KATY INDUSTRIES, INC.
REPORTS
2007
FOURTH
QUARTER
RESULTS
ARLINGTON, VA –
March
12,
2008 –
Katy
Industries,
Inc.
(OTC
BB:
KATY)
today
reported
a
net
loss
in
the
fourth
quarter
of
2007
of
($2.4)
million
[($0.30)
per
share],
versus
a
net
loss
of
($1.3)
million
[($0.16)
per
share],
in
the
fourth
quarter
of
2006,
as
adjusted
to
exclude
restructuring
and
other
non-recurring
or
unusual
items,
which
are
discussed
below.
Including
these
items,
Katy
reported
net
income
in
the
fourth
quarter
of
2007
of
$1.3
million
[$0.16
per
share],
versus
a
net
loss
of
($2.7)
million
[($0.34)
per
share],
in
the
same
period
of
2006.
Operating
loss,
as
adjusted
to
exclude
all
restructuring
and
other
non-recurring
or
unusual
items,
was
($2.5)
million
[(5.9%)
of
net
sales]
in
the
fourth
quarter
of
2007,
compared
to
an
operating
loss,
as
adjusted,
of
($0.9)
million
[(2.0%)
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. .
Katy
also
reported
a
net
loss
for
the
year
ended
December
31,
2007
of
($6.4)
million
[($0.81)
per
share],
versus
a
net
loss
of
($5.8)
million
[($0.73)
per
share],
for
the
year
ended
December
31,
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
for
the
year
ended
December
31,
2007
of
($1.5)
million
[($0.19)
per
share],
versus
a
net
loss
of
($12.4)
million
[($1.55)
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
($5.7)
million
[(3.1%)
of
net
sales]
for
the
year
ended
December
31,
2007,
compared
to
an
operating
loss,
as
adjusted,
of
($5.4)
million
[(2.8%)
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
fourth
quarter
of
2007,
Katy
reported
restructuring
and
other
non-recurring
or
unusual
items
of
$3.8
million
pre-tax
[$0.47
per
share],
primarily
consisting
of
a
gain
on
the
sale
and
operating
activities
of
the
discontinued
businesses
of
$3.8
million,
income
from
the
sale
of
our
equity
investment
of
$0.8
million,
partially
offset
by
a
loss
on
sale
of
assets
of
($0.9)
million.
During
the
fourth
quarter
of
2006,
Katy
reported
restructuring
and
other
non-recurring
or
unusual
items
of
($0.3)
million
pre-tax
[($0.04)
per
share],
primarily
consisting
of
a
loss
on
the
sale
and
operating
activities
of
the
discontinued
businesses
of
($1.5)
million
and
loss
on
sale
of
assets
of
($0.4)
million,
partially
offset
by
a
reduction
in
severance,
restructuring
and
related
costs
of
$1.6
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
year
ended
December
31,
2007,
Katy
reported
restructuring
and
other
non-recurring
or
unusual
items
of
$8.2
million
pre-tax
[$1.02
per
share],
including
a
gain
on
the
sale
and
operating
activities
of
discontinued
businesses
of
$12.4
million,
income
from
the
sale
of
our
equity
investment
of
$0.8
million,
partially
offset
by
severance,
restructuring
and
related
costs
of
($2.6)
million
and
loss
on
sale
of
assets
of
($2.4)
million.
For
the
year
ended
December
31,
2006,
Katy
reported
restructuring
and
other
non-recurring
or
unusual
items
of
($3.6)
million
pre-tax
[($0.45)
per
share],
including
loss
on
the
sale
and
operating
activities
of
the
discontinued
businesses
of
($3.0)
million,
loss
on
sale
of
assets
of
($0.4)
million,
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,
partially
offset
by
gain
on
SESCO
joint
venture
transaction
of
$0.6
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
fourth
quarter
of
2007,
as
compared
to
the
same
period
in
the
prior
year,
included:
·
On
November
30,
2007,
the
Company
completed
the
sale
of
the
Woods
U.S.
and
Woods
Canada
businesses,
which
comprised
our
Electrical
Products
Group.
Gross
proceeds
received
were
$49.8
million,
including
$6.8
million
being
held
in
escrow
and
expected
to
be
received
primarily
in
the
first
two
quarters
of
2008.
As
a
result,
Katy
recorded
a
$1.3
million
gain
on
the
sale
of
these
businesses.
These
proceeds
were
used
to
pay
down
the
outstanding
revolving
loan
which
was
$2.9
million
at
December
31,
2007
as
compared
to
$43.9
million
at
December
31,
2006.
Besides
the
Woods
U.S.
and
Woods
Canada
businesses,
the
discontinued
operations
also
include
the
Metal
Truck
Box
business,
Contico
Europe
Limited
(the
UK
consumer
plastics
business)
and
Contico
Manufacturing,
Ltd.
(the
UK
commercial
plastics
business),
all
of
which
were
sold
in
either
2006
or
2007.
·
Net
sales
in
the
fourth
quarter
of
2007
were
$43.0
million,
a
decrease
of
$0.6
million
compared
to
the
same
period
in
2006
primarily
due
to
lower
volume
activity
within
our
Contico
business
unit.
Overall,
the
decrease
in
net
sales
of
1%
resulted
from
lower
volumes
of
2%,
partially
offset
by
favorable
foreign
currency
translation
of
1%.
· Gross
margins
were
5.8%
in
the
fourth
quarter
of
2007,
versus
13.4%
in
the
fourth
quarter
of
2006.
In
2007,
our
margins
were
adversely
impacted
by
an
unfavorable
year
over
year
variance
of
approximately
$1.1
million
to
a
quarterly
LIFO
adjustment
and
production
inefficiencies
at
our
Glit
business
unit.
The
unfavorable
LIFO
variance
was
primarily
driven
by
the
trend
in
resin
prices
occurring
in
2007
as
compared
to
2006.
·
Selling,
general
and
administrative
expenses
in
the
fourth
quarter
of
2007
were
$1.7
million
lower
than
the
same
period
of
2006.
These
costs
represented
11.6%
of
net
sales
in
the
fourth
quarter
of
2007,
a
decrease
from
15.4%
of
net
sales
for
the
same
period
of
2006.
The
reduction
in
percentage
reflects
the
lower
requirements
under
the
Company’s
incentive
compensation
plan
and
self
insurance
programs
as
well
as
various
cost
improvements
implemented
during
the
past
year.
·
On
November
30,
2007,
the
Company
entered
into
a
new
credit
facility
with
Bank
of
America,
N.A.,
one
of
the
lenders
under
our
previous
agreement.
The
agreement
provides
for
a
total
facility
of
$50.6
million
with
a
$10.6
million
term
loan
and
a
$40.0
million
revolving
loan
that
expires
November
2010.
Debt
at
December
31,
2007
was
$13.5
million
[27%
of
total
capitalization],
versus
$56.9
million
[58%
of
total
capitalization]
at
December
31,
2006.
The
decrease
in
the
debt
level
and
the
ratio
of
debt
to
total
capitalization
was
principally
due
to
the
reduction
of
debt
from
the
divestiture
of
Woods
U.S.
and
Woods
Canada,
as
described
above.
In
addition,
the
Company
sold
its
investment
in
Sahlman
Seafoods,
Inc.
for
$3.0
million
in
December
2007.
Cash
on
hand
at
December
31,
2007
was
$2.0
million
versus
$7.4
million
at
December
31,
2006.
·
Katy
used
free
cash
flow
of
$14.5
million
during
2007
versus
using
$1.0
million
of
free
cash
flow
during
2006.
The
increased
use
of
cash
was
primarily
attributable
to
the
higher
working
capital
requirements
in
2007
associated
with
inventory
as
compared
to
2006.
Free
cash
flow,
a
non-GAAP
financial
measure,
is
discussed
further
below.
“With
the
completion
of
the
divestiture
of
the
Electrical
Products
Group,
Katy
will
now
be
able
to
focus
on
a
single-business
model
that
will
allow
the
organization
to
further
focus
its
resources
on
our
core
business,
Continental
Commercial
Products,
which
services
the
janitorial/sanitary
and
food
service
markets,”
said
Anthony
T.
Castor
III,
Katy’s
President
and
Chief
Executive
Officer.
“While
our
quarterly
performance
was
impacted
by
the
LIFO
variance
and
certain
production
inefficiencies,
we
believe
that
our
overall
cost
position
will
improve
as
we
continue
to
focus
on
our
core
business,”
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,
including
but
not
limited
to:
the
Company’s
receipt
of
proceeds
held
in
escrow
related
to
the
sale
of
the
Electrical
Products
Group,
the
Company’s
ability
to
reduce
its
overall
cost
position
and
the
affect
of
the
Company’s
refocused
business
strategy.
The
forward-looking
statements
are
based
on
the
opinions
and
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
current
interests
primarily
in
Maintenance
Products
and
Electrical
Products.
After
the
sale
of
the
Electrical
Products
Group,
Katy
will
be
focused
on
the
manufacturing
and
distribution
of
commercial
cleaning
products
and
consumer
home
products.
2007
Fourth Quarter Report
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