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,