Exhibit 99.1
KATY NEWS
FOR IMMEDIATE RELEASE
KATY INDUSTRIES, INC.
REPORTS 2004 FIRST QUARTER RESULTS
o Sales grow 10.4%. o Completes refinancing.
o Gross margins improve. o Resumes share repurchase.
o SG&A as a percent of sales decline.
MIDDLEBURY, CT - April 29, 2004 - Katy Industries, Inc. (NYSE: KT) today
reported income from continuing operations in the first quarter of 2004 of $0.7
million, or $0.09 per share, versus a loss from continuing operations of ($1.5)
million, or ($0.17) per share, in the first quarter of 2003, as adjusted to
exclude restructuring and other non-recurring or unusual items, which are
discussed below. Including these items, Katy reported a net loss attributable to
common shareholders of ($5.2) million, or ($0.67) per share, in the first
quarter of 2004, versus net income attributable to common shareholders of $1.7
million, or $0.20 per share, in the same period of 2003. Net sales in the first
quarter of 2004 were $99.9 million, up 10.4% compared to the same period in
2003. Earnings before interest, taxes, depreciation and amortization (EBITDA),
as adjusted to exclude all restructuring and other non-recurring or unusual
items, was $5.7 million in the first quarter of 2004, compared to $4.5 million
in the same period in 2003. Income (Loss) From Continuing Operations, as
adjusted, and EBITDA, as adjusted, are Non-GAAP Financial Measures and are
further discussed below.
During the first quarter of 2004, Katy reported restructuring and other
non-recurring or unusual items of ($2.3) million pre-tax [($0.30) per share],
including severance, restructuring and related costs of ($1.9) million and costs
associated with a proposed financing which Katy chose to abandon of ($0.4)
million. Also, during the first quarter of 2004, Katy recorded the impact of
paid-in-kind dividends earned on convertible preferred stock of ($3.5) million
[($0.44) per share]. During the first quarter of 2003, Katy reported
restructuring and other non-recurring or unusual items of $0.6 million pre-tax
[($0.08) per share], including, the write-off of unamortized debt costs related
to the refinancing of debt in February 2003 of ($1.2) million, severance,
restructuring and related costs of ($0.2) million and a gain on the sale of
excess real estate of $0.8 million. Also during the first quarter of 2003, Katy
reported income from discontinued operations of $1.1 million, net of tax [$0.13
per share], a gain on the early redemption of a preferred interest in a
subsidiary of $6.6 million [$0.78 per share] and the impact of paid-in-kind
dividends earned on convertible preferred stock of ($3.0) million [($0.36) per
share]. Details regarding these items are provided in the "Reconciliations of
GAAP Results to Results Excluding Certain Unusual Items" accompanying this press
release.
"We have achieved another quarter of revenue growth and improved margins, even
in the face of raw material cost rising faster than we are able to implement new
cost reductions and price increases," said C. Michael Jacobi, Katy Industries'
President and Chief Executive Officer. "In addition, in the first quarter we
invested in the implementation of Lean Manufacturing and other productivity
initiatives that will yield significant savings later this year," added Mr.
Jacobi.
Gross margins were 16.6% in the first quarter of 2004, an increase of 80 basis
points from the first quarter of 2003. The favorable impact of restructuring,
cost containment and lower
depreciation was offset partially by higher raw material costs. Selling, general
and administrative expenses were $0.1 million lower than the first quarter of
2003. These costs represented 14.8% of sales in the first quarter of 2004, a
significant improvement from the same period of 2003, when these costs
represented 16.4% of sales.
Interest expense decreased by $1.6 million in the first quarter of 2004 versus
the same period of 2003, primarily due to the write-off of unamortized debt
costs of $1.2 million in the first quarter of 2003 (which added to interest
expense in that quarter), and to a lesser extent lower levels of borrowings.
Debt at March 31, 2004 was $51.8 million [34% of total capitalization], versus
$70.4 million [40% of total capitalization] at March 31, 2003. Cash on hand at
March 31, 2004 was $4.0 million, versus $6.1 million at March 31, 2003.
Liquidity was negatively impacted during the three months ended March 31, 2004,
as Katy used free cash flow of $18.1 million versus $14.8 million of free cash
flow used during the three months ended March 31, 2003. Contributing to the
increased use of free cash flow during the first quarter of 2004 were early
purchasing of certain raw materials in advance of scheduled cost increases and
lower accounts payable primarily resulting from improved terms for such
purchases. The Company expects these liquidity trends to reverse as the year
progresses. Free cash flow, a non-GAAP financial measure, is discussed further
below.
On April 20, 2004, Katy announced the refinancing of its outstanding debt
through a new credit agreement with Fleet Capital Corporation as agent. This new
agreement continues to provide the Company with $110 million of committed funds
consisting of $20 million of term debt and a $90 million revolving loan
facility. Since the inception of a similar facility in February 2003, Katy had
repaid $18.2 million of the previous $20 million term loan. The additional
borrowing capacity created by the incremental term loan proceeds will be a key
source of liquidity as the Company looks to grow its revenues in 2004 and beyond
through new product development and acquisitions. In addition, this agreement
provides for separate credit facilities in Canada and the United Kingdom which
gives Katy the flexibility to borrow funds locally in these countries and
provides the Company a natural hedge against foreign currency fluctuations.
Katy also announced that it has resumed its $5.0 million share repurchase plan,
which had been previously suspended in November 2003.
Katy expects to substantially complete its restructuring program in 2004.
Capital expenditures, and severance, restructuring and related costs for these
initiatives are expected to be in the range of $2.0 million to $3.0 million for
the remainder of the year. Payment-in-kind dividends on convertible preferred
stock will end in December 2004, or upon the conversion of the convertible
preferred stock, whichever is sooner.
Katy has completed the sales of its non-core businesses, Duckback Products, Inc.
on September 16, 2003 and GC/Waldom Electronics, Inc. on April 2, 2003. The
results of these businesses have been classified as discontinued operations as
of and for the three months ended March 31, 2003. There was no discontinued
operations activity for the first quarter of 2004.
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 EBITDA, as adjusted; free cash flow; and income (loss) from
continuing operations, as adjusted. Details regarding these measures and
reconciliations of these non-GAAP measures to comparable GAAP measures is
provided in the "Reconciliations of GAAP Results to Results Excluding Certain
Unusual Items" and "Statement of Cash Flows" accompanying this press release.
These
measures should not be considered in isolation or as an alternative to measures
determined in accordance with GAAP. Katy believes the presentation of these
measures is nonetheless useful to investors for the following reasons:
EBITDA, As Adjusted. EBITDA, as adjusted, is calculated as earnings before
interest, taxes, depreciation and amortization, excluding discontinued
operations and unusual items such as severance, restructuring and related costs,
impairments of long-lived assets, and other non-recurring items. Katy believes
that EBITDA, as adjusted, is useful to report because it (i) is used extensively
on an internal basis, acting as a primary metric for operating performance
measurement, (ii) is the prime measure of operating results used by the lenders
in Katy's bank group when evaluating Katy's performance and (iii) provides a
link between profitability and operating cash flow. The presentation of EBITDA,
as adjusted, enables investors to view Katy's performance in a manner similar to
the method used by management.
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.
Income (Loss) From Continuing Operations, As Adjusted. Income (Loss) from
Continuing Operations, as adjusted, is income (loss) from Katy's continuing
operations that excludes restructuring and other non-recurring and unusual
items. Katy believes that its presentation of Income (Loss) from Continuing
Operations, as adjusted provides useful information to management and investors
regarding certain financial and business trends relating to its results of
operations.
This press release may contain various forward-looking statements. The
forward-looking statements are based on the beliefs of the company'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
(203) 598-0397
KATY INDUSTRIES, INC. SUMMARY OF OPERATIONS - UNAUDITED
(In thousands, except percentages and per share data)
Three Months Ended
------------------------- $ %
March 31, March 31, Change Change
2004 2003 Inc/(Dec) Inc/(Dec)
--------- --------- --------- ---------
Net sales $ 99,895 $ 90,452 $ 9,443 10.4%
Cost of goods sold 83,265 76,167 7,098 9.3%
--------- --------- --------- ---------
Gross profit 16,630 14,285 2,345 16.4%
Selling, general and administrative expenses 14,748 14,818 (70) (0.5%)
Severance, restructuring and related charges 1,898 228 1,670 732.5%
--------- --------- --------- ---------
Operating loss (16) (761) 745 97.9%
Equity in loss of equity method investment -- (367) 367 100.0%
Gain on sale of assets -- 753 (753) (100.0%)
Interest expense (800) (2,427) 1,627 67.0%
Other, net (375) (4) (371) (9275.0%)
--------- --------- --------- ---------
Loss before (provision) benefit for income taxes (1,191) (2,806) 1,615 57.6%
(Provision) benefit for income taxes (590) 27 (617) (2285.2%)
--------- --------- --------- ---------
Loss from continuing operations before distributions on
preferred interest of subsidiary (1,781) (2,779) 998 35.9%
Distributions on preferred interest of subsidiary, net of tax -- (123) 123 100.0%
--------- --------- --------- ---------
Loss from continuing operations (1,781) (2,902) 1,121 38.6%
Income from operations of discontinued businesses, net of tax -- 1,058 (1,058) (100.0%)
--------- --------- --------- ---------
Net loss (1,781) (1,844) 63 3.4%
Gain on early redemption of preferred interest of subsidiary -- 6,560 (6,560) (100.0%)
Payment in kind dividends on convertible preferred stock (3,462) (3,014) (448) (14.9%)
--------- --------- --------- ---------
Net (loss) income attributable to common stockholders $ (5,243) $ 1,702 $ (6,945) (408.0%)
========= ========= ========= =========
(Loss) income per share of common stock - basic and diluted:
Loss from continuing operations $ (0.23) $ (0.35) $ 0.12 34.3%
Gain on early redemption of preferred interest of subsidiary -- 0.78 (0.78) (100.0%)
Payment in kind (PIK) dividends on convertible preferred stock (0.44) (0.36) (0.08) (22.2%)
--------- --------- --------- ---------
(Loss) income from continuing operations attributable to
common stockholders (0.67) 0.07 (0.74) (1057.1%)
Discontinued operations -- 0.13 (0.13) (100.0%)
--------- --------- --------- ---------
Net (loss) income attributable to common stockholders $ (0.67) $ 0.20 $ (0.87) (435.0%)
========= ========= ========= =========
Weighted average shares outstanding - basic and diluted 7,881 8,362
========= =========
Other Information:
Working capital, excluding current maturities, long-term debt $ 58,792 $ 54,463 $ 4,329 7.9%
========= ========= ========= =========
Long-term debt, including current maturities $ 51,754 $ 70,402 $ (18,648) (26.5%)
========= ========= ========= =========
Stockholders' equity $ 100,957 $ 107,416 $ (6,459) (6.0%)
========= ========= ========= =========
Capital expenditures $ 2,415 $ 1,315 $ 1,100 83.7%
========= ========= ========= =========
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, March 31,
2004 2003
--------- ---------
Reconciliation of loss from continuing operations to income (loss) from
continuing operations, as adjusted
Loss from continuing operations $(1,781) $(2,902)
Unusual items:
Severance, restructuring and related charges 1,898 228
Write-off of unamortized debt costs (included in interest expense) -- 1,172
Costs associated with abandoned financing (included in other, net) 435 --
Gain on sale of real estate -- (753)
Adjustment to reflect a more normalized effective tax rate excluding unusual items 156 793
------- -------
Income (loss) from continuing operations, as adjusted $ 708 $(1,462)
======= =======
Income (loss) from continuing operations, as adjusted per share
Loss from continuing operations per share $ (0.23) $ (0.35)
Unusual items per share 0.30 0.08
Adjustment to reflect a more normalized effective tax rate excluding unusual items per share 0.02 0.10
------- -------
Income (loss) from continuing operations, as adjusted per share $ 0.09 $ (0.17)
======= =======
Weighted average shares outstanding - basic and diluted 7,881 8,362
======= =======
EBITDA, as adjusted:
Net loss $(1,781) $(1,844)
Interest expense 800 2,427
Provision (benefit) for income taxes 590 (27)
Depreciation and amortization 3,802 5,414
------- -------
EBITDA 3,411 5,970
Add back:
Distributions on preferred interest of subsidiary, net of tax -- 123
Income from operations of discontinued businesses, net of tax -- (1,058)
Severance, restructuring and related charges 1,898 228
Costs associated with abandoned financing (included in other, net) 435 --
Gain on sale of real estate -- (753)
------- -------
EBITDA, as adjusted $ 5,744 $ 4,510
======= =======
EBITDA, as adjusted, as a % of sales 5.8% 5.0%
======= =======
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets March 31, December 31, March 31,
Current assets: 2004 2003 2003
--------- ------------ ---------
Cash $ 3,996 $ 6,748 $ 6,096
Accounts receivable, net 59,517 65,197 55,086
Inventory, net 66,865 53,545 65,659
Other current assets 4,216 1,658 1,861
Current assets of discontinued operations (a) -- -- 13,141
--------- --------- ---------
Total current assets 134,594 127,148 141,843
--------- --------- ---------
Other assets:
Goodwill 10,215 10,215 10,543
Intangibles, net 22,040 22,399 25,027
Other 9,615 10,352 18,703
Non-current assets of discontinued operations (a) -- -- 3,946
--------- --------- ---------
Total other assets 41,870 42,966 58,219
--------- --------- ---------
Property, plant and equipment 148,694 149,634 158,828
Less: accumulated depreciation (80,680) (78,040) (76,881)
--------- --------- ---------
Property, plant and equipment, net 68,014 71,594 81,947
--------- --------- ---------
--------- --------- ---------
Total assets $ 244,478 $ 241,708 $ 282,009
========= ========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 31,267 $ 37,259 $ 31,976
Accrued expenses 44,535 46,450 50,875
Current maturities, long-term debt 1,848 2,857 2,857
Revolving credit agreement 32,763 36,000 50,402
Current liabilities of discontinued operations (a) -- -- 4,529
--------- --------- ---------
Total current liabilities 110,413 122,566 140,639
Revolving credit agreement 17,143 -- --
Long-term debt, less current maturities -- 806 17,143
Other liabilities 15,965 16,044 16,811
--------- --------- ---------
Total liabilities 143,521 139,416 174,593
--------- --------- ---------
Stockholders' equity
Convertible preferred stock 96,969 93,507 83,710
Common stock 9,822 9,822 9,822
Additional paid-in capital 36,979 40,441 50,247
Accumulated other comprehensive income (loss) 2,833 2,387 (2,518)
Accumulated deficit (22,918) (21,137) (13,617)
Treasury stock (22,728) (22,728) (20,228)
--------- --------- ---------
Total stockholders' equity 100,957 102,292 107,416
--------- --------- ---------
--------- --------- ---------
Total liabilities and stockholders' equity $ 244,478 $ 241,708 $ 282,009
========= ========= =========
(a) Amounts include assets and liabilities of GC/Waldom Electronics, Inc. and
Duckback Products, Inc.
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands, except percentages)
Three Months Ended
----------------------- $ %
March 31, March 31, Change Change
2004 2003 Inc/(Dec) Inc/(Dec)
--------- --------- --------- ---------
Cash flows from operating activities:
Net loss $ (1,781) $ (1,844)
Income from operations of discontinued businesses -- (1,058)
-------- --------
Loss from continuing operations (1,781) (2,902)
Depreciation and amortization 3,802 5,414
Write-off and amortization of debt issuance costs 264 1,397
Gain on sale of assets -- (753)
Equity in loss of equity method investment -- 367
-------- --------
2,285 3,523
Changes in operating assets and liabilities:
Accounts receivable 5,956 3,743
Inventories (13,188) (8,475)
Other assets (2,514) 16
Accounts payable (6,243) (4,906)
Accrued expenses (1,923) (4,085)
Other, net (91) (717)
-------- --------
(18,003) (14,424)
Net cash used in continuing operations (15,718) (10,901)
Net cash used in discontinued operations -- (2,589)
-------- -------- --------- ---------
Net cash used in operating activities (15,718) (13,490) (2,228) (17%)
-------- -------- --------- ---------
Cash flows from investing activities:
Capital expenditures of continuing operations (2,415) (1,258)
Capital expenditures of discontinued operations -- (57)
Proceeds from sale of assets 3,673 1,900
-------- -------- --------- ---------
Net cash provided by investing activities 1,258 585 673 115%
-------- -------- --------- ---------
Cash flows from financing activities:
Net borrowings on revolving loans 13,906 5,651
Proceeds of term loans -- 20,000
Repayments of term loans (1,815) --
Direct costs associated with debt facilities (209) (886)
Redemption of preferred interest of subsidiary -- (9,840)
Repayment of real estate and chattel mortgages -- (700)
-------- -------- --------- ---------
Net cash provided by financing activities 11,882 14,225 (2,343) (16%)
-------- -------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents (174) (66)
-------- --------
Net (decrease) increase in cash and cash equivalents (2,752) 1,254
Cash and cash equivalents, beginning of period 6,748 4,842
-------- -------- --------- ---------
Cash and cash equivalents, end of period $ 3,996 $ 6,096 $ (2,100) (34%)
======== ======== ========= =========
Free Cash Flow
Net cash used in operating activities $(15,718) $(13,490)
Capital expenditures of continuing operations (2,415) (1,258)
Capital expenditures of discontinued operations -- (57)
-------- --------
$(18,133) $(14,805)
======== ========