ARLINGTON, Va., March 12 /PRNewswire-FirstCall/ -- Katy Industries, Inc. (NYSE: KT) today reported a net loss in the fourth quarter of 2006 of ( $0.4 ) million [( $0.06 ) per diluted share], versus a net loss of ( $0.2 ) million [( $0.03 ) per diluted share], in the fourth 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 fourth quarter of 2006 of ( $2.5 ) million [( $0.31 ) per diluted share], versus a net loss of ( $3.8 ) million [( $0.48 ) per diluted share], in the same period of 2005. The operating income, as adjusted to exclude all restructuring and other non-recurring or unusual items, was $1.3 million [1.2% of net sales] in the fourth quarter of 2006, compared to operating income, as adjusted, of $1.2 million [1.0% 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. Details regarding these items are provided in the 'Reconciliations of GAAP Results to Results Excluding Certain Unusual Items' accompanying this press release.
Katy also reported a net loss for the year ended December 31, 2006 of ( $1.7 ) million [( $0.21 ) per diluted share], versus a net loss of ( $2.9 ) million [( $0.36 ) per diluted share], for the year ended December 31, 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 year ended December 31, 2006 of ( $12.0 ) million [( $1.50 ) per diluted share], versus a net loss of ( $13.2 ) million [( $1.66 ) per diluted share], in the same period of 2005. The operating income, as adjusted to exclude all restructuring and other non-recurring or unusual items, was $4.1 million [1.0% of net sales] for the year ended December 31, 2006 , compared to operating income, as adjusted, of $0.7 million [0.2% 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. Details regarding these items are provided in the 'Reconciliations of GAAP Results to Results Excluding Certain Unusual Items' accompanying this press release.
During the fourth quarter of 2006, Katy reported restructuring and other non-recurring or unusual items of ( $0.7 ) million pre-tax [( $0.08 ) per diluted share], including a loss from discontinued operations of ( $2.4 ) million offset by the reversal of certain severance, restructuring and related costs of $1.7 million recognized in prior periods. During the fourth quarter of 2005, Katy reported restructuring and other non-recurring or unusual items of ( $2.6 ) million pre-tax [( $0.32 ) per diluted share], including the impairment of long- lived assets of ( $2.1 ) million, loss from discontinued operations of ( $0.9 ) million and severance, restructuring and related costs 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.
For the year ended December 31, 2006 , Katy reported restructuring and other non-recurring or unusual items of ( $7.0 ) million pre-tax [( $0.88 ) per diluted share], including costs of ( $0.8 ) 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 loss from discontinued operations of ( $6.3 ) million offset by the reversal of certain severance, restructuring and related costs of $0.1 million recognized in prior periods. For the year ended December 31, 2005 , Katy reported restructuring and other non-recurring or unusual items of ( $6.9 ) million pre-tax [( $0.87 ) per diluted share], including the loss from discontinued operations of ( $2.3 ) million, 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 and severance, restructuring and related costs of ( $1.1 ) million. These charges were offset by Katy recording income of $0.6 million from its equity investment in Sahlman Holding Company, Inc.
Financial highlights for the fourth quarter of 2006, as compared to the same period in the prior year, included:
* Net sales in the fourth quarter of 2006 were $110.5 million, down $3.2
million compared to the same period in 2005 primarily due to weaker
sales in the Maintenance Products Group. Overall, the decrease of 3%
resulted from lower volumes of 17% offset by higher pricing of 13% and
favorable currency translation of 1%. Lower net sales in the
Maintenance Products Group resulted from our decision to exit certain
unprofitable business lines within our United States consumer plastics
business unit. Net sales in our Electrical Products Group was
comparable to the prior year as volume reductions were nearly offset by
price increases implemented throughout 2006.
* Gross margins were 11.1% in the fourth quarter of 2006, versus 12.7% in
the fourth quarter of 2005. Our margin performance was negatively
impacted by higher product costs, primarily in the Electrical Products
Group, many of which were not passed on through price increases.
However, our margins were positively impacted by continued production
efficiencies gained in our Abrasives unit over the past twelve months
as well as the liquidation of inventory, valued at last-in first-out.
* Selling, general and administrative expenses were $2.6 million lower in
the fourth quarter of 2006. These costs represented 9.6% of net sales
in the fourth quarter of 2006, which is lower than 11.7% of net sales
for the same period of 2005. The reduction in these expenses primarily
relates to lower costs on our self-insurance programs as well as the
favorable impact from headcount reductions made throughout 2006 within
the entire organization.
* Loss from operations of discontinued businesses for the year ended
December 31, 2006 includes the United Kingdom consumer plastics
business, the Metal Truck Box division and the partnership interest
related to Savannah Energy Systems Company ('SESCO'). The Metal Truck
Box division and SESCO were sold during the second quarter of 2006. On
November 27, 2006, Katy sold the United Kingdom consumer plastics
business, excluding real estate holdings, for approximately $3.0
million. The Company incurred a $2.2 million loss on the sale of
discontinued business during the fourth quarter of 2006. In the third
quarter of 2006, the Company reflected the United Kingdom consumer
plastics business as an asset held for sale which resulted in a $3.2
million impairment charge that was reflected within loss on sale of
discontinued businesses.
* Debt at December 31, 2006 was $56.9 million [57% of total
capitalization], versus $57.7 million [51% of total capitalization] at
December 31, 2005. The increase in the ratio of debt to total
capitalization was principally due to the lower stockholders' equity
which resulted from the net loss reflected in 2006. Cash on hand at
December 31, 2006 was $7.4 million, versus $8.4 million at December 31,
2005.
* Katy was in compliance with the amended covenants in the Bank of
America Credit Agreement at December 31, 2006. On March 8, 2007, Katy
obtained an amendment to the Bank of America Credit Agreement (the
Eighth Amendment). The Eighth Amendment eliminates the Fixed Charge
Coverage Ratio for the remaining life of the agreement 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 Eighth Amendment through September 29, 2007 and by at least $7.5
million through December 31, 2007. Thereafter, the Minimum
Availability required will be $5 million for the first three quarters
of each fiscal year and $7.5 million for the last quarter of each
fiscal year.
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.
'Over the past year, our Abrasives business unit drove the overall
improvement in our Maintenance Products group with its productivity,' said
Anthony T. Castor III, Katy's President and Chief Executive Officer.
'However, the Electrical Products group continues to be impacted by
unprecedented increases in the price of copper that were not able to be passed
effectively to its customer base,' added
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 Year Ended
December 31, December 31,
2006 2005 2006 2005
Net sales $110,513 $113,666 $396,166 $423,390
Cost of goods sold 98,227 99,255 344,695 372,715
Gross profit 12,286 14,411 51,471 50,675
Selling, general and
administrative expenses 10,641 13,257 46,939 52,315
Impairments of long-lived assets - 2,112 - 2,112
Severance, restructuring and
related charges (1,703) 198 (112) 1,090
Loss (gain) on sale of assets 364 (35) 467 (377)
Operating income (loss) 2,984 (1,121) 4,177 (4,465)
Equity in income of equity method
investment - 600 - 600
Interest expense (1,839) (1,539) (7,037) (5,570)
Other, net (164) 4 302 207
Income (loss) from continuing
operations before provision
for income taxes 981 (2,056) (2,558) (9,228)
Provision for income taxes from
continuing operations 1,115 886 2,326 1,608
Loss from continuing operations (134) (2,942) (4,884) (10,836)
Loss from operations of
discontinued businesses (net of
tax) (194) (854) (1,043) (2,321)
Loss on sale of discontinued
businesses (net of tax) (2,175) - (5,305) -
Loss before cumulative effect
of a change in accounting
principle (2,503) (3,796) (11,232) (13,157)
Cumulative effect of a change in
accounting principle (net of tax) - - (756) -
Net loss $(2,503) $(3,796) $(11,988) $(13,157)
Loss per share of common stock -
basic and diluted:
Loss from continuing operations $(0.01) $(0.37) $(0.61) $(1.36)
Discontinued operations (0.30) (0.11) (0.80) (0.30)
Cumulative effect of a change in
accounting principle - - (0.09) -
Net loss $(0.31) $(0.48) $(1.50) $(1.66)
Weighted average common shares
outstanding - basic and diluted 7,955 7,950 7,967 7,949
December 31, December 31,
Other Information: 2006 2005
Working capital $5,447 $4,396
Working capital, exclusive of
deferred tax assets and
liabilities and debt
classified as current $49,544 $48,338
Long-term debt, including current
maturities $56,871 $57,660
Stockholders' equity $43,012 $55,293
Capital expenditures $4,742 $9,366
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,
2006 2005 2006 2005
Reconciliation of net loss to net
loss, as adjusted:
Net loss $(2,503) $(3,796) $(11,988) $(13,157)
Unusual items:
Stock option expense (non-cash) - - - 1,953
Impairments of long-lived assets - 2,112 - 2,112
Severance, restructuring and
related charges (1,703) 198 (112) 1,090
Equity in income of equity method
investment - (600) - (600)
Discontinued operations 2,369 854 6,348 2,321
Cumulative effect of a change in
accounting principle - - 756 -
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items 1,389 1,017 3,341 3,384
Net loss, as adjusted $(448) $(215) $(1,655) $(2,897)
Net income loss, as adjusted per
share - basic and diluted:
Net loss per share $(0.31) $(0.48) $(1.50) $(1.66)
Unusual items per share 0.08 0.32 0.88 0.87
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items per share 0.17 0.13 0.41 0.43
Net loss, as adjusted per share $(0.06) $(0.03) $(0.21) $(0.36)
Weighted average common shares
outstanding:
Basic and diluted 7,955 7,950 7,967 7,949
Operating income, as adjusted:
Operating income (loss) $2,984 $(1,121) $4,177 $(4,465)
Stock option expense (non-cash) - - - 1,953
Impairments of long-lived assets - 2,112 - 2,112
Severance, restructuring and
related charges (1,703) 198 (112) 1,090
Operating income, as adjusted: $1,281 $1,189 $4,065 $690
Operating income, as adjusted, as a
% of sales 1.2% 1.0% 1.0% 0.2%
KATY INDUSTRIES, INC. SEGMENT INFORMATION - UNAUDITED
(In thousands)
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
Net sales:
Maintenance Products Group $47,636 $51,269 $208,423 $216,068
Electrical Products Group 62,877 62,397 187,743 207,322
$110,513 $113,666 $396,166 $423,390
Operating income, as adjusted:
Maintenance Products Group $1,213 $(2,024) $5,892 $(5,932)
Electrical Products Group 2,474 7,271 8,791 17,433
Unallocated corporate expense (2,406) (4,058) (10,618) (10,811)
$1,281 $1,189 $4,065 $690
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets December 31, December 31,
Current assets: 2006 2005
Cash and cash equivalents $7,392 $8,421
Accounts receivable, net 55,014 63,612
Inventories, net 55,960 62,799
Other current assets 2,991 3,600
Asset held for sale 4,483 -
Total current assets 125,840 138,432
Other assets:
Goodwill 665 665
Intangibles, net 6,435 6,946
Other 8,990 8,643
Total other assets 16,090 16,254
Property and equipment 129,708 156,257
Less: accumulated depreciation (87,964) (98,260)
Property and equipment, net 41,744 57,997
Total assets $183,674 $212,683
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $33,684 $47,449
Accrued expenses 41,705 41,784
Current maturities of long-term
debt 1,125 2,857
Revolving credit agreement 43,879 41,946
Total current liabilities 120,393 134,036
Long-term debt, less current
maturities 11,867 12,857
Other liabilities 8,402 10,497
Total liabilities 140,662 157,390
Stockholders' equity:
Convertible preferred stock 108,256 108,256
Common stock 9,822 9,822
Additional paid-in capital 27,069 27,016
Accumulated other comprehensive
income 2,242 3,158
Accumulated deficit (82,403) (70,415)
Treasury stock (21,974) (22,544)
Total stockholders' equity 43,012 55,293
Total liabilities and stockholders'
equity $183,674 $212,683
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Year Ended December 31,
2006 2005
Cash flows from operating activities:
Net loss $(11,988) $(13,157)
Loss from operations of discontinued
businesses 6,348 2,321
Loss from continuing operations (5,640) (10,836)
Cumulative effect of a change in
accounting principle 756 -
Depreciation and amortization 8,640 8,968
Impairments of long-lived assets - 2,112
Amortization of debt issuance costs 1,178 1,122
Stock option expense 587 1,953
Loss (gain) on sale of assets 467 (377)
Equity in income of equity method
investment - (600)
Deferred income taxes 14 240
6,002 2,582
Changes in operating assets and
liabilities:
Accounts receivable 2,743 (16)
Inventories 2,056 2,054
Other assets 600 (1,045)
Accounts payable (8,000) 7,503
Accrued expenses 622 (3,047)
Other, net (3,237) (1,187)
(5,216) 4,262
Net cash provided by continuing
operations 786 6,844
Net cash provided by (used in)
discontinued operations 1,037 (282)
Net cash provided by operating
activities 1,823 6,562
Cash flows from investing activities:
Capital expenditures of continuing
operations (4,614) (8,925)
Capital expenditures of discontinued
operations (128) (441)
Acquisition of business, net of cash
acquired - (1,115)
Collections of note receivable from
sale of subsidiary - 106
Proceeds from sale of discontinued
operations, net 5,520 -
Proceeds from sale of assets 267 981
Net cash provided by (used in)
investing activities 1,045 (9,394)
Cash flows from financing activities:
Net borrowings on revolving loans 1,761 1,450
(Decrease) increase in book
overdraft (2,322) 4,028
Proceeds of term loans 1,364 -
Repayments of term loans (4,086) (2,857)
Direct costs associated with debt
facilities (312) (151)
Repurchases of common stock (111) (7)
Proceeds from the exercise of stock options 147 -
Net cash (used in) provided by
financing activities (3,559) 2,463
Effect of exchange rate changes on
cash and cash equivalents (338) 265
Net decrease in cash and cash
equivalents (1,029) (104)
Cash and cash equivalents, beginning
of period 8,421 8,525
Cash and cash equivalents, end of
period $7,392 $8,421
Reconciliation of free cash flow to
GAAP Results:
Net cash provided by operating
activities $1,823 $6,562
Capital expenditures (4,742) (9,366)
Free cash flow $(2,919) $(2,804)
SOURCE Katy Industries, Inc.
