ARLINGTON, Va., May 1 /PRNewswire-FirstCall/ -- Katy Industries, Inc. (NYSE: KT) today reported a net loss in the first quarter of 2006 of ( $2.8 ) million [( $0.35 ) per share], versus a net loss of ( $2.7 ) million [( $0.34 ) per share], in the first quarter of 2005, as adjusted to exclude restructuring and other non-recurring or unusual items, which are discussed below. Including these items, Katy reported a net loss in the first quarter of 2006 of ( $5.8 ) million [( $0.73 ) per share], versus a net loss of ( $4.7 ) million [( $0.59 ) per share], in the same period of 2005. The operating loss, as adjusted to exclude all restructuring and other non-recurring or unusual items, was ( $2.6 ) million [(3.1%) of net sales] in the first quarter of 2006, compared to an operating loss, as adjusted, of ( $3.0 ) million [(3.2)% of net sales] in the same period in 2005. Net income (loss), as adjusted, and operating income (loss), as adjusted, are non-GAAP financial measures and are further discussed below.
During the first quarter of 2006, Katy reported restructuring and other non-recurring or unusual items of ( $1.5 ) million pre-tax [( $0.19 ) per share], including severance, restructuring and related costs of ( $0.8 ) million and costs of ( $0.7 ) million related to the cumulative effect of a change in accounting principle for the implementation of SFAS No. 123R, Accounting for Stock-Based Compensation. During the first quarter of 2005, Katy reported severance, restructuring and related costs of ( $0.2 ) million pre-tax [( $0.02 ) per share]. Details regarding these items are provided in the 'Reconciliations of GAAP Results to Results Excluding Certain Unusual Items' accompanying this press release.
Financial highlights for the first quarter of 2006, as compared to the same period in the prior year, included:
* Net sales in the first quarter of 2006 were $83.9 million, down
$11.6 million compared to the same period in 2005 primarily due to
weaker sales in both operating segments, the Electrical Products Group
and the Maintenance Products Group. Overall, the decrease of 12%
resulted from lower volumes of 17% offset by higher pricing of 5%.
Lower net sales in the Maintenance Group resulted from lower volumes
with our consumer plastics business as well as other business units
selling into mass merchants, several of whom reduced their inventory
levels and related order positions. Lower net sales in the Electrical
Group reflect a promotional program in 2005 which was not repeated in
2006. Both operating segments were able to reduce the impact of lower
volume by increased pricing.
* Gross margins were 13.2% in the first quarter of 2006, versus 10.1% in
the first quarter of 2005. In 2005, our margins were negatively
impacted by higher raw material costs, a significant portion of which
were not passed on through price increases. In 2006, our margin
improvement reflects our ability to recover the higher raw material
costs throughout our businesses partially through price increases and
also through cost reduction and efficiency initiatives.
* Selling, general and administrative expenses were $1.1 million higher
than the first quarter of 2005. These costs represented 16.2% of sales
in the first quarter of 2005, an increase from 13.1% of sales for the
same period of 2005. The increase in percentage reflects the fixed
nature of these expenses as a percentage of net sales as well as the
variance of $1.1 million in compensation cost recognized in these
quarters related to stock awards. This variance in compensation cost
amounted to 1.3% of net sales in the first quarter of 2006.
* On January 1, 2006, Katy adopted SFAS No. 123R, Accounting for
Stock-Based Compensation (SFAS No. 123R). The first quarter of 2006
includes a cumulative effect of a change in accounting principle of
$0.8 million for the impact of recognizing the fair value of our
liability awards (stock appreciation rights). The adoption of SFAS
No. 123R did not result in a cumulative adjustment associated with our
equity awards (stock options); however, Katy did begin to recognize
compensation cost of $0.2 million within selling and administrative
expenses for the fair value of stock options not yet vested.
* Debt at March 31, 2006 was $65.5 million [57% of total capitalization],
versus $56.8 million [47% of total capitalization] at March 31, 2005.
The increase in the ratio of debt to total capitalization was
principally due to lower stockholders equity which resulted from the net
loss reflected in 2005 and increase in working capital requirements in
2006 as compared to 2005. Cash on hand at March 31, 2006 was
$3.0 million, versus $7.1 million at March 31, 2005.
* Katy used free cash flow of $7.8 million during the three month period
ended March 31, 2006 versus generating $0.6 million of free cash flow
during the three month period ended March 31, 2005. The decline in free
cash flow was primarily attributable to an investment in inventory in
the first quarter of 2006 versus an inventory reduction in the first
quarter of 2005.
Katy expects current liquidity trends to generally improve throughout
2006 as inventory is being reduced (except for seasonal builds in the
Electrical Products Group in the second and third quarters), and be more
reflective of 2005 by the end of the year. Other elements of working
capital are being managed and capital expenditures are expected to be
lower in 2006. Free cash flow, a non-GAAP financial measure, is
discussed further below.
* Katy was in compliance with the amended covenants in the Bank of America
Credit Agreement at March 31, 2006 and expects to be in compliance for
the balance of 2006.
* Katy has substantially completed its restructuring program for current
programs as of March 31, 2006. The remaining severance, restructuring
and related costs for these initiatives (mostly related to the
consolidation of our abrasives facilities and the corporate relocation)
are not expected to exceed $0.5 million.
'Our Electrical Products Group performed well against a strong 2005 first
quarter as 2006 was challenging given the inventory positions of our key
customers,' said Anthony T. Castor III, Katy's President and Chief Executive
Officer. 'In addition, our Maintenance Product Group was able to execute
pricing changes more effectively in 2006 which allowed us to show margin
improvement in this segment,' added
At the end of the first quarter, Katy moved its corporate headquarters from Middlebury, CT to Arlington, VA.
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
(703) 236-4300
KATY INDUSTRIES, INC. SUMMARY OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
Three Months Ended March 31,
2006 2005
Net sales $83,896 $95,513
Cost of goods sold 72,781 85,832
Gross profit 11,115 9,681
Selling, general and administrative expenses 13,580 12,527
Severance, restructuring and related charges 782 172
Loss on sale of assets 102 186
Operating loss (3,349) (3,204)
Interest expense (1,771) (1,264)
Other, net 337 (48)
Loss before provision for income taxes (4,783) (4,516)
Provision for income taxes 252 132
Loss before cumulative effect of
a change in accounting principle (5,035) (4,648)
Cumulative effect of a change in
accounting principle (net of tax) (756) --
Net loss $(5,791) $(4,648)
Loss per share of common stock -
basic and diluted:
Loss before cumulative effect of a
change in accounting principle $(0.63) $(0.59)
Cumulative effect of a change in
accounting principle (0.10) --
Net loss $(0.73) $(0.59)
Weighted average common shares
outstanding - basic and diluted 7,971 7,945
Other Information:
Working capital $377 $12,811
Working capital, exclusive of deferred tax
assets and liabilities and debt classified
as current $52,850 $54,335
Long-term debt, including current
maturities $65,477 $56,789
Stockholders' equity $49,846 $63,538
Capital expenditures $816 $1,403
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 March 31,
2006 2005
Reconciliation of net loss to net loss,
as adjusted:
Net loss $(5,791) $(4,648)
Unusual items:
Cumulative effect of a change in
accounting principle 756 --
Severance, restructuring and
related charges 782 172
Adjustment to reflect a more normalized
effective tax rate excluding unusual items 1,485 1,783
Net loss, as adjusted $(2,768) $(2,693)
Net loss, as adjusted per share -
basic and diluted:
Net loss per share $(0.73) $(0.59)
Unusual items per share 0.19 0.02
Adjustment to reflect a more normalized
effective tax rate excluding unusual
items per share 0.19 0.23
Net loss, as adjusted per share $(0.35) $(0.34)
Weighted average common shares outstanding:
Basic and diluted 7,971 7,945
Operating loss, as adjusted:
Operating loss $(3,349) $(3,204)
Severance, restructuring and
related charges 782 172
Operating loss, as adjusted: $(2,567) $(3,032)
Operating loss, as adjusted, as a %
of sales -3.1% -3.2%
KATY INDUSTRIES, INC. SEGMENT INFORMATION - UNAUDITED
(In thousands)
Three Months Ended March 31,
2006 2005
Net sales:
Maintenance Products Group $58,051 $61,473
Electrical Products Group 25,845 34,040
$83,896 $95,513
Operating income (loss), as adjusted:
Maintenance Products Group $494 $(4,279)
Electrical Products Group 14 2,913
Unallocated corporate expense (3,075) (1,666)
$(2,567) $(3,032)
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets March 31, December 31, March 31,
Current assets: 2006 2005 2005
Cash and cash equivalents $3,001 $8,421 $7,099
Accounts receivable, net 46,503 63,612 50,288
Inventories, net 67,960 62,799 61,900
Other current assets 3,822 3,600 5,287
Total current assets 121,286 138,432 124,574
Other assets:
Goodwill 665 665 2,239
Intangibles, net 6,827 6,946 7,352
Other 8,605 8,643 9,581
Total other assets 16,097 16,254 19,172
Property and equipment 155,101 156,257 148,724
Less: accumulated depreciation (98,944) (98,260) (90,763)
Property and equipment, net 56,157 57,997 57,961
Total assets $193,540 $212,683 $201,707
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $27,379 $47,449 $27,070
Accrued expenses 40,196 41,784 42,190
Current maturities of
long-term debt 2,857 2,857 2,857
Revolving credit agreement 50,477 41,946 39,646
Total current liabilities 120,909 134,036 111,763
Long-term debt, less current
maturities 12,143 12,857 14,286
Other liabilities 10,642 10,497 12,120
Total liabilities 143,694 157,390 138,169
Stockholders' equity:
Convertible preferred stock 108,256 108,256 108,256
Common stock 9,822 9,822 9,822
Additional paid-in capital 26,829 27,016 25,111
Accumulated other comprehensive
income 3,167 3,158 4,165
Accumulated deficit (76,206) (70,415) (61,906)
Treasury stock (22,022) (22,544) (21,910)
Total stockholders' equity 49,846 55,293 63,538
Total liabilities and stockholders'
equity $193,540 $212,683 $201,707
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Three Months Ended March 31,
2006 2005
Cash flows from operating activities:
Net loss $(5,791) $(4,648)
Cumulative effect of a change in
accounting principle 756 --
Depreciation and amortization 2,672 2,847
Amortization of debt issuance costs 287 276
Stock option expense 191 --
Loss on sale of assets 102 186
(1,783) (1,339)
Changes in operating assets and
liabilities:
Accounts receivable 17,221 16,164
Inventories (5,136) 3,627
Other assets (170) (942)
Accounts payable (14,790) (11,839)
Accrued expenses (1,600) (2,964)
Other, net (684) (738)
(5,159) 3,308
Net cash (used in) provided by
operating activities (6,942) 1,969
Cash flows from investing activities:
Capital expenditures (816) (1,403)
Collections of note receivable from
sale of subsidiary -- 71
Proceeds from sale of assets 163 --
(653) (1,332)
Cash flows from financing activities:
Net borrowings (repayments) on
revolving loans 8,578 (466)
Decrease in book overdraft (5,360) --
Repayments of term loans (714) (1,429)
Direct costs associated with debt
facilities (165) (138)
Repurchases of common stock (4) --
Proceeds from the exercise of stock
options 147 --
2,482 (2,033)
Effect of exchange rate changes on
cash and cash equivalents (307) (30)
Net decrease in cash and cash
equivalents (5,420) (1,426)
Cash and cash equivalents, beginning
of period 8,421 8,525
Cash and cash equivalents, end of
period $3,001 $7,099
Reconciliation of free cash flow to
GAAP Results:
Net cash (used in) provided by
operating activities $(6,942) $1,969
Capital expenditures (816) (1,403)
Free cash flow $(7,758) $566
SOURCE Katy Industries, Inc.
