KATY NEWS
---------------------
FOR IMMEDIATE RELEASE
KATY INDUSTRIES, INC.
REPORTS 2005 FIRST QUARTER RESULTS
MIDDLEBURY, CT - April 29, 2005 - Katy Industries, Inc. (NYSE: KT) today
reported a net loss in the first quarter of 2005 of ($2.6) million [($0.32) per
share], versus net income of $0.7 million [$0.09 per share], in the first
quarter of 2004, as adjusted to exclude restructuring and other non-recurring or
unusual items, which are discussed below. Including these items and
payment-in-kind dividends on convertible preferred stock, Katy reported a net
loss attributable to common stockholders of ($4.6) million [($0.59) per share],
in the first quarter of 2005, versus a net loss attributable to common
stockholders of ($5.2) million [($0.67) per share], in the same period of 2004.
The operating loss, as adjusted to exclude all restructuring and other
non-recurring or unusual items, was ($2.8) million [(3.0%) of net sales] in the
first quarter of 2005, compared to operating income, as adjusted of $1.9 million
[1.9% of net sales] in the same period in 2004. 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 2005, Katy reported severance, restructuring and
related charges of ($0.4) million. 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 not to pursue of ($0.4) million. Also, during the first quarter
of 2004, Katy recorded the impact of payment-in-kind dividends earned on its
convertible preferred stock of ($3.5) million [($0.44) per share].
Payment-in-kind dividends on convertible preferred stock ended in December 2004.
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 2005, as compared to the same
period in the prior year, included:
o Net sales in the first quarter of 2005 were $95.5 million, down $4.4
million compared to the same period in 2004 primarily due to weaker
sales in the Maintenance Products Group, partially offset by
stronger sales in the Electrical Products Group. Overall, the
decrease of 4% resulted from lower volumes of 11% offset by higher
pricing of 6% and favorable currency translation of 1%.
o Gross margins were 10.0% in the first quarter of 2005, versus 16.6%
in the first quarter of 2004. Margins were negatively impacted by
higher raw material costs, a significant portion of which could not
be passed on through price increases (mostly in the Maintenance
Products Group); low manufacturing throughput at our plastics
molding facilities in the U.S. and the U.K. as we reduced inventory
levels and adjusted our production levels to react to the decision
to exit certain unprofitable lines of Consumer Plastics business;
and higher operating costs in our Abrasives business unit due to
manufacturing inefficiencies resulting from i) the delayed
consolidation of the Abrasives facilities and ii) a fire at our
Wrens, Georgia facility early in the fourth quarter of 2004. These
items were only partially offset by the favorable impact of
restructuring and cost containment.
o Selling, general and administrative expenses were $2.4 million lower
than the first quarter of 2004. These costs represented 12.9% of
sales in the first quarter of 2005, a decrease from 14.8% of sales
for the same period of 2004. This decline was primarily due to cost
containment in Electrical Products Group.
o Debt at March 31, 2005 was $56.8 million [47% of total
capitalization], versus $51.8 million [34% of total capitalization]
at March 31, 2004. The increase in the ratio to total capitalization
was principally due to lower stockholders equity which resulted in
part from the impairment of long-lived assets of $30.8 million in
the fourth quarter of 2004. Cash on hand at March 31, 2005 was $7.1
million, versus $4.0 million at March 31, 2004.
o Katy generated free cash flow of $0.6 million during the three month
period ended March 31, 2005 versus $18.1 million of free cash flow
used during the three month period ended March 31, 2004. The
improvement in free cash flow was primarily attributable to a
reduction of inventory in the first quarter of 2005 versus an
inventory build in the first quarter of 2004.
Katy expects these liquidity trends to generally continue throughout
2005 as inventory is being reduced (except for seasonal builds in
the Electrical Products Group in the second and third quarters),
other elements of working capital are being managed and capital
expenditures are expected to be lower in 2005. Free cash flow, a
non-GAAP financial measure, is discussed further below.
o Katy was in compliance with the amended covenants in the Bank of
America Credit Agreement at March 31, 2005 and expects to be in
compliance for the balance of 2005.
o Katy expects to substantially complete its restructuring program in
2005. The remaining severance, restructuring and related costs for
these initiatives (mostly related to the consolidation of our
abrasives facilities) are expected to be in the range of $1.0
million to $2.0 million.
"Raw material costs appear to be stabilizing which should allow us, over the
next several quarters, to strengthen our margins as our price increases take
effect. We are also exiting some unprofitable lines in our Consumer Plastics
business and will downsize the structure of this business," said C. Michael
Jacobi, Katy's President and Chief Executive Officer. "We will continue our
efforts to improve cash flow through the management of working capital and
limiting strategic investments to projects that produce growth or improve
productivity," added Mr. Jacobi.
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 income (loss) from continuing operations, as adjusted;
operating income (loss), as adjusted; 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 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:
Net Income (Loss), as adjusted and Operating Income (Loss), as adjusted. Net
income (loss), as adjusted, is Katy's net income (loss) that excludes
restructuring and other non-recurring and
unusual items. Operating income (loss), as adjusted, is the Katy's operating
income (loss) that excludes restructuring and other non-recurring and unusual
items. Katy believes that its presentation of these measures provides useful
information to management and investors regarding certain financial and business
trends relating to its results of 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
(203) 598-0397
KATY INDUSTRIES, INC. SUMMARY OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
Three Months Ended March 31,
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2005 2004
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Net sales $ 95,513 $ 99,895
Cost of goods sold 85,990 83,265
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Gross profit 9,523 16,630
Selling, general and administrative expenses 12,354 14,748
Severance, restructuring and related charges 373 1,898
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Operating loss (3,204) (16)
Interest expense (1,264) (800)
Other, net (48) (375)
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Loss before provision for income taxes (4,516) (1,191)
Provision for income taxes 132 590
----------- -----------
Net loss (4,648) (1,781)
Payment-in-kind (PIK) dividends on convertible preferred stock -- (3,462)
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Net loss attributable to common stockholders $ (4,648) $ (5,243)
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Loss per share of common stock - basic and diluted:
Net loss $ (0.59) $ (0.23)
PIK dividends on convertible preferred stock -- (0.44)
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Net loss attributable to common stockholders $ (0.59) $ (0.67)
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Weighted average common shares outstanding - basic and diluted 7,945 7,881
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Other Information:
Working capital $ 12,811 $ 24,181
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Working capital, exclusive of deferred tax assets and liabilities and debt
classified as current $ 54,335 $ 58,792
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Long-term debt, including current maturities $ 56,789 $ 51,754
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Stockholders' equity $ 63,538 $ 100,957
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Capital expenditures $ 1,403 $ 2,415
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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,
----------------------------
2005 2004
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Reconciliation of loss from continuing operations to income (loss)
from continuing operations, as adjusted:
Net loss $ (4,648) $ (1,781)
Unusual items:
Severance, restructuring and related charges 373 1,898
Costs associated with abandoned financing (included in other, net) -- 435
Adjustment to reflect a more normalized effective tax rate excluding
unusual items 1,706 156
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Net income (loss), as adjusted $ (2,569) $ 708
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(Loss) income from continuing operations, as adjusted per share:
Loss from continuing operations per share $ (0.59) $ (0.23)
Unusual items per share 0.05 0.30
Adjustment to reflect a more normalized effective tax rate excluding
unusual items per share 0.22 0.02
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Net (loss) income, as adjusted per share $ (0.32) $ 0.09
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Weighted average shares outstanding - basic and diluted 7,945 7,881
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Operating (loss) income, as adjusted:
Operating loss $ (3,204) $ (16)
Severance, restructuring and related charges 373 1,898
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Operating (loss) income, as adjusted: $ (2,831) $ 1,882
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Operating (loss) income, as adjusted, as a % of sales -3.0% 1.9%
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KATY INDUSTRIES, INC. SEGMENT INFORMATION - UNAUDITED
(In thousands)
Three Months Ended March 31,
-------------------------------
2005 2004
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Net sales:
Maintenance Products Group $ 61,473 $ 70,490
Electrical Products Group 34,040 29,405
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$ 95,513 $ 99,895
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Operating (loss) income, as adjusted:
Maintenance Products Group $ (4,078) $ 2,406
Electrical Products Group 2,913 2,037
Unallocated corporate expense (1,666) (2,561)
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$ (2,831) $ 1,882
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KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets March 31, December 31, March 31,
Current assets: 2005 2004 2004
----------- ------------ -----------
Cash and cash equivalents $ 7,099 $ 8,525 $ 3,996
Accounts receivable, net 50,288 66,689 59,517
Inventories, net 61,900 65,674 66,865
Other current assets 5,287 4,233 4,216
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Total current assets 124,574 145,121 134,594
----------- ----------- -----------
Other assets:
Goodwill 2,239 2,239 10,215
Intangibles, net 7,352 7,428 22,040
Other 9,581 9,946 9,615
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Total other assets 19,172 19,613 41,870
----------- ----------- -----------
Property and equipment 148,724 148,259 148,694
Less: accumulated depreciation (90,763) (88,529) (80,680)
----------- ----------- -----------
Property and equipment, net 57,961 59,730 68,014
----------- ----------- -----------
Total assets $ 201,707 $ 224,464 $ 244,478
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 27,070 $ 39,079 $ 31,267
Accrued expenses 42,190 45,208 44,535
Current maturities of long-term debt 2,857 2,857 1,848
Revolving credit agreement 39,646 40,166 32,763
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Total current liabilities 111,763 127,310 110,413
Revolving credit agreement -- -- 17,143
Long-term debt, less current maturities 14,286 15,714 --
Other liabilities 12,120 12,855 15,965
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Total liabilities 138,169 155,879 143,521
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Stockholders' equity
Convertible preferred stock 108,256 108,256 96,969
Common stock 9,822 9,822 9,822
Additional paid-in capital 25,111 25,111 36,979
Accumulated other comprehensive income 4,165 4,564 2,833
Accumulated deficit (61,906) (57,258) (22,918)
Treasury stock (21,910) (21,910) (22,728)
----------- ----------- -----------
Total stockholders' equity 63,538 68,585 100,957
----------- ----------- -----------
Total liabilities and stockholders' equity $ 201,707 $ 224,464 $ 244,478
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KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Three Months Ended March 31,
-------------------------------
2005 2004
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Cash flows from operating activities:
Net loss $ (4,648) $ (1,781)
Depreciation and amortization 2,847 3,802
Amortization of debt issuance costs 276 264
------------ ------------
(1,525) 2,285
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Changes in operating assets and liabilities:
Accounts receivable 16,164 5,956
Inventories 3,627 (13,188)
Other assets (756) (2,514)
Accounts payable (11,839) (6,243)
Accrued expenses (2,964) (1,923)
Other, net (738) (91)
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3,494 (18,003)
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Net cash provided by (used in) operating activities 1,969 (15,718)
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Cash flows from investing activities:
Capital expenditures (1,403) (2,415)
Collections of note receivable from sale of subsidiary 71 --
Proceeds from sale of assets -- 3,673
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Net cash (used in) provided by investing activities (1,332) 1,258
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Cash flows from financing activities:
Net (repayments) borrowings on revolving loans (466) 13,906
Repayments of term loans (1,429) (1,815)
Direct costs associated with debt facilities (138) (209)
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Net cash (used in) provided by financing activities (2,033) 11,882
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Effect of exchange rate changes on cash and cash equivalents (30) (174)
------------ ------------
Net decrease in cash and cash equivalents (1,426) (2,752)
Cash and cash equivalents, beginning of period 8,525 6,748
------------ ------------
Cash and cash equivalents, end of period $ 7,099 $ 3,996
============ ============
Reconciliation of free cash flow to GAAP Results:
Net cash provided by (used in) operating activities $ 1,969 $ (15,718)
Capital expenditures (1,403) (2,415)
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Free cash flow $ 566 $ (18,133)
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