MIDDLEBURY, Conn., Oct. 27 /PRNewswire-FirstCall/ -- Katy Industries, Inc. (NYSE: KT) today reported net income in the third quarter of 2005 of $1.7 million [ $0.06 per share diluted], versus net income of $1.2 million [ $0.16 per share diluted], in the third 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 net income attributable to common stockholders of $1.3 million [ $0.05 per share diluted], in the third quarter of 2005, versus a net loss attributable to common stockholders of ( $2.9 ) million [( $0.37 ) per share diluted], in the same period of 2004. Operating income, as adjusted to exclude restructuring and other non-recurring or unusual items, was $4.0 million [2.8% of net sales] in the third quarter of 2005, compared to operating income, as adjusted of $3.0 million [2.2 % of net sales] in the same period in 2004. Net income (loss), as adjusted, and operating income as adjusted, are non-GAAP financial measures and are further discussed below.
Katy also reported a net loss for the nine months ended September 30, 2005 of ( $2.9 ) million [( $0.37 ) per share diluted], versus net income of $0.8 million [ $0.10 per share diluted], for the nine months ended September 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 ( $9.4 ) million [( $1.18 ) per share diluted], for the nine months ended September 30, 2005 , versus a net loss attributable to common stockholders of ( $12.9 ) million [( $1.64 ) per share diluted], in the same period of 2004. The operating loss, as adjusted to exclude restructuring and other non-recurring or unusual items, was ( $0.8 ) million [(0.2%) of net sales] for the nine months ended September 30, 2005 , compared to operating income, as adjusted of $3.9 million [1.2% 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 third quarter of 2005, Katy reported severance, restructuring and related charges of ( $0.7 ) million pre-tax [( $0.02 ) per share diluted]. During the third quarter of 2004, Katy reported severance, restructuring and related charges of ( $0.2 ) million pre-tax [( $0.02 ) per share diluted]. Also, during the third quarter of 2004, Katy recorded the impact of payment-in-kind dividends earned on its convertible preferred stock of ( $3.8 ) million [( $0.48 ) per share diluted]. 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 nine months ended September 30, 2005 , Katy reported restructuring and other non-recurring or unusual items of ( $3.9 ) million pre-tax [( $0.49 ) per share diluted], including non-cash stock option expense related to the acceleration of vesting of options of ( $2.0 ) million and severance, restructuring and related charges of ( $2.0 ) million. During the nine months ended September 30, 2004 , Katy reported restructuring and other non-recurring or unusual items of ( $1.8 ) million pre-tax [( $0.23 ) per share diluted], including severance, restructuring and related charges of ( $2.0 ) million, costs associated with a proposed financing which Katy chose not to pursue of ( $0.4 ) million, and a gain on the sale of real estate of $0.5 million . Also, during the nine months ended September 30, 2004 , Katy recorded the impact of payment-in-kind dividends earned on its convertible preferred stock of ( $10.7 ) million [( $1.36 ) per share diluted]. 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 third quarter of 2005, as compared to the same period in the prior year, included:
* Net sales in the third quarter of 2005 were $140.6 million, up
$5.1 million compared to the same period in 2004 primarily due to
stronger sales in the Electrical Products Group offset by weaker sales
in the Maintenance Products Group. Overall, the increase of 4%
resulted from higher pricing of 4% and favorable currency translation
of 1% offset by lower volumes of 1%.
* Gross margins were 12.6% in the third quarter of 2005, versus 13.2% in
the third quarter of 2004. Margins were negatively impacted by higher
raw material costs, a portion of which could not be passed on through
price increases, and higher operating costs in our Abrasives business.
* Selling, general and administrative expenses were $1.0 million lower
in the third quarter of 2005 versus the third quarter of 2004. These
costs represented 9.9% of sales in the third quarter of 2005, a
decrease from 11.0% of sales for the same period of 2004. This
decrease was primarily due to cost containment in the Electrical
Products Group.
* Debt at September 30, 2005 was $58.1 million [49% of total
capitalization], versus $58.7 million [46% of total capitalization] at
December 31, 2004. Cash on hand at September 30, 2005 was $8.6
million, versus $8.5 million on hand at December 31, 2004.
* Katy generated free cash flow of $1.9 million during the nine month
period ended September 30, 2005 versus ($29.5) million of free cash
flow used during the nine month period ended September 30, 2004. The
improvement in free cash flow was primarily attributable to a
reduction of working capital in the first nine months of 2005 versus
an inventory build in the first nine months of 2004, and lower capital
expenditures. Free cash flow, a non-GAAP financial measure, is
discussed further below.
Katy expects its debt levels to generally stabilize for the fourth
quarter of 2005. Elements of working capital continue to be closely
managed. Capital expenditures in the fourth quarter are expected to
continue at approximately the same pace as the first three quarters 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 September 30, 2005 and expects to be in compliance for
the balance of 2005.
* 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
its abrasives facilities) are expected to be less than $0.5 million.
'The stronger sales in the third quarter were certainly a positive sign as
we attempt to capitalize on our leaner, more stabilized facilities', said
Anthony T. Castor III, Katy's President and Chief Executive Officer.
'However, we continue to be challenged by escalating material costs,
especially in the wake of the hurricanes in the Gulf, and we appreciate the
understanding of our customers as we are forced to pass those increases
along,' added
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 financials 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. Katy believed that the restructuring charges would be non-recurring as the restructuring was expected to be substantially completed in mid-2004 but was delayed due to issues with the consolidation of the company's abrasives facilities. After the substantial completion of this consolidation in 2005, Katy expects that remaining restructuring charges and all other non-recurring and unusual items will not be material.
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 Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Net sales $140,557 $135,426 $334,280 $335,843
Cost of goods sold 122,896 117,569 295,310 288,095
Gross profit 17,661 17,857 38,970 47,748
Selling, general and
administrative expenses 13,861 14,846 40,100 43,834
Stock option expense (non-cash) -- -- 1,953 --
Severance, restructuring and
related charges 662 167 1,975 1,956
(Gain) loss on sale of assets (187) 3 (353) (546)
Operating income (loss) 3,325 2,841 (4,705) 2,504
Interest expense (1,487) (1,017) (4,143) (2,814)
Other, net 219 (30) 209 (261)
Income (loss) before provision
for income taxes 2,057 1,794 (8,639) (571)
Provision for income taxes 724 918 722 1,617
Net income (loss) 1,333 876 (9,361) (2,188)
Payment-in-kind (PIK) dividends on
convertible preferred stock -- (3,822) -- (10,746)
Net income (loss) attributable
to common stockholders $1,333 $(2,946) $(9,361) $(12,934)
Income (loss) per share of common
stock - basic:
Net income (loss) $0.17 $0.11 $(1.18) $(0.28)
PIK dividends on convertible
preferred stock -- (0.48) -- (1.36)
Net income (loss) attributable
to common stockholders $0.17 $(0.37) $(1.18) $(1.64)
Income (loss) per share of common
stock - diluted:
Net income (loss) $0.05 $0.11 $(1.18) $(0.28)
PIK dividends on convertible
preferred stock -- (0.48) -- (1.36)
Net income (loss) attributable
to common stockholders $0.05 $(0.37) $(1.18) $(1.64)
Weighted average common shares
outstanding:
Basic 7,951 7,870 7,948 7,875
Diluted 26,880 7,870 7,948 7,875
September 30, September 30,
Other Information: 2005 2004
Working capital $8,061 $19,983
Working capital, exclusive of deferred
tax assets and liabilities and debt
classified as current $51,639 $71,347
Long-term debt, including current
maturities $58,128 $67,078
Stockholders' equity $59,973 $100,564
Capital expenditures $5,785 $10,838
KATY INDUSTRIES, INC. RECONCILIATIONS OF GAAP RESULTS
TO RESULTS EXCLUDING CERTAIN UNUSUAL ITEMS - UNAUDITED
(In thousands, except percentages and per share data)
Three Months Nine Months
Ended Ended
September 30, September 30,
2005 2004 2005 2004
Reconciliation of net income (loss)
to net income (loss), as adjusted
Net income (loss) $1,333 $876 $(9,361) $(2,188)
Unusual items:
Stock option expense (non-cash) -- -- 1,953 --
Severance, restructuring and
related charges 662 167 1,975 1,956
Gain on sale of real estate -- -- -- (549)
Costs associated with abandoned
financing (included in other, net) -- -- -- 435
Net write-off of amounts related to
divested businesses (included in
other, net) -- 29 -- (31)
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items (309) 162 2,512 1,146
Net income (loss), as adjusted $1,686 $1,234 $(2,921) $769
Net income (loss), as adjusted per
share - basic:
Net income (loss) per share $0.17 $0.11 $(1.18) $(0.28)
Unusual items per share 0.08 0.02 0.49 0.23
Adjustment to reflect a more
normalized effective tax rate
excluding
unusual items per share (0.04) 0.03 0.32 0.15
Net income (loss), as adjusted per
share $0.21 $0.16 $(0.37) $0.10
Net income (loss), as adjusted per
share - diluted:
Net income (loss) per share $0.05 $0.11 $(1.18) $(0.28)
Unusual items per share 0.02 0.02 0.49 0.23
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items per share (0.01) 0.03 0.32 0.15
Net income (loss), as adjusted per
share $0.06 $0.16 $(0.37) $0.10
Weighted average common shares
outstanding:
Basic 7,951 7,870 7,948 7,875
Diluted 26,880 7,870 7,948 7,875
Operating income (loss), as adjusted:
Operating income (loss) $3,325 $2,841 $(4,705) $2,504
Stock option expense (non-cash) -- -- 1,953 --
Gain on sale of real estate -- -- -- (549)
Severance, restructuring and
related charges 662 167 1,975 1,956
Operating income (loss), as adjusted: $3,987 $3,008 $(777) $3,911
Operating income (loss), as adjusted,
as a % of sales 2.8% 2.2% -0.2% 1.2%
KATY INDUSTRIES, INC. SEGMENT INFORMATION - UNAUDITED
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Net sales:
Maintenance Products Group $64,013 $72,218 $189,355 $212,444
Electrical Products Group 76,544 63,208 144,925 123,399
$140,557 $135,426 $334,280 $335,843
Operating income (loss), as
adjusted:
Maintenance Products Group $591 $74 $(3,937) $1,121
Electrical Products Group 6,100 6,329 10,163 10,879
Unallocated corporate expense (2,704) (3,395) (7,003) (8,089)
$3,987 $3,008 $(777) $3,911
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets September 30, December 31, September 30,
Current assets: 2005 2004 2004
Cash and cash equivalents $8,627 $8,525 $8,626
Accounts receivable, net 76,084 66,689 76,185
Inventories, net 60,536 65,674 72,928
Other current assets 4,534 4,233 2,980
Total current assets 149,781 145,121 160,719
Other assets:
Goodwill 2,239 2,239 10,215
Intangibles, net 7,814 7,428 21,280
Other 9,036 9,946 10,244
Total other assets 19,089 19,613 41,739
Property and equipment, net 57,166 59,730 68,244
Total assets $226,036 $224,464 $270,702
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $51,284 $39,079 $42,917
Accrued expenses 45,879 45,208 46,455
Current maturities of
long-term debt 2,857 2,857 2,857
Revolving credit agreement 41,700 40,166 48,507
Total current liabilities 141,720 127,310 140,736
Long-term debt, less current
maturities 13,571 15,714 15,714
Other liabilities 10,772 12,855 13,688
Total liabilities 166,063 155,879 170,138
Stockholders' equity
Convertible preferred stock 108,256 108,256 104,253
Common stock 9,822 9,822 9,822
Additional paid-in capital 27,016 25,111 29,686
Accumulated other
comprehensive income 3,338 4,564 2,913
Accumulated deficit (66,619) (57,258) (23,325)
Treasury stock (21,840) (21,910) (22,785)
Total stockholders' equity 59,973 68,585 100,564
Total liabilities and
stockholders' equity $226,036 $224,464 $270,702
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Nine Months Ended September 30,
2005 2004
Cash flows from operating activities:
Net loss $(9,361) $(2,188)
Depreciation and amortization 8,606 11,102
Amortization of debt issuance costs 844 804
Stock option expense (non-cash) 1,953 --
Gain on sale of assets (353) (546)
1,689 9,172
Changes in operating assets and
liabilities:
Accounts receivable (9,596) (10,637)
Inventories 5,019 (19,072)
Other assets (471) (1,136)
Accounts payable 12,456 5,546
Accrued expenses 677 (125)
Other, net (2,090) (2,404)
5,995 (27,828)
Net cash provided by (used in)
operating activities 7,684 (18,656)
Cash flows from investing activities:
Capital expenditures (5,785) (10,838)
Acquisition of business (1,658) --
Collections of note receivable from
sale of subsidiary 106 14
Proceeds from sale of assets 931 5,545
Net cash used in investing activities (6,406) (5,279)
Cash flows from financing activities:
Net borrowings on revolving loans 1,045 12,536
Proceeds of term loans -- 18,152
Repayments of term loans (2,143) (3,244)
Direct costs associated with debt
facilities (244) (1,439)
Repurchases of common stock -- (75)
Net cash (used in) provided by financing
activities (1,342) 25,930
Effect of exchange rate changes on cash and
cash equivalents 166 (117)
Net increase in cash and cash equivalents 102 1,878
Cash and cash equivalents, beginning of
period 8,525 6,748
Cash and cash equivalents, end of period $8,627 $8,626
Reconciliation of free cash flow to
GAAP Results:
Net cash provided by (used in)
operating activities $7,684 $(18,656)
Capital expenditures (5,785) (10,838)
Free cash flow $1,899 $(29,494)
SOURCE Katy Industries, Inc.
