ARLINGTON, Va., Aug. 2 /PRNewswire-FirstCall/ -- Katy Industries, Inc. (NYSE: KT) today reported a net loss in the second quarter of 2006 of ( $1.3 ) million [( $0.16 ) per share], versus a net loss of ( $2.4 ) million [( $0.30 ) per share], in the second 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 second quarter of 2006 of ( $1.9 ) million [( $0.24 ) per share], versus a net loss of ( $6.0 ) million [( $0.76 ) 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 ( $0.4 ) million [(0.4%) of net sales] in the second quarter of 2006, compared to an operating loss, as adjusted, of ( $2.5 ) million [(2.7%) 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.
Katy also reported a net loss for the six months ended June 30, 2006 of ( $3.6 ) million [( $0.45 ) per share], versus a net loss of ( $5.3 ) million [( $0.67 ) per share], for the six months ended June 30, 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 for the six months ended June 30, 2006 of ( $7.7 ) million [( $0.96 ) per share], versus a net loss of ( $10.7 ) million [( $1.35 ) 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 ( $2.8 ) million [(1.6%) of net sales] for the six months ended June 30, 2006 , compared to an operating loss, as adjusted, of ( $6.0 ) 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 second quarter of 2006, Katy reported restructuring and other non-recurring or unusual items of $0.5 million pre-tax [ $0.07 per share], including income from discontinued operations of $0.6 million offset by severance, restructuring and related costs of ( $0.1 ) million. During the second quarter of 2005, Katy reported restructuring and other non-recurring or unusual items of ( $2.3 ) million pre-tax [( $0.29 ) per share], including severance, restructuring and related costs of ( $2.4 ) million offset by income from discontinued operations of $0.1 million . Details regarding these items are provided in the 'Reconciliations of GAAP Results to Results Excluding Certain Unusual Items' accompanying this press release.
For the six months ended June 30, 2006 , Katy reported restructuring and other non-recurring or unusual items of ( $1.2 ) million pre-tax [( $0.15 ) per share], including 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 and severance, restructuring and related costs of ( $0.9 ) million offset by income from discontinued operations of $0.4 million . For the six months ended June 30, 2005 , Katy reported restructuring and other non-recurring or unusual items of ( $2.1 ) million pre-tax [( $0.27 ) per share], including severance, restructuring and related costs of ( $2.6 ) million offset by income from discontinued operations of $0.5 million . 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 second quarter of 2006, as compared to the same period in the prior year, included:
* Net sales in the second quarter of 2006 were $92.1 million, down
$1.8 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 2%
resulted from lower volumes of 10% offset by higher pricing of 7% and
favorable currency translation of 1%. Lower net sales in the
Maintenance Group resulted from lower volumes with our consumer
plastics and abrasives businesses. Lower net sales in the Electrical
Group resulted from the loss of certain product lines with certain of
our customers. Both operating segments were able to reduce the impact
of lower volume by increased pricing.
* Gross margins were 13.3% in the second quarter of 2006, versus 11.5% in
the second 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 both operating segments
until the last half of 2005. In 2006, our margin improvement reflects
our ability to recover a portion of higher raw material costs
throughout our businesses partially through price increases and also
through cost reduction and efficiency initiatives. In addition, the
improvement in the gross margin reflects the production efficiencies
gained in our Abrasives unit.
* Selling, general and administrative expenses were $2.9 million lower
than the second quarter of 2005. These costs represented 13.8% of net
sales in the second quarter of 2006, a decrease from 16.6% of net sales
for the same period of 2005. The second quarter of 2005 includes
$2.0 million of expense associated with the non-cash stock option
expense related to the acceleration of vesting of stock options.
Excluding this stock option expense, selling, general and
administrative expenses represented 14.5% of net sales in the second
quarter of 2005. The remaining variance relates to cost improvements
made during the past year.
* On June 2, 2006, Katy sold certain assets associated with the Metal
Truck Box division for approximately $3.6 million, including a note
receivable for $1.2 million. The Company has reflected all activity
associated with operations of this division and the sale of the
division as a discontinued operation for all periods presented.
* On June 27, 2006, Katy sold its partnership interest related to
Savannah Energy Systems Company ('SESCO') for approximately
$0.1 million. The agreement reduced the amount due to its partner
under an earlier obligation by $0.6 million. The Company has reflected
all activity associated with operations of this division and the sale
of the partnership interest as a discontinued operation for all periods
presented.
* 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
$0.7 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 $0.4 million for the six months ended June 30,
2006 within selling and administrative expenses for the fair value of
stock options not yet vested.
* Debt at June 30, 2006 was $62.2 million [56% of total capitalization],
versus $56.0 million [49% of total capitalization] at June 30, 2005.
The increase in the ratio of debt to total capitalization was
principally due to the increase in working capital requirements in 2006
as compared to 2005 as well as lower stockholders' equity which
resulted from the net loss reflected in 2005 and the six months ended
June 30, 2006. Cash on hand at June 30, 2006 was $4.6 million, versus
$4.1 million at June 30, 2005.
* Katy used free cash flow of $6.0 million during the six month period
ended June 30, 2006 versus using $2.5 million of free cash flow during
the six month period ended June 30, 2005. The decline in free cash
flow was primarily attributable to the pay down of accounts payable in
the first quarter of 2006.
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 third quarter), and be more reflective
of 2005 by the end of the year. Other elements of working capital are
being closely 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 June 30, 2006 and expects to be in
compliance for the balance of 2006.
'While our overall results still leave room for improvement, our Abrasives
business unit has dramatically improved over the past six months which led the
overall improvement in the results,' said Anthony T. Castor III, Katy's
President and Chief Executive Officer. 'In addition, both operating segments
were able to control costs and execute pricing changes more effectively in
2006 which allowed us to show margin improvement,' added
During the second 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 financial 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 Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Net sales $92,080 $93,835 $172,335 $185,087
Cost of goods sold 79,786 83,074 149,222 165,505
Gross profit 12,294 10,761 23,113 19,582
Selling, general and administrative
expenses 12,702 15,594 25,809 27,681
Severance, restructuring and related
charges 71 466 853 638
(Gain) loss on sale of assets (48) (352) 54 (166)
Operating loss (431) (4,947) (3,603) (8,571)
Interest expense (1,743) (1,350) (3,483) (2,574)
Other, net 83 38 420 (10)
Loss from continuing operations
before provision (benefit)
for income taxes (2,091) (6,259) (6,666) (11,155)
Provision (benefit) for income taxes
from continuing operations 406 (134) 658 (2)
Loss from continuing operations (2,497) (6,125) (7,324) (11,153)
Income from operations of
discontinued businesses (net of
tax) 545 79 337 459
Gain on sale of discontinued
businesses (net of tax) 70 -- 70 --
Loss before cumulative effect of
a change in accounting principle (1,882) (6,046) (6,917) (10,694)
Cumulative effect of a change in
accounting principle (net of tax) -- -- (756) --
Net loss $(1,882) $(6,046) $(7,673) $(10,694)
Loss per share of common stock -
basic and diluted:
Loss from continuing operations $(0.31) $(0.77) $(0.92) $(1.40)
Discontinued operations 0.08 0.01 0.05 0.05
Cumulative effect of a change in
accounting principle -- -- (0.09) --
Net loss $(0.23) $(0.76) $(0.96) $(1.35)
Weighted average common shares
outstanding - basic and diluted 7,979 7,948 7,975 7,947
June 30, June 30,
Other Information: 2006 2005
Working capital $(2,576) $8,063
Working capital, exclusive of
deferred tax assets and liabilities
and debt classified as current $48,476 $49,488
Long-term debt, including current
maturities $62,161 $55,976
Stockholders' equity $48,950 $58,422
Capital expenditures $1,857 $2,943
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 Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Reconciliation of net loss to net
loss, as adjusted:
Net loss $(1,882) $(6,046) $(7,673) $(10,694)
Unusual items:
Cumulative effect of a change in
accounting principle -- -- 756 --
Stock option expense (non-cash) -- 1,953 -- 1,953
Severance, restructuring and
related charges 71 466 853 638
Discontinued operations (615) (79) (407) (459)
Adjustment to reflect a more
normalized effective tax rate
excluding
unusual items 1,174 1,325 2,867 3,252
Net loss, as adjusted $(1,252) $(2,381) $(3,604) $(5,310)
Net loss, as adjusted per share:
Net loss per share $(0.24) $(0.76) $(0.96) $(1.35)
Unusual items per share (0.07) 0.29 0.15 0.27
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items per share 0.15 0.17 0.36 0.41
Net loss, as adjusted per share $(0.16) $(0.30) $(0.45) $(0.67)
Weighted average common shares
outstanding:
Basic and diluted 7,979 7,948 7,975 7,947
Operating loss, as adjusted:
Operating loss $(431) $(4,947) $(3,603) $(8,571)
Stock option expense (non-cash) -- 1,953 -- 1,953
Severance, restructuring and
related charges 71 466 853 638
Operating loss, as adjusted: $(360) $(2,528) $(2,750) $(5,980)
Operating loss, as adjusted, as a %
of sales -0.4% -2.7% -1.6% -3.2%
KATY INDUSTRIES, INC. SEGMENT INFORMATION - UNAUDITED
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Net sales:
Maintenance Products Group $58,334 $59,494 $112,744 $116,706
Electrical Products Group 33,746 34,341 59,591 68,381
$92,080 $93,835 $172,335 $185,087
Operating income (loss), as
adjusted:
Maintenance Products Group $86 $(1,045) $757 $(5,744)
Electrical Products Group 1,922 1,150 1,936 4,063
Unallocated corporate expense (2,368) (2,633) (5,443) (4,299)
$(360) $(2,528) $(2,750) $(5,980)
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets June 30, December 31, June 30,
Current assets: 2006 2005 2005
Cash and cash equivalents $4,565 $8,421 $4,063
Accounts receivable, net 54,102 63,612 56,981
Inventories, net 57,522 62,799 58,548
Other current assets 3,653 3,600 4,493
Total current assets 119,842 138,432 124,085
Other assets:
Goodwill 665 665 2,239
Intangibles, net 6,563 6,946 7,239
Other 9,706 8,643 9,298
Total other assets 16,934 16,254 18,776
Property and equipment 153,277 156,257 130,644
Less: accumulated depreciation (99,673) (98,260) (74,873)
Property and equipment, net 53,604 57,997 55,771
Total assets $190,380 $212,683 $198,632
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $28,714 $47,449 $32,650
Accrued expenses 41,791 41,784 40,968
Current maturities of long-term
debt 2,857 2,857 2,857
Revolving credit agreement 49,056 41,946 39,547
Total current liabilities 122,418 134,036 116,022
Long-term debt, less current
maturities 10,248 12,857 13,572
Other liabilities 8,764 10,497 10,616
Total liabilities 141,430 157,390 140,210
Stockholders' equity:
Convertible preferred stock 108,256 108,256 108,256
Common stock 9,822 9,822 9,822
Additional paid-in capital 26,969 27,016 27,016
Accumulated other comprehensive
income 4,045 3,158 3,120
Accumulated deficit (78,088) (70,415) (67,952)
Treasury stock (22,054) (22,544) (21,840)
Total stockholders' equity 48,950 55,293 58,422
Total liabilities and stockholders'
equity $190,380 $212,683 $198,632
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Six Months Ended June 30,
2006 2005
Cash flows from operating activities:
Net loss $(7,673) $(10,694)
Income from operations of
discontinued businesses (407) (459)
Loss from continuing operations (8,080) (11,153)
Cumulative effect of a change in
accounting principle 756 --
Depreciation and amortization 5,191 5,705
Amortization of debt issuance costs 582 557
Stock option expense 371 1,953
Loss (gain) on sale of assets 54 (166)
(1,126) (3,104)
Changes in operating assets and
liabilities:
Accounts receivable 10,640 9,526
Inventories 2,545 5,132
Other assets 19 (330)
Accounts payable (13,576) (5,277)
Accrued expenses 559 (4,246)
Other, net (2,733) (2,217)
(2,546) 2,588
Net cash used in continuing operations (3,672) (516)
Net cash (used in) provided by
discontinued operations (520) 1,004
Net cash (used in) provided by
operating activities (4,192) 488
Cash flows from investing activities:
Capital expenditures of continuing
operations (1,857) (2,943)
Capital expenditures of discontinued
operations -- (11)
Collections of note receivable from
sale of subsidiary -- 106
Proceeds from sale of discontinued
operations, net 2,542 --
Proceeds from sale of assets 238 600
Net cash provided by (used in)
investing activities 923 (2,248)
Cash flows from financing activities:
Net borrowings (repayments) on
revolving loans 6,835 (410)
Decrease in book overdraft (4,315) --
Repayments of term loans (2,609) (2,142)
Direct costs associated with debt
facilities (166) (135)
Repurchases of common stock (75) --
Proceeds from the exercise of stock options 147 --
Net cash used in financing
activities (183) (2,687)
Effect of exchange rate changes on
cash and cash equivalents (404) (15)
Net decrease in cash and cash
equivalents (3,856) (4,462)
Cash and cash equivalents, beginning
of period 8,421 8,525
Cash and cash equivalents, end of
period $4,565 $4,063
Reconciliation of free cash flow to
GAAP Results:
Net cash (used in) provided by
operating activities $(4,192) $488
Capital expenditures (1,857) (2,943)
Free cash flow $(6,049) $(2,455)
SOURCE Katy Industries, Inc.
