Exhibit 99.1
KATY NEWS
---------------------
FOR IMMEDIATE RELEASE
KATY INDUSTRIES, INC.
REPORTS 2005 SECOND QUARTER RESULTS
MIDDLEBURY, CT - August 2, 2005 - Katy Industries, Inc. (NYSE: KT) today
reported a net loss in the second quarter of 2005 of ($2.0) million [($0.26) per
share], versus a net loss of ($1.2) million [($0.15) per share], in the second
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 ($6.0) million [($0.76) per share],
in the second quarter of 2005, versus a net loss attributable to common
stockholders of ($4.7) million [($0.60) per share], in the same period of 2004.
The operating loss, as adjusted to exclude restructuring and other non-recurring
or unusual items, was ($1.9) million [(2.0%) of net sales] in the second quarter
of 2005, compared to an operating loss, as adjusted of ($1.0) million [(1.0) %
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.
Katy also reported a net loss for the six months ended June 30, 2005 of ($4.6)
million [($0.58) per share], versus a net loss of ($0.5) million [($0.06) per
share], for the six months ended June 30, 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
($10.7) million [($1.35) per share], for the six months ended June 30, 2005,
versus a net loss attributable to common stockholders of ($10.0) million
[($1.27) per share], in the same period of 2004. The operating loss, as adjusted
to exclude restructuring and other non-recurring or unusual items, was ($4.8)
million [(2.5%) of net sales] for the six months ended June 30, 2005, compared
to operating income, as adjusted of $0.9 million [0.5 % of net sales] for 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 second quarter of 2005, Katy reported restructuring and other
non-recurring or unusual items of ($2.9) million pre-tax [($0.36) per share],
including non-cash stock option expense related to the acceleration of vesting
of options of ($2.0) million (see discussion below in highlights section) and
severance, restructuring and related charges of ($0.9) million. During the
second quarter of 2004, Katy reported income from restructuring and other
non-recurring or unusual items of $0.7 million pre-tax [$0.09 per share],
including severance, restructuring and related income of $0.1 million, income
from the reversal of reserves related to divested businesses of $0.1 million and
a gain on the sale of real estate of $0.5 million. Also, during the second
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.
For the six months ended June 30, 2005, Katy reported restructuring and other
non-recurring or unusual items of ($3.3) million pre-tax [($0.41) per share],
including non-cash stock option expense related to the acceleration of vesting
of options of ($2.0) million (see discussion below in highlights section) and
severance, restructuring and related charges of ($1.3) million. During the six
months ended June 30, 2004, Katy reported restructuring and other non-recurring
or unusual items of ($1.6) million pre-tax [($0.21) per share], including
severance, restructuring and related charges of ($1.8) million, costs associated
with a proposed financing which Katy chose not to pursue of ($0.4) million,
income from the reversal of
reserves related to divested businesses of $0.1 million and a gain on the sale
of real estate of $0.5 million. Also, during the six months ended June 30, 2004,
Katy recorded the impact of payment-in-kind dividends earned on its convertible
preferred stock of ($6.9) million [($0.88) per share]. Details regarding these
items are provided in the "Reconciliations of GAAP Results to Results Excluding
Certain Unusual Items" accompanying this press release.
Highlights for the second quarter of 2005, as compared to the same period in the
prior year, included:
o Effective June 1, Anthony T. Castor III was appointed President and
Chief Executive Officer, replacing C. Michael Jacobi who retired.
o Net sales in the second quarter of 2005 were $98.2 million, down
$2.3 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 2% resulted from lower volumes of 7% offset by higher
pricing of 4% and favorable currency translation of 1%.
o Gross margins were 12.0% in the second quarter of 2005, versus 13.2%
in the second quarter of 2004. Margins were negatively impacted by
higher raw material costs, a portion of which could not be passed on
through price increases (mostly in the Electrical Products Group);
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 $0.4 million lower
than the second quarter of 2004. These costs represented 14.1% of
sales in the second quarter of 2005, a decrease from 14.2% of sales
for the same period of 2004. This decrease was primarily due to cost
containment in the Maintenance Products Group partially offset by
severance costs and search fees associated with the CEO transition.
o The non-cash stock option expense of $2.0 million related to the
March 2004 acceleration of vesting of options that were held by our
former CEO at that time. A substantial portion of these options were
forfeited by the former CEO upon his retirement, however. The
offsetting credit was recorded to additional paid-in capital,
resulting in no change to stockholders' equity. This charge is being
taken now, as opposed to in March 2004, due to the accounting rules
governing stock options. These rules further dictate that the charge
include the full amount of options that were held by our former CEO
at the time of acceleration of vesting, rather than the number of
options held upon his retirement.
o Debt at June 30, 2005 was $56.0 million [49% of total
capitalization], versus $62.3 million [39% of total capitalization]
at June 30, 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 June 30, 2005 was $4.1
million, versus $5.7 million at June 30, 2004.
o Katy used free cash flow of $2.5 million during the six month period
ended June 30, 2005 versus $27.8 million of free cash flow used
during the six month period ended June 30, 2004. The improvement in
free cash flow was primarily attributable to a reduction of
inventory in the first half of 2005 versus an inventory build in the
first half of 2004 and lower capital expenditures. Free cash flow, a
non-GAAP financial measure, is discussed further below.
Katy expects liquidity to generally stabilize for the remainder of
2005, with the exception of seasonal inventory builds in the
Electrical Products Group in the third quarter and increased
receivable collections in Electrical Products Group in the fourth
quarter. Other elements of
working capital continue to be closely managed. Capital expenditures
are expected to be higher in the second half of 2005 versus the
first half of 2005, but overall are expected to be lower than 2004.
Katy was in compliance with the amended covenants in the Bank of
America Credit Agreement at June 30, 2005 and expects to be in
compliance for the balance of 2005.
o Katy expects to substantially complete its current 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 less than $1.0 million.
"Despite the disappointing first half operating results, our primary objective
is to grow the businesses in the Katy family. We can do this without having to
add significant capital because our facilities are under utilized. We are also
committed to substantially complete the abrasives consolidation in the second
half of 2005, stabilize the plants and begin to maximize plant efficiency", said
Anthony T. Castor III, Katy's President and Chief Executive Officer. "We see
significant growth opportunity and we are confident that we can create value at
Katy with increased sales and leaner plants," 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 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 June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net sales $ 98,210 $ 100,522 $ 193,723 $ 200,417
Cost of goods sold 86,424 87,261 172,414 170,526
----------- ----------- ----------- -----------
Gross profit 11,786 13,261 21,309 29,891
Selling, general and administrative expenses 13,885 14,240 26,239 28,988
Stock option expense (non-cash) 1,953 -- 1,953 --
Severance, restructuring and related charges (income) 940 (109) 1,313 1,789
Gain on sale of assets (166) (549) (166) (549)
----------- ----------- ----------- -----------
Operating loss (4,826) (321) (8,030) (337)
Interest expense (1,392) (997) (2,656) (1,797)
Other, net 38 144 (10) (231)
----------- ----------- ----------- -----------
Loss before (benefit) provision for income taxes (6,180) (1,174) (10,696) (2,365)
(Benefit) provision for income taxes (134) 109 (2) 699
----------- ----------- ----------- -----------
Net loss (6,046) (1,283) (10,694) (3,064)
Payment-in-kind (PIK) dividends on convertible preferred stock -- (3,462) -- (6,924)
----------- ----------- ----------- -----------
Net loss attributable to common stockholders $ (6,046) $ (4,745) $ (10,694) $ (9,988)
=========== =========== =========== ===========
Loss per share of common stock - basic and diluted:
Net loss $ (0.76) $ (0.16) $ (1.35) $ (0.39)
PIK dividends on convertible preferred stock -- (0.44) -- (0.88)
----------- ----------- ----------- -----------
Net loss attributable to common stockholders $ (0.76) $ (0.60) $ (1.35) $ (1.27)
=========== =========== =========== ===========
Weighted average common shares outstanding - basic and diluted 7,948 7,870 7,947 7,877
=========== =========== =========== ===========
June 30, June 30,
Other Information: 2005 2004
----------- -----------
Working capital $ 8,063 $ 20,974
=========== ===========
Working capital, exclusive of deferred tax assets and liabilities and debt
classified as current $ 49,488 $ 66,853
=========== ===========
Long-term debt, including current maturities $ 55,976 $ 62,308
=========== ===========
Stockholders' equity $ 58,422 $ 99,071
=========== ===========
Capital expenditures $ 2,954 $ 5,704
=========== ===========
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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
2005 2004 2005 2004
----------- ----------- ---------- ----------
Reconciliation of net loss to net loss, as adjusted
Net loss $ (6,046) $ (1,283) $ (10,694) $ (3,064)
Unusual items:
Stock option expense (non-cash) 1,953 -- 1,953 --
Severance, restructuring and related charges (income) 940 (109) 1,313 1,789
Gain on sale of real estate -- (549) -- (549)
Costs associated with abandoned financing (included in other, net) -- -- -- 435
Net write-off of amounts related to divested businesses (included in
other, net) -- (60) -- (60)
Adjustment to reflect a more normalized effective tax rate excluding
unusual items 1,115 828 2,821 984
------------------------------------------------------
Net loss, as adjusted $ (2,038) $ (1,173) $ (4,607) $ (465)
========== ========== ========== ==========
Net loss, as adjusted per share:
Net loss per share $ (0.76) $ (0.16) $ (1.35) $ (0.39)
Unusual items per share 0.36 (0.09) 0.41 0.21
Adjustment to reflect a more normalized effective tax rate excluding
unusual items per share 0.14 0.10 0.36 0.12
---------- ---------- ---------- ----------
Net loss, as adjusted per share $ (0.26) $ (0.15) $ (0.58) $ (0.06)
========== ========== ========== ==========
Weighted average shares outstanding - basic and diluted 7,948 7,870 7,947 7,877
========== ========== ========== ==========
Operating (loss) income, as adjusted:
Operating loss $ (4,826) $ (321) $ (8,030) $ (337)
Stock option expense (non-cash) 1,953 -- 1,953 --
Gain on sale of real estate -- (549) -- (549)
Severance, restructuring and related charges 940 (109) 1,313 1,789
---------- ---------- ---------- ----------
Operating (loss) income, as adjusted: $ (1,933) $ (979) $ (4,764) $ 903
========== ========== ========== ==========
Operating (loss) income, as adjusted, as a % of sales -2.0% -1.0% -2.5% 0.5%
========== ========== ========== ==========
KATY INDUSTRIES, INC. SEGMENT INFORMATION - UNAUDITED
(In thousands)
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net sales:
Maintenance Products Group $ 63,869 $ 69,736 $ 125,342 $ 140,226
Electrical Products Group 34,341 30,786 68,381 60,191
----------- ----------- ----------- -----------
$ 98,210 $ 100,522 $ 193,723 $ 200,417
=========== =========== =========== ===========
Operating (loss) income, as adjusted:
Maintenance Products Group $ (450) $ (1,359) $ (4,528) $ 1,047
Electrical Products Group 1,150 2,513 4,063 4,550
Unallocated corporate expense (2,633) (2,133) (4,299) (4,694)
----------- ----------- ----------- -----------
$ (1,933) $ (979) $ (4,764) $ 903
=========== =========== =========== ===========
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets June 30, December 31, June 30,
Current assets: 2005 2004 2004
----------- ------------ -----------
Cash and cash equivalents $ 4,063 $ 8,525 $ 5,684
Accounts receivable, net 56,981 66,689 61,007
Inventories, net 58,548 65,674 68,116
Other current assets 4,493 4,233 4,847
----------- ----------- -----------
Total current assets 124,085 145,121 139,654
----------- ----------- -----------
Other assets:
Goodwill 2,239 2,239 10,215
Intangibles, net 7,239 7,428 21,647
Other 9,298 9,946 10,427
----------- ----------- -----------
Total other assets 18,776 19,613 42,289
----------- ----------- -----------
Property and equipment, net 55,771 59,730 66,314
----------- ----------- -----------
Total assets $ 198,632 $ 224,464 $ 248,257
=========== =========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 32,650 $ 39,079 $ 29,503
Accrued expenses 40,968 45,208 43,298
Current maturities of long-term debt 2,857 2,857 2,857
Revolving credit agreement 39,547 40,166 43,022
----------- ----------- -----------
Total current liabilities 116,022 127,310 118,680
Long-term debt, less current maturities 13,572 15,714 16,429
Other liabilities 10,616 12,855 14,077
----------- ----------- -----------
Total liabilities 140,210 155,879 149,186
----------- ----------- -----------
Stockholders' equity
Convertible preferred stock 108,256 108,256 100,431
Common stock 9,822 9,822 9,822
Additional paid-in capital 27,016 25,111 33,508
Accumulated other comprehensive income 3,120 4,564 2,296
Accumulated deficit (67,952) (57,258) (24,201)
Treasury stock (21,840) (21,910) (22,785)
----------- ----------- -----------
Total stockholders' equity 58,422 68,585 99,071
----------- ----------- -----------
Total liabilities and stockholders' equity $ 198,632 $ 224,464 $ 248,257
=========== =========== ===========
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Six Months Ended June 30,
----------------------------------
2005 2004
------------- -------------
Cash flows from operating activities:
Net loss $ (10,694) $ (3,064)
Depreciation and amortization 5,869 7,709
Amortization of debt issuance costs 557 535
Stock option expense (non-cash) 1,953 --
Gain on sale of assets (166) (549)
------------- -------------
(2,481) 4,631
------------- -------------
Changes in operating assets and liabilities:
Accounts receivable 8,983 4,175
Inventories 6,552 (14,704)
Other assets (341) (3,274)
Accounts payable (5,922) (7,870)
Accrued expenses (4,086) (3,071)
Other, net (2,217) (1,959)
------------- -------------
2,969 (26,703)
------------- -------------
------------- -------------
Net cash provided by (used in) operating activities 488 (22,072)
------------- -------------
Cash flows from investing activities:
Capital expenditures (2,954) (5,704)
Collections of note receivable from sale of subsidiary 106 --
Proceeds from sale of assets 600 5,533
------------- -------------
Net cash used in investing activities (2,248) (171)
------------- -------------
Cash flows from financing activities:
Net (repayments) borrowings on revolving loans (410) 7,022
Proceeds of term loans -- 18,152
Repayments of term loans (2,142) (2,529)
Direct costs associated with debt facilities (135) (1,296)
Repurchases of common stock -- (75)
------------- -------------
Net cash (used in) provided by financing activities (2,687) 21,274
------------- -------------
Effect of exchange rate changes on cash and cash equivalents (15) (95)
------------- -------------
Net decrease in cash and cash equivalents (4,462) (1,064)
Cash and cash equivalents, beginning of period 8,525 6,748
------------- -------------
Cash and cash equivalents, end of period $ 4,063 $ 5,684
============= =============
Reconciliation of free cash flow to GAAP Results:
Net cash provided by (used in) operating activities $ 488 $ (22,072)
Capital expenditures (2,954) (5,704)
------------- -------------
Free cash flow $ (2,466) $ (27,776)
============= =============