MIDDLEBURY, Conn., April 14 /PRNewswire-FirstCall/ -- Katy Industries, Inc. (NYSE: KT) today reported a loss from continuing operations in the fourth quarter of 2004 of ( $0.9 ) million [( $0.11 ) per share], versus income from continuing operations of $4.2 million [ $0.53 per share], in the fourth quarter of 2003, as adjusted to exclude impairments, 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 shareholders of ( $37.9 ) million [( $4.80 ) per share], in the fourth quarter of 2004, versus a net loss attributable to common shareholders of ( $5.4 ) million [( $0.68 ) per share], in the same period of 2003. Operating loss, as adjusted to exclude all impairments, restructuring and other non-recurring or unusual items, was ( $0.2 ) million [(0.1%) of net sales] in the fourth quarter of 2004, compared to operating income, as adjusted of $8.2 million [6.9% of net sales] in the same period in 2003. (Loss) income from continuing operations, as adjusted, and operating (loss) income, as adjusted, are non-GAAP financial measures and are further discussed below.
Katy also reported a loss from continuing operations for the year ended December 31, 2004 of ( $0.1 ) million [( $0.01 ) per share], versus income from continuing operations of $3.4 million [ $0.41 per share], for the year ended December 31, 2003 , as adjusted to exclude impairments, restructuring and other non-recurring or unusual items, which are discussed below. Including these items, discontinued operations, the early redemption of the preferred interest of a subsidiary and payment-in-kind dividends on convertible preferred stock, Katy reported a net loss attributable to common shareholders of ( $50.9 ) million [( $6.45 ) per share], for the year ended December 31, 2004 , versus a net loss attributable to common shareholders of ( $15.6 ) million [( $1.90 ) per share], in the same period of 2003. Net sales during the year ended December 31, 2004 were $457.6 million , up 4.9% compared to the same period in 2003. Operating income, as adjusted to exclude all impairments, restructuring and other non-recurring or unusual items, was $3.8 million [0.8% of net sales] in the year ended December 31, 2004 , compared to $11.1 million [2.5% of net sales] in the same period in 2003.
During the fourth quarter of 2004, Katy reported restructuring and other non-recurring or unusual items of ( $33.3 ) million pre-tax [( $4.21 ) per share], related to impairments of long-lived assets of ( $30.8 ) million, severance, restructuring and related charges of ( $1.5 ) million, the net write-off of amounts related to divested businesses of ( $0.8 ) million, and costs associated with a proposed financing which Katy chose not to pursue of ( $0.1 ) million. Also, during the fourth quarter of 2004, Katy recorded the impact of payment-in-kind dividends earned on its convertible preferred stock of ( $4.0 ) million [( $0.51 ) per share]. During the fourth quarter of 2003, Katy reported restructuring and other non-recurring or unusual items of ( $8.8 ) million pre-tax [( $1.11 ) per share], including impairments of long-lived assets of ( $4.8 ) million, severance, restructuring and related costs of ( $2.3 ) million, the net write-off of amounts related to divested businesses of ( $1.0 ) million and the write-off of unamortized debt costs related to the reduction in our Term Loan of ( $0.7 ) million. Also, during the fourth quarter of 2003, Katy recorded the impact of payment-in-kind dividends earned on its convertible preferred stock of ( $3.5 ) million [( $0.44 ) per share]. 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, 2004 , Katy reported restructuring and other non-recurring or unusual items of ( $35.1 ) million pre-tax [( $4.45 ) per share], including impairments of long-lived assets of ( $30.8 ) million, severance, restructuring and related charges of ( $3.5 ) million, the net write-off of amounts related to divested businesses of ( $0.8 ) million, and costs associated with a proposed financing which Katy chose not to pursue of ( $0.5 ) million, offset by a gain on the sale of real estate of $0.5 million . Also, during the year ended December 31, 2004 , Katy recorded the impact of payment-in-kind dividends earned on its convertible preferred stock of ( $14.8 ) million [( $1.87 ) per share]. During the year ended December 31, 2003 , Katy reported restructuring and other non-recurring or unusual items of ( $27.6 ) million pre-tax [( $3.36 ) per share], including impairments of long-lived assets of ( $11.9 ) million, severance, restructuring and related costs of ( $8.1 ) million, a write down of its equity investment in Sahlman Holding Company, Inc. of ( $5.5 ) million, the write-off of unamortized debt costs related to the refinancing of debt in February 2003 and a reduction in our Term Loan of ( $1.8 ) million, and the net write-off of amounts related to divested businesses of ( $0.7 ) million, offset by a net gain on the sale of real estate of $0.5 million . Also, during the year ended December 31, 2003 , Katy reported income from discontinued operations of $9.5 million , net of tax [ $1.16 per share], a gain on the early redemption of a preferred interest in a subsidiary of $6.6 million [ $0.80 per share] and the impact of payment-in-kind dividends earned on its convertible preferred stock of ( $12.8 ) million [( $1.56 ) per share]. 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 2004, as compared to the same period in the prior year, included:
* Net sales in the fourth quarter of 2004 were $121.8 million, up
$3.2 million compared to the same period in 2003 primarily due to
stronger sales in the Electrical Products Group, partially offset by
weaker sales in the Maintenance Products Group. Overall, the increase
of 3% resulted from higher pricing of 5% and favorable currency
translation of 2%, partially offset by a volume decrease of 4%.
* Gross margins were 10.9% in the fourth quarter of 2004, versus
18.9% in the fourth quarter of 2003. Margins were negatively impacted
by accelerating raw material costs, a significant portion of which
could not be passed on through price increases (mostly in the
Maintenance 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, cost containment and lower depreciation.
* Selling, general and administrative expenses were $0.7 million lower
than the fourth quarter of 2003. These costs represented 11.0% of
sales in the fourth quarter of 2004, a decrease from 11.9% of sales
for the same period of 2003.
* Impairments of long-lived assets in the fourth quarter of 2004
primarily relate to the write-down of goodwill, intangible assets and
machinery and equipment supporting Katy's plastics operations in the
United States. In the fourth quarter of 2004, the profitability of
the Consumer Plastics business unit in the Maintenance Products Group
declined sharply as this business has been unable to realize
sufficient selling price increases to combat the increasing cost of
resin (a key raw material used in the manufacture of plastic
products). Future earnings and cash flow could be negatively impacted
to the extent further increases in resin and other raw materials costs
cannot be offset or recovered through higher selling prices.
* Debt at December 31, 2004 was $58.7 million [46% of total
capitalization], versus $39.7 million [28% of total capitalization] at
December 31, 2003. Cash on hand at December 31, 2004 was
$8.5 million, versus $6.7 million at December 31, 2003.
* Katy used free cash flow of $21.8 million during the year ended
December 31, 2004 versus the $5.4 million of free cash flow used
during the year ended December 31, 2003. The increased use of free
cash flow during 2004 versus 2003 was primarily attributable to:
-- Higher inventories in 2004 due to higher material costs, and
increased levels to support higher volumes in the Electrical
Products Group and provide higher levels of customer service; and
-- Lower operating income, as adjusted, of $7.4 million.
Katy expects these liquidity trends to reverse in 2005. Free
cash flow, a non-GAAP financial measure, is discussed further below.
* Katy expects to substantially complete its restructuring program in
2005. The remaining capital expenditures, and 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 $1.5 million to $2.5 million.
'In 2004, we experienced $24 million of cost increases in our primary raw
materials, packaging materials, utilities and freight compared to 2003; these
extraordinary cost increases have continued in the first quarter of 2005, and
if sustained throughout 2005, would amount to an increase of over $50 million
compared to 2003. Margins in several of our businesses have been squeezed as
our price increases and cost reductions cannot keep pace with the unrelenting
surge in these costs. We constantly review financial performance of our
product lines and have decided to exit some lines in our Consumer Plastics
business and impair assets related to this business,' said C.
As of December 31, 2004 , Katy was in compliance with the applicable
financial covenants of its credit agreement with Bank of America Business
Capital (Bank of
Subsequent to the Second Amendment's effective date, Katy determined that
it would likely not meet its amended financial covenants. On April 13, 2005 ,
Katy obtained a further amendment to the Bank of
If Katy is unable to comply with the terms of the amended covenants, it could seek to obtain further amendments and pursue increased liquidity through additional debt financing and/or the sale of assets. Katy believes that given its strong working capital base, additional liquidity could be obtained through additional debt financing, if necessary. However, there is no guarantee that such financing could be obtained. In addition, Katy is continually evaluating alternatives relating to the sale of excess assets and divestitures of certain of its business units. Asset sales and business divestitures present opportunities to provide additional liquidity by de-leveraging our financial position.
Katy 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 for the year ended December 31, 2003 . There was no discontinued operations activity for the year ended December 31, 2004 or the three months ended December 31, 2003 .
Payment-in-kind dividends on convertible preferred stock ended in December 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 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:
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. Operating income (loss), as adjusted is the Company'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 Year Ended
December 31, December 31,
2004 2003 2004 2003
Net sales $121,799 $118,596 $457,642 $436,410
Cost of goods sold 108,513 96,210 396,608 365,563
Gross profit 13,286 22,386 61,034 70,847
Selling, general and
administrative
expenses 13,449 14,145 57,283 59,740
Impairments of
long-lived assets 30,831 4,825 30,831 11,880
Severance,
restructuring and
related charges 1,549 2,320 3,505 8,132
Operating (loss)
income (32,543) 1,096 (30,585) (8,905)
Equity in loss of
equity method
investment
(net of impairment
charge of $5.5
million in 2003) -- -- -- (5,689)
(Loss) gain on sale
of assets (268) 54 278 627
Interest expense (1,154) (1,427) (3,968) (6,193)
Other, net (702) (1,705) (963) (1,805)
Loss before
(provision) benefit
for income
taxes (34,667) (1,982) (35,238) (21,965)
(Provision) benefit
for income taxes 734 82 (883) 3,158
Loss from continuing
operations before
distributions on
preferred interest
of subsidiary (33,933) (1,900) (36,121) (18,807)
Distributions on
preferred interest
of subsidiary
(net of tax) -- -- -- (80)
Loss from continuing
operations (33,933) (1,900) (36,121) (18,887)
Income from operations
of discontinued
businesses
(net of tax) -- -- -- 2,081
Gain on sale of
discontinued
businesses
(net of tax) -- -- -- 7,442
Net loss (33,933) (1,900) (36,121) (9,364)
Gain on early
redemption of
preferred interest
of subsidiary -- -- -- 6,560
Payment-in-kind (PIK)
dividends on convertible
preferred stock (4,003) (3,462) (14,749) (12,811)
Net loss attributable
to common
stockholders $(37,936) $(5,362) $(50,870) $(15,615)
(Loss) income per
share of common stock
- basic and diluted:
Loss from continuing
operations $(4.29) $(0.24) $(4.58) $(2.30)
Gain on early
redemption of
preferred interest
of subsidiary -- -- -- 0.80
Payment-in-kind (PIK)
dividends on convertible
preferred stock (0.51) (0.44) (1.87) (1.56)
Loss from continuing
operations
attributable to
common
stockholders (4.80) (0.68) (6.45) (3.06)
Discontinued operations
(net of tax) -- -- -- 1.16
Net loss attributable
to common
stockholders $(4.80) $(0.68) $(6.45) $(1.90)
Weighted average common
shares outstanding -
basic and diluted 7,909 7,940 7,883 8,215
Other Information:
Working capital, exclusive
of deferred tax assets
and liabilities and
debt classified as
current $59,855 $43,439
Long-term debt,
including current
maturities $58,737 $39,663
Stockholders' equity $68,585 $102,292
Capital expenditures $13,876 $13,435
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 Year Ended
December 31, December 31,
2004 2003 2004 2003
Reconciliation of loss
from continuing
operations to income
(loss) from continuing
operations, as
adjusted:
Loss from continuing
operations $(33,933) $(1,900) $(36,121) $(18,887)
Unusual items:
Impairments of
long-lived assets 30,831 4,825 30,831 11,880
Severance,
restructuring and
related charges 1,549 2,320 3,505 8,132
Impairment of equity
method investment -- -- -- 5,521
Write-off of unamortized
debt costs
(included in
interest expense) -- 674 -- 1,846
Costs associated with
abandoned financing
(included in other, net) 53 -- 488 --
Net write-off of amounts
related to divested
businesses (included in
other, net) 845 988 814 739
Gain on sale of
real estate -- (11) (549) (531)
Adjustment to reflect a
more normalized effective
tax rate excluding
unusual items (206) (2,671) 940 (5,294)
(Loss) income from
continuing operations,
as adjusted $(861) $4,225 $(92) $3,406
(Loss) income from
continuing operations,
as adjusted per share:
Loss from continuing
operations per share $(4.29) $(0.24) $(4.58) $(2.30)
Unusual items per share 4.21 1.11 4.45 3.36
Adjustment to reflect
a more normalized
effective tax rate
excluding unusual
items per share (0.03) (0.34) 0.12 (0.65)
(Loss) income from
continuing operations,
as adjusted per
share $(0.11) $0.53 $(0.01) $0.41
Weighted average shares
outstanding -
basic and diluted 7,909 7,940 7,883 8,215
Operating (loss) income,
as adjusted:
Operating (loss)
income $(32,543) $1,096 $(30,585) $(8,905)
Impairments of
long-lived assets 30,831 4,825 30,831 11,880
Severance,
restructuring and
related charges 1,549 2,320 3,505 8,132
Operating (loss) income,
as adjusted: $(163) $8,241 $3,751 $11,107
Operating (loss) income,
as adjusted,
as a % of sales -0.1% 6.9% 0.8% 2.5%
KATY INDUSTRIES, INC. SEGMENT INFORMATION - UNAUDITED
(In thousands)
Three Months Ended Year Ended
December 31, December 31,
2004 2003 2004 2003
Net sales:
Maintenance Products
Group $66,444 $71,780 $278,888 $285,289
Electrical Products
Group 55,355 46,816 178,754 151,121
$121,799 $118,596 $457,642 $436,410
Operating (loss)
income, as adjusted:
Maintenance Products
Group $(3,841) $4,557 $(2,717) $9,339
Electrical Products
Group 5,930 7,744 16,809 15,557
Unallocated corporate
expense (2,252) (4,060) (10,341) (13,789)
$(163) $8,241 $3,751 $11,107
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets December 31,
Current assets: 2004 2003
Cash and cash equivalents $8,525 $6,748
Accounts receivable, net 66,689 65,197
Inventories, net 65,674 53,545
Other current assets 4,233 1,658
Total current assets 145,121 127,148
Other assets:
Goodwill 2,239 10,215
Intangibles, net 7,428 22,399
Other 9,946 10,352
Total other assets 19,613 42,966
Property and equipment 148,259 149,634
Less: accumulated depreciation (88,529) (78,040)
Property and equipment, net 59,730 71,594
Total assets $224,464 $241,708
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $39,079 $37,259
Accrued expenses 45,208 46,450
Current maturities of long-term debt 2,857 2,857
Revolving credit agreement 40,166 36,000
Total current liabilities 127,310 122,566
Long-term debt, less current maturities 15,714 806
Other liabilities 12,855 16,044
Total liabilities 155,879 139,416
Stockholders' equity
Convertible preferred stock 108,256 93,507
Common stock 9,822 9,822
Additional paid-in capital 25,111 40,441
Accumulated other comprehensive income 4,564 2,387
Accumulated deficit (57,258) (21,137)
Treasury stock (21,910) (22,728)
Total stockholders' equity 68,585 102,292
Total liabilities and stockholders' equity $224,464 $241,708
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Year Ended December 31,
2004 2003
Cash flows from operating activities:
Net loss $(36,121) $(9,364)
Income from discontinued operations -- (9,523)
Loss from continuing operations (36,121) (18,887)
Depreciation and amortization 14,266 21,954
Impairment of long-lived assets 30,831 11,880
Write-off and amortization of debt issuance
costs 1,076 2,981
Gain on sale of assets (278) (627)
Equity in loss of equity method investment -- 5,689
Deferred income taxes (1,228)
8,546 22,990
Changes in operating assets and liabilities:
Accounts receivable (177) (3,869)
Inventories (11,146) 5,504
Other assets (1,313) 1,100
Accounts payable 918 (727)
Accrued expenses (1,662) (9,679)
Other, net (3,137) (2,125)
(16,517) (9,796)
Net cash (used in) provided by
continuing operations (7,971) 13,194
Net cash used in discontinued operations -- (5,159)
Net cash (used in) provided by operating
activities (7,971) 8,035
Cash flows from investing activities:
Capital expenditures of continuing
operations (13,876) (13,324)
Capital expenditures of discontinued
operations -- (111)
Acquisition of subsidiary, net of cash acquired -- (1,161)
Collections of notes receivable from
sales of subsidiaries 43 1,035
Proceeds from sale of subsidiaries, net -- 23,647
Proceeds from sale of assets 5,778 2,839
Net cash (used in) provided by investing
activities (8,055) 12,925
Cash flows from financing activities:
Net borrowings on revolving loans 4,037 (8,751)
Proceeds of term loans 18,152 20,000
Repayments of term loans (3,244) (16,337)
Direct costs associated with debt facilities (1,485) (1,583)
Redemption of preferred interest of subsidiary -- (9,840)
Repayment of real estate mortgage -- (700)
Repurchases of common stock (75) (2,520)
Proceeds from the exercise of stock options 304
Net cash provided by (used in) financing
activities 17,689 (19,731)
Effect of exchange rate changes on cash and
cash equivalents 114 677
Net increase in cash and cash equivalents 1,777 1,906
Cash and cash equivalents, beginning of period 6,748 4,842
Cash and cash equivalents, end of period $8,525 $6,748
Reconciliation of free cash flow to GAAP Results:
Net cash (used in) provided by operating
activities $(7,971) $8,035
Capital expenditures of continuing
operations (13,876) (13,324)
Capital expenditures of discontinued
operations -- (111)
Free cash flow $(21,847) $(5,400)
SOURCE Katy Industries, Inc.
