EX-99.1 2 ex99-1.htm KATY INDUSTRIES, INC. PRESS RELEASE DATED MAY 7, 2007 Katy Industries, Inc. Press Release dated May 7, 2007
 
 
KATY NEWS
FOR IMMEDIATE RELEASE

KATY INDUSTRIES, INC.
REPORTS 2007 FIRST QUARTER RESULTS
 
ARLINGTON, VA - May 7, 2007 - Katy Industries, Inc. (OTC BB: KATY) today reported a net loss in the first quarter of 2007 of ($4.0) million [($0.50) per share], versus a net loss of ($2.7) million [($0.34) per share], in the first quarter of 2006, 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 2007 of ($4.0) million [($0.50) per share], versus a net loss of ($5.8) million [($0.73) per share], in the same period of 2006. The operating loss, as adjusted to exclude all restructuring and other non-recurring or unusual items, was ($3.1) million [(3.2%) of net sales] in the first quarter of 2007, compared to an operating loss, as adjusted, of ($2.2) million [(2.9%) of net sales] in the same period in 2006. 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 2007, Katy reported restructuring and other non-recurring or unusual items of $1.4 million pre-tax [$0.18 per share], including a gain on the sale of discontinued businesses of $1.7 million offset by severance, restructuring and related costs of ($0.3) million. During the first quarter of 2006, Katy reported restructuring and other non-recurring or unusual items of ($1.9) million pre-tax [($0.25) per share], including severance, restructuring and related costs of ($0.8) million, loss from operations of discontinued operations of ($0.4) 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. 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 2007, as compared to the same period in the prior year, included:
 
·  
Net sales in the first quarter of 2007 were $94.8 million, an increase of $19.0 million compared to the same period in 2006 primarily due to strong sales in the Electrical Products Group. Overall, the increase of 25% resulted from higher volumes of 16%, higher pricing of 8% and favorable currency translation of 1%.  Higher net sales in the Electrical Products Group resulted from higher demand from its major customers as well as increased prices driven by the significant change in copper prices over the past year. 
 
·  
Gross margins were 8.7% in the first quarter of 2007, versus 13.7% in the first quarter of 2006. In 2007, our margins were adversely impacted by higher copper costs within our Electrical Products Group, a significant portion of which were not passed through as price increases. In addition, the three months ended March 31, 2007 operating loss includes an adjustment for approximately $2.5 million associated with the net realizable value and potential obsolescence of inventory within our Electrical Products Group. The adjustment was made due to the on-going volatility of copper costs.
 
·  
Selling, general and administrative expenses were $1.0 million lower than the first quarter of 2006. These costs represented 12.1% of net sales in the first quarter of 2007, a decrease from 16.5% of net sales for the same period of 2006. The reduction in percentage reflects the cost improvements made during the past year and the fixed nature of these expenses as a percentage of net sales.
 
 
·  
On January 19, 2007, Katy sold its real estate holdings of its United Kingdom consumer plastics business unit for approximately $6.6 million which resulted in a $1.9 million gain on sale of discontinued business. In addition, Katy incurred an additional loss of $0.2 million on the sale of this business unit as final working capital adjustments were completed in the first quarter of 2007. The Company has reflected all activity associated with operations of this division and the sale as a discontinued operation for all periods presented.
 
·  
Debt at March 31, 2007 was $54.5 million [59% of total capitalization], versus $65.5 million [57% of total capitalization] at March 31, 2006. 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. In addition, stockholders’ equity has been impacted from the adoption of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans and FIN 48, Accounting for Uncertainty in Income Taxes. Cash on hand at March 31, 2007 was $2.9 million versus $3.0 million at March 31, 2006.
 
·  
Katy used free cash flow of $6.2 million during the three month period ended March 31, 2007 versus using $7.8 million of free cash flow during the three month period ended March 31, 2006. The improvement in free cash flow was primarily attributable to improvements in net working capital in the first quarter of 2007 as compared to 2006. Free cash flow, a non-GAAP financial measure, is discussed further below.
 
“Our overall results were adversely impacted by the Electrical Products Group ability to recover from customers all of the copper cost increases,” said Anthony T. Castor III, Katy’s President and Chief Executive Officer. “We are reviewing the execution of our pricing strategies with these customers to ensure mechanisms are in place to recover volatile changes in materials,” added Mr. Castor.

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.
 
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,
  
   
2007
  
2006
  
               
Net sales
  
$
94,803
  
$
75,818
  
Cost of goods sold
    
86,559
   
65,407
 
Gross profit
    
8,244
   
10,411
 
Selling, general and administrative expenses
    
11,440
   
12,481
 
Severance, restructuring and related charges
    
244
   
782
 
(Gain) loss on sale of assets
    
(120
)
  
102
 
Operating loss
    
(3,320
)
  
(2,954
)
Interest expense
    
(1,949
)
  
(1,740
)
Other, net
    
70
   
341
 
Loss from continuing operations before provision for income taxes
    
(5,199
)
  
(4,353
)
Provision for income taxes from continuing operations
    
(459
)
  
(262
)
Loss from continuing operations
    
(5,658
)
  
(4,615
)
Loss from operations of discontinued businesses (net of tax)
    
-
   
(420
)
Gain on sale of discontinued businesses (net of tax)
    
1,666
   
-
 
Loss before cumulative effect of a change in accounting principle
    
(3,992
)
  
(5,035
)
Cumulative effect of a change in accounting principle (net of tax)
    
-
   
(756
)
Net loss
  
$
(3,992
)
$
(5,791
)
               
Loss per share of common stock - basic and diluted:
              
               
Loss from continuing operations
  
$
(0.71
)
$
(0.58
)
Discontinued operations
    
0.21
   
(0.05
)
Cumulative effect of a change in accounting principle
    
-
   
(0.10
)
Net loss
  
$
(0.50
)
$
(0.73
)
               
Weighted average common shares outstanding - basic and diluted
    
7,951
   
7,971
 
               
Other Information:
              
               
Working capital
  
$
2,541
  
$
377
  
Working capital, exclusive of deferred tax assets and liabilities and debt
              
classified as current
  
$
44,625
  
$
52,850
  
Long-term debt, including current maturities
  
$
54,459
  
$
65,477
  
Stockholders' equity
  
$
37,750
  
$
49,846
  
Capital expenditures
  
$
1,130
  
$
816
  
               
 
 
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,
   
2007
  
2006
  
Reconciliation of net loss to net loss, as adjusted:
              
Net loss
  
$
(3,992
)
$
(5,791
)
Unusual items:
              
Severance, restructuring and related charges
    
244
   
782
 
Discontinued operations
    
(1,666
)
  
420
 
Cumulative effect of a change in accounting principle
    
-
   
756
 
Adjustment to reflect a more normalized effective tax rate excluding
              
unusual items
    
1,424
   
1,095
 
Net loss, as adjusted
  
$
(3,990
)
$
(2,738
)
               
Net loss, as adjusted per share - basic and diluted:
              
Net loss per share
  
$
(0.50
)
$
(0.73
)
Unusual items per share
    
(0.18
)
  
0.25
 
Adjustment to reflect a more normalized effective tax rate excluding
              
unusual items per share
    
0.18
   
0.14
 
Net loss, as adjusted per share
  
$
(0.50
)
$
(0.34
)
               
Weighted average common shares outstanding:
              
Basic and diluted
    
7,951
   
7,971
 
               
Operating loss, as adjusted:
              
               
Operating loss
  
$
(3,320
)
$
(2,954
)
Severance, restructuring and related charges
    
244
   
782
 
Operating loss, as adjusted:
  
$
(3,076
)
$
(2,172
)
Operating loss, as adjusted, as a % of sales
    
-3.2
%
  
-2.9
%
               
 
 
KATY INDUSTRIES, INC. SEGMENT INFORMATION - UNAUDITED
          
(In thousands)
          
           
   
Three Months Ended March 31,
  
   
2007
  
2006
  
Net sales:
              
Maintenance Products Group
 
$
50,308
  
$
49,973
  
Electrical Products Group
   
44,495
   
25,845
 
   
$
94,803
  
$
75,818
  
               
Operating loss, as adjusted:
              
Maintenance Products Group
 
$
950
  
$
889
  
Electrical Products Group
   
(1,360
)
  
14
 
Unallocated corporate expense
   
(2,666
)
  
(3,075
)
   
$
(3,076
)
$
(2,172
)
               
 
 
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
              
(In thousands)
              
               
Assets
  
March 31,
  
December 31,
  
March 31,
  
Current assets:
  
2007
  
2006
  
2006
  
Cash and cash equivalents
  
$
2,919
  
$
7,392
  
$
3,001
  
Accounts receivable, net
    
47,811
   
55,014
   
46,503
 
Inventories, net
    
61,484
   
55,960
   
67,960
 
Other current assets
    
3,592
   
2,991
   
3,822
 
Asset held for sale
    
-
   
4,483
   
-
 
Total current assets
    
115,806
   
125,840
   
121,286
 
                     
Other assets:
                    
Goodwill
    
665
   
665
   
665
 
Intangibles, net
    
6,358
   
6,435
   
6,827
 
Other
    
8,576
   
8,990
   
8,605
 
Total other assets
    
15,599
   
16,090
   
16,097
 
                     
Property and equipment
    
130,747
   
129,708
   
155,101
 
Less: accumulated depreciation
    
(89,780
)
  
(87,964
)
  
(98,944
)
Property and equipment, net
    
40,967
   
41,744
   
56,157
 
                     
Total assets
  
$
172,372
  
$
183,674
  
$
193,540
  
                     
                     
Liabilities and stockholders' equity
                    
Current liabilities:
                    
Accounts payable
  
$
32,836
  
$
33,684
  
$
27,379
  
Accrued expenses
    
37,438
   
41,705
   
40,196
 
Current maturities of long-term debt
    
1,500
   
1,125
   
2,857
 
Revolving credit agreement
    
41,491
   
43,879
   
50,477
 
Total current liabilities
    
113,265
   
120,393
   
120,909
 
                     
Long-term debt, less current maturities
    
11,468
   
11,867
   
12,143
 
Other liabilities
    
9,889
   
8,402
   
10,642
 
Total liabilities
    
134,622
   
140,662
   
143,694
 
                     
Stockholders' equity:
                    
Convertible preferred stock
    
108,256
   
108,256
   
108,256
 
Common stock
    
9,822
   
9,822
   
9,822
 
Additional paid-in capital
    
27,145
   
27,069
   
26,829
 
Accumulated other comprehensive income
    
1,862
   
2,242
   
3,167
 
Accumulated deficit
    
(87,375
)
  
(82,403
)
  
(76,206
)
Treasury stock
    
(21,960
)
  
(21,974
)
  
(22,022
)
Total stockholders' equity
    
37,750
   
43,012
   
49,846
 
                     
Total liabilities and stockholders' equity
  
$
172,372
  
$
183,674
  
$
193,540
  
                     
 
 
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
          
(In thousands)
          
   
Three Months Ended March 31,
  
   
2007
  
2006
  
Cash flows from operating activities:
              
Net loss 
  
$
(3,992
)
$
(5,791
)
(Income) loss from discontinued operations 
    
(1,666
)
  
420
 
 Loss from continuing operations
    
(5,658
)
  
(5,371
)
Cumulative effect of a change in accounting principle 
    
-
   
756
 
Depreciation and amortization 
    
2,072
   
2,241
 
Amortization of debt issuance costs 
    
619
   
287
 
Stock option expense 
    
94
   
191
 
(Gain) loss on sale of assets 
    
(120
)
  
102
 
Deferred income taxes 
    
(94
)
  
-
 
     
(3,087
)
  
(1,794
)
Changes in operating assets and liabilities: 
              
 Accounts receivable
    
7,115
   
18,302
 
 Inventories
    
(5,498
)
  
(6,451
)
 Other assets
    
(708
)
  
(76
)
 Accounts payable
    
1,301
   
(14,470
)
 Accrued expenses
    
(4,078
)
  
(1,794
)
 Other, net
    
485
   
(1,048
)
     
(1,383
)
  
(5,537
)
               
Net cash used in continuing operations 
    
(4,470
)
  
(7,331
)
Net cash (used in) provided by discontinued operations 
    
(565
)
  
389
 
Net cash used in operating activities 
    
(5,035
)
  
(6,942
)
               
Cash flows from investing activities:
              
Capital expenditures 
    
(1,130
)
  
(816
)
Proceeds from sale of discontinued operations, net 
    
6,609
   
-
 
Proceeds from sale of assets, net 
    
120
   
163
 
Net cash provided by (used in) investing activities 
    
5,599
   
(653
)
               
Cash flows from financing activities:
              
Net (repayments) borrowings on revolving loans 
    
(2,454
)
  
8,578
 
Decrease in book overdraft 
    
(2,153
)
  
(5,360
)
Repayments of term loans 
    
(24
)
  
(714
)
Direct costs associated with debt facilities 
    
(125
)
  
(165
)
Repurchases of common stock 
    
(3
)
  
(4
)
Proceeds from the exercise of stock options 
    
-
   
147
 
Net cash (used in) provided by financing activities 
    
(4,759
)
  
2,482
 
               
Effect of exchange rate changes on cash and cash equivalents
    
(278
)
  
(307
)
Net decrease in cash and cash equivalents
    
(4,473
)
  
(5,420
)
Cash and cash equivalents, beginning of period
    
7,392
   
8,421
 
Cash and cash equivalents, end of period
  
$
2,919
  
$
3,001
  
               
Reconciliation of free cash flow to GAAP Results:
              
               
Net cash used in operating activities 
  
$
(5,035
)
$
(6,942
)
Capital expenditures 
    
(1,130
)
  
(816
)
Free cash flow 
  
$
(6,165
)
$
(7,758
)