loss attributable to common stockholders of ( $50.9 ) million [( $6.45 ) per share diluted], in the same period of 2004. The operating loss, as adjusted to exclude restructuring and other non-recurring or unusual items, was ( $1.5 ) million [(0.3%) of net sales] for the year ended December 31, 2005 , compared to operating income, as adjusted, of $3.5 million [0.8% of net sales] for the same period in 2004. Net income (loss), as adjusted, and operating income (loss), as adjusted, are non-GAAP financial measures and are further discussed below.
During the fourth quarter of 2005, Katy reported restructuring and other non-recurring or unusual items of ( $1.7 ) million pre-tax [( $0.22 ) per share diluted] primarily related to the impairment of long-lived assets of ( $2.1 ) million and severance, restructuring and other charges of ( $0.2 ) million. These charges were offset by Katy recording income of $0.6 million from its equity investment in Sahlman Holding Company, Inc. During the fourth quarter of 2004, Katy reported restructuring and other non-recurring or unusual items of ( $33.3 ) million pre-tax [( $4.21 ) per share diluted], related to impairments of long-lived assets of ( $30.8 ) million, severance, restructuring and related charges of ( $1.5 ) million, the net write-off of amounts related to divested business of ( $0.9 ) million and costs associated with a proposed financing which Katy chose not to pursue of ( $0.1 ) million. Also, during the fourth quarter of 2004, Katy recorded the impact of payment-in-kind dividends earned on its convertible preferred stock of ( $4.0 ) million [( $0.51 ) per share diluted]. Payment-in-kind dividends on convertible preferred stock ended in December 2004 . Details regarding these items are provided in the 'Reconciliations of GAAP Results to Results Excluding Certain Unusual Items' accompanying this press release.
For the year ended December 31, 2005 , Katy reported restructuring and other non-recurring or unusual items of ( $4.6 ) million pre-tax [( $0.57 ) per share diluted], including the impairment of long-lived assets of ( $2.1 ) million, non-cash stock option expense related to the acceleration of vesting of options of ( $2.0 ) million, severance, restructuring and related charges of ( $1.1 ) million offset by income recorded from its equity investment in Sahlman Holding Company, Inc. of $0.6 million . During the year ended December 31, 2004 , Katy reported restructuring and other non-recurring or unusual items of ( $35.1 ) million pre-tax [( $4.45 ) per share diluted], including the impairment of long-lived assets of ( $30.8 ) million, severance, restructuring and related charges of ( $3.5 ) million, the net write-off of amounts related to divested businesses of ( $0.8 ) million, costs associated with a proposed financing which Katy chose not to pursue of ( $0.5 ) million, and a gain on the sale of real estate of $0.5 million . Also, during the year ended December 31, 2004 , Katy recorded the impact of payment-in-kind dividends earned on its convertible preferred stock of ( $14.7 ) million [( $1.87 ) per share diluted]. Details regarding these items are provided in the 'Reconciliations of GAAP Results to Results Excluding Certain Unusual Items' accompanying this press release.
Highlights for the fourth quarter of 2005, as compared to the same period in the prior year, included:
* Net sales in the fourth quarter of 2005 were $120.9 million, down $0.9
million compared to the same period in 2004 primarily due to stronger
sales in the Electrical Products Group offset by weaker sales in the
Maintenance Products Group. The overall slight decrease in net sales
resulted from higher pricing of 4% offset by a corresponding lower
volume of 4%.
* Gross margins were 12.1% in the fourth quarter of 2005, versus 10.9% in
the fourth quarter of 2004. The improvement in gross margin reflects a
higher mix of Electrical Products net sales which currently carry a
higher level of gross margin.
* Selling, general and administrative expenses were $0.9 million higher
in the fourth quarter of 2005 versus the fourth quarter of 2004. These
costs represented 11.8% of sales in the fourth quarter of 2005, an
increase from 11.0% of sales for the same period of 2004. The increase
resulted primarily from a higher level of insurance costs for health
and general insurance in 2005.
* Impairments of long-lived assets in the fourth quarter of 2005 relate
to the write-down of goodwill and other intangible assets supporting
the Abrasives business. In 2005, the profitability of the Abrasives
business unit in the Maintenance Products Group declined sharply due
the inefficiencies incurred as a result of the integration into one
facility and the resulting loss of some customers.
* Debt at December 31, 2005 was $57.7 million [51% of total
capitalization], versus $58.7 million [46% of total capitalization] at
December 31, 2004. Cash on hand at December 31, 2005 was $8.4 million,
versus $8.5 million on hand at December 31, 2004.
* Katy provided free cash flow of $1.2 million during the year ended
December 31, 2005 versus $21.8 million of free cash flow used during
the year ended December 31, 2004. The improvement in free cash flow
was primarily attributable to a reduction of working capital in 2005
versus an inventory build in 2004, and lower capital expenditures.
Free cash flow, a non-GAAP financial measure, is discussed further
below.
'The sales results in the fourth quarter reflect the strong performance of
our Electrical Products Group,' said Anthony T. Castor III, Katy's President
and Chief Executive Officer. 'However, we continue to be challenged with
escalating material costs throughout all of our operations and are taking
steps to offset these increases by managing costs aggressively,' added
In 2005, Katy substantially completed the restructuring program that began in 2002. The remaining severance, restructuring and related costs for these initiatives (mostly related to the consolidation of its abrasives facilities) are expected to be less than $0.5 million .
Katy expects its debt levels to increase in the first half of 2006 with a
reduction to current levels by the end of 2006. Elements of working capital
continue to be closely managed. Capital expenditures are expected to continue
at approximately the same pace in 2006 as 2005. Katy was in compliance with
the amended covenants in the Bank of
The Sixth Amendment eliminates the Fixed Charge Coverage Ratio for 2006
and the first quarter of 2007 and adjusts the Minimum Availability such that
Katy's eligible collateral must exceed the sum of its outstanding borrowings
and letters of credit under the Revolver Credit Facility by at least $5
million from the effective date of the Sixth Amendment through September 29,
2006 and by at least $7.5 million from September 30, 2006 until Katy delivers
its financial statements for the first quarter of 2007. Subsequent to the
delivery of the financial statements for the first quarter of 2007, the Sixth
Amendment reestablishes the minimum Fixed Charge Coverage Ratio as originally
set forth in the Bank of
If Katy is unable to comply with the terms of the amended covenants, it could seek to obtain further amendments and pursue increased liquidity through additional debt financing and/or the sale of assets. Katy believes that given its strong working capital base, additional liquidity could be obtained through additional debt financing, if necessary. However, there is no guarantee that such financing could be obtained. In addition, Katy is continually evaluating alternatives relating to the sale of excess assets and divestitures of certain of its business units. Asset sales and business divestitures present opportunities to provide additional liquidity by de-leveraging our financial position.
Non-GAAP Financial Measures
To provide transparency about measures of Katy's financial performance which management considers most relevant, we supplement the reporting of Katy's consolidated financial information under GAAP with certain non-GAAP financial measures, including Net Income (Loss), as adjusted, Net Income (Loss), as adjusted per share, Operating Income (Loss) and Operating Income (Loss) as adjusted, as a percentage of sales; and Free Cash Flow. Details regarding these measures and reconciliations of these non-GAAP measures to comparable GAAP measures are provided in the 'Reconciliations of GAAP Results to Results Excluding Certain Unusual Items' and 'Statements of Cash Flows' accompanying this press release. These non-GAAP financial measures should be considered in addition to, and not as a substitute or superior to, the other measures of financial performance prepared in accordance with GAAP. Using only the non-GAAP financials measures to analyze our performance would have material limitations because their calculation is based on the subjective determinations of management regarding the nature and classification of events and circumstances that investors may find material. Management compensates for these limitations by utilizing both the GAAP and non-GAAP measure reflected below to understand and analyze the results of its business. Katy believes the presentation of these measures is nonetheless useful to investors for the following reasons:
Net Income (Loss), as adjusted, Net Income (Loss), as adjusted per share, Operating Income (Loss) and Operating Income (Loss) as adjusted, as a percentage of sales: All of these non-GAAP operating measurements adjust the corresponding GAAP measurement to exclude restructuring and other non-recurring and unusual items, as appropriate. Following the recapitalization of the company in 2001, a comprehensive restructuring program became essential to the future viability of Katy. All other non-recurring and unusual items are typically indicative of non-cash impacts to Katy's results of operations. These non-GAAP measures are used by management as Katy believes that these measures are more indicative of the company's underlying business performance and that eliminating restructuring and other non-recurring and unusual charges provides more meaningful year-to-year comparison of the company's operations. Katy believed that the restructuring charges would be non-recurring as the restructuring was expected to be substantially completed in mid-2004 but was delayed due to issues with the consolidation of the company's abrasives facilities. After the substantial completion of this consolidation in 2005, Katy expects that remaining restructuring charges and all other non-recurring and unusual items will not be material.
Free Cash Flow: Free cash flow is defined by Katy as cash flow from operations less capital expenditures and cash dividends paid. Katy believes that free cash flow is useful to management and investors in measuring cash generated that is available for repayment of debt obligations, investment in growth through acquisitions, new business development and stock repurchases.
This press release may contain various forward-looking statements. The forward-looking statements are based on the beliefs of Katy's management, as well as assumptions made by, and information currently available to, the company's management. Additionally, the forward-looking statements are based on Katy's current expectations and projections about future events and trends affecting the financial condition of its business. The forward-looking statements are subject to risks and uncertainties, detailed from time to time in Katy's filings with the SEC, that may lead to results that differ materially from those expressed in any forward-looking statement made by the company or on its behalf. Katy undertakes no obligation to revise or update such statements to reflect current events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Katy Industries, Inc. is a diversified corporation with interests primarily in Maintenance Products and Electrical Products.
Company contact:
Katy Industries, Inc.
Amir Rosenthal
(203) 598-0397
KATY INDUSTRIES, INC. SUMMARY OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
Net sales $120,917 $121,799 $455,197 $457,642
Cost of goods sold 106,232 108,513 402,276 396,608
Gross profit 14,685 13,286 52,921 61,034
Selling, general and
administrative expenses 14,314 13,449 56,716 57,283
Impairments of long-lived assets 2,112 30,831 2,112 30,831
Severance, restructuring and
related charges 198 1,549 1,090 3,505
Loss (gain) on sale of assets 37 268 (316) (278)
Operating loss (1,976) (32,811) (6,681) (30,307)
Equity in income of equity method
investment 600 -- 600 --
Interest expense (1,570) (1,154) (5,713) (3,968)
Other, net (143) (702) 66 (963)
Loss before (provision) benefit
for income taxes (3,089) (34,667) (11,728) (35,238)
(Provision) benefit for income
taxes (707) 734 (1,429) (883)
Net loss (3,796) (33,933) (13,157) (36,121)
Payment-in-kind (PIK) dividends on
convertible preferred stock -- (4,003) -- (14,749)
Net loss attributable to common
stockholders $(3,796) $(37,936) $(13,157) $(50,870)
Loss per share of common stock -
basic and diluted:
Net loss $(0.48) $(4.29) $(1.66) $(4.58)
Payment-in-kind (PIK) dividends on
convertible preferred stock -- (0.51) -- (1.87)
Net loss attributable to common
stockholders $(0.48) $(4.80) $(1.66) $(6.45)
Weighted average common shares
outstanding - basic and diluted 7,950 7,909 7,949 7,883
Other Information:
Dec. 31, Dec. 31,
2005 2004
Working capital $4,396 $17,811
Working capital, exclusive of
deferred tax assets and liabilities
and debt classified as current $48,338 $59,855
Long-term debt, including current
maturities $57,660 $58,737
Stockholders' equity $55,293 $68,585
Capital expenditures $9,366 $13,876
KATY INDUSTRIES, INC. RECONCILIATIONS OF GAAP RESULTS
TO RESULTS EXCLUDING CERTAIN UNUSUAL ITEMS - UNAUDITED
(In thousands, except percentages and per share data)
Three Months Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
Reconciliation of net loss to
net loss, as adjusted
Net loss $(3,796) $(33,933) $(13,157) $(36,121)
Unusual items:
Impairments of long-lived assets 2,112 30,831 2,112 30,831
Stock option expense (non-cash) -- -- 1,953 --
Severance, restructuring and
related charges 198 1,549 1,090 3,505
Equity in income of equity method
investment (600) -- (600) --
Gain on sale of real estate -- -- -- (549)
Costs associated with abandoned
financing (included in other,
net) -- 53 -- 488
Net write-off of amounts related
to divested businesses (included
in other, net) -- 845 -- 814
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items (1,231) (206) (4,155) 940
Net loss, as adjusted $(3,317) $(861) $(12,757) $(92)
Net loss, as adjusted per share -
basic and diluted:
Net loss per share $(0.48) $(4.29) $(1.66) $(4.58)
Unusual items per share 0.22 4.21 0.57 4.45
Adjustment to reflect a more
normalized effective tax rate
excluding
unusual items per share (0.16) (0.03) (0.52) 0.12
Net loss, as adjusted per share $(0.42) $(0.11) $(1.61) $(0.01)
Weighted average common shares
outstanding:
Basic and diluted 7,950 7,909 7,949 7,883
Operating income (loss), as
adjusted:
Operating loss $(1,976) $(32,811) $(6,681) $(30,307)
Impairments of long-lived assets 2,112 30,831 2,112 30,831
Stock option expense (non-cash) -- -- 1,953 --
Severance, restructuring and
related charges 198 1,549 1,090 3,505
Gain on sale of real estate -- -- -- (549)
Operating income (loss), as
adjusted: $334 $(431) $(1,526) $3,480
Operating income (loss), as
adjusted, as a % of sales 0.3% (0.4)% (0.3)% 0.8%
KATY INDUSTRIES, INC. SEGMENT INFORMATION - UNAUDITED
(In thousands)
Three Months Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
Net sales:
Maintenance Products Group $58,520 $66,444 $247,875 $278,888
Electrical Products Group 62,397 55,355 207,322 178,754
$120,917 $121,799 $455,197 $457,642
Operating (loss) income, as
adjusted:
Maintenance Products Group $(3,128) $(4,109) $(8,148) $(2,988)
Electrical Products Group 7,270 5,930 17,433 16,809
Unallocated corporate
expense (3,808) (2,252) (10,811) (10,341)
$334 $(431) $(1,526) $3,480
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets December 31,
Current assets: 2005 2004
Cash and cash equivalents $8,421 $8,525
Accounts receivable, net 63,612 66,689
Inventories, net 62,799 65,674
Other current assets 3,600 4,233
Total current assets 138,432 145,121
Other assets:
Goodwill 665 2,239
Intangibles, net 6,946 7,428
Other 8,643 9,946
Total other assets 16,254 19,613
Property and equipment 156,257 148,259
Less: accumulated depreciation (98,260) (88,529)
Property and equipment, net 57,997 59,730
Total assets $212,683 $224,464
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $47,449 $39,079
Accrued expenses 41,784 45,208
Current maturities of long-term
debt 2,857 2,857
Revolving credit agreement 41,946 40,166
Total current liabilities 134,036 127,310
Long-term debt, less current
maturities 12,857 15,714
Other liabilities 10,497 12,855
Total liabilities 157,390 155,879
Stockholders' equity
Convertible preferred stock 108,256 108,256
Common stock 9,822 9,822
Additional paid-in capital 27,016 25,111
Accumulated other comprehensive
income 3,158 4,564
Accumulated deficit (70,415) (57,258)
Treasury stock (22,544) (21,910)
Total stockholders' equity 55,293 68,585
Total liabilities and stockholders'
equity $212,683 $224,464
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Year Ended December 31,
2005 2004
Cash flows from operating activities:
Net loss $(13,157) $(36,121)
Depreciation and amortization 11,046 14,266
Impairment of long-lived assets 2,112 30,831
Write-off and amortization of debt
issuance costs 1,122 1,076
Gain on sale of assets (316) (278)
Stock compensation expense 1,953 --
Deferred income taxes 240 (1,228)
Equity in income of equity method
investment (600) --
Other non-cash (192) --
2,208 8,546
Changes in operating assets and
liabilities:
Accounts receivable 2,663 (177)
Inventories 2,842 (11,146)
Other assets 251 (1,313)
Accounts payable 8,821 918
Accrued expenses (3,801) (1,662)
Other, net (2,394) (3,137)
8,382 (16,517)
Net cash provided by (used in)
operating activities 10,590 (7,971)
Cash flows from investing activities:
Capital expenditures (9,366) (13,876)
Acquisition of subsidiary, net of
cash acquired (1,115) --
Collections of notes receivable from
sales of subsidiaries 106 43
Proceeds from sale of assets 981 5,778
(9,394) (8,055)
Cash flows from financing activities:
Net borrowings on revolving loans 1,450 4,037
Proceeds of term loans -- 18,152
Repayments of term loans (2,857) (3,244)
Direct costs associated with debt
facilities (151) (1,485)
Repurchases of common stock (7) (75)
Proceeds from the exercise of stock
options -- 304
(1,565) 17,689
Effect of exchange rate changes on
cash and cash equivalents 265 114
Net increase in cash and cash
equivalents (104) 1,777
Cash and cash equivalents, beginning
of period 8,525 6,748
Cash and cash equivalents, end of
period $8,421 $8,525
Reconciliation of free cash flow to
GAAP Results:
Net cash provided by (used in)
operating activities $10,590 $(7,971)
Capital expenditures (9,366) (13,876)
Free cash flow $1,224 $(21,847)
SOURCE Katy Industries, Inc.
