MIDDLEBURY, CT - October 28, 2004 - Katy Industries, Inc. (NYSE: KT) today reported income from continuing operations in the third quarter of 2004 of $1.2 million [$0.16 per share], versus income from continuing operations of $2.0 million [$0.24 per share], in the third quarter of 2003, 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 shareholders of ($2.9) million [($0.37) per share], in the third quarter of 2004, versus a net loss attributable to common shareholders of ($3.7) million [($0.45) per share], in the same period of 2003. Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted to exclude all restructuring and other non-recurring or unusual items, was $6.4 million in the third quarter of 2004, compared to $9.8 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.

 

Katy also reported income from continuing operations for the nine months ended September 30, 2004 of $0.8 million [$0.10 per share], versus a loss from continuing operations of ($0.9) million [($0.10) per share], for the nine months ended September 30, 2003, 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 shareholders of ($12.9) million [($1.64) per share], for the nine months ended September 30, 2004, versus a net loss attributable to common shareholders of ($10.3) million [($1.23) per share], in the same period of 2003. Net sales in the nine months ended September 30, 2004 were $335.8 million, up 5.7% 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 $15.2 million in the nine months ended September 30, 2004, compared to $18.9 million in the same period in 2003.

 

During the third quarter of 2004, Katy reported restructuring and other non-recurring or unusual items of ($0.2) million pre-tax [($0.02) per share], principally related to severance, restructuring and related charges. Also, during the third quarter of 2004, Katy recorded the impact of paid-in-kind dividends earned on its convertible preferred stock of ($3.8) million [($0.48) per share]. During the third quarter of 2003, Katy reported restructuring and other non-recurring or unusual items of ($15.0) million pre-tax [($1.82) per share], including a write down of its equity investment in Sahlman Holding Company Inc. of ($5.5) million, impairments of long-lived assets of ($5.3) million, severance, restructuring and related costs of ($3.9) million, a loss on the sale of real estate of ($0.2) million and the net write-off of amounts related to divested businesses of ($0.1) million. Also, during the third quarter of 2003, Katy reported income from discontinued operations of $8.1 million, net of tax [$0.99 per share] principally due to the sale of Duckback Products, Inc., and the impact of payment-in-kind dividends earned on its convertible preferred stock of ($3.3) million [($0.40) 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 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], including severance, restructuring and related charges of ($2.0) million, costs associated with a proposed financing which Katy chose to abandon 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 nine months ended September 30, 2004, Katy recorded the impact of paid-in-kind dividends earned on its convertible preferred stock of ($10.7) million [($1.36) per share]. During the nine months ended September 30, 2003, Katy reported restructuring and other non-recurring or unusual items of ($18.8) million pre-tax [($2.26) per share], including impairments of long-lived assets of ($7.1) million, severance, restructuring and related costs of ($5.8) 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 of ($1.2) million, a net gain on the sale of real estate of $0.5 million and income from the reversal of reserves related to divested businesses of $0.3 million. Also, during the nine months ended September 30, 2003, Katy reported income from discontinued operations of $9.5 million, net of tax [$1.15 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 payment-in-kind dividends earned on its convertible preferred stock of ($9.3) million [($1.12) 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 third quarter of 2004, as compared to the prior year period, included:

 

 

 

 

 

 

 

 

Katy expects these liquidity trends to reverse in the fourth quarter of this year. Free cash flow, a non-GAAP financial measure, is discussed further below.

 

"Prices of primary raw materials used in our products have increased $15.5 million during 2004. We have passed on $11.2 million of this increase and are announcing additional price increases in the 4th quarter this year and first quarter next year," said C. Michael Jacobi, Katy’s President and Chief Executive Officer. The prices of copper, aluminum, steel, resin and cotton have been affected by the strong economy in China and the rising cost of oil and natural gas. We are hopeful this inflation is coming to an end," added Mr. Jacobi.

 

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 for the three and nine month periods ended September 30, 2003. There was no discontinued operations activity for the three and nine month periods ended September 30, 2004.

 

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.

 

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; EBITDA, 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. Katy believes that its presentation of this measure provides useful information to management and investors regarding certain financial and business trends relating to its results of operations.

 

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.

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:

Amir Rosenthal

(203) 598-0397

KATY INDUSTRIES, INC. SUMMARY OF OPERATIONS - UNAUDITED
(In thousands, except percentages and per share data)
		Three Months Ended						$			%
		September 30,			September 30,			Change			Change
		2004			2003			Inc/(Dec)			Inc/(Dec)
Net sales		$	135,426		$	125,901		$	9,525			7.6	%
Cost of goods sold			117,569			105,674			11,895			11.3	%
Gross profit			17,857			20,227			(2,370	)		(11.7	%)
Selling, general and administrative expenses			14,846			15,424			(578	)		(3.7	%)
Impairments of long-lived assets			-			5,255			(5,255	)		(100.0	%)
Severance, restructuring and related charges			167			3,871			(3,704	)		(95.7	%)
Operating income (loss)			2,844			(4,323	)		7,167			165.8	%
Equity in loss of equity method investment (net of impairment
charge of $5.5 million in 2003)			-			(5,478	)		5,478			100.0	%
Loss on sale of assets			(3	)		(230	)		227			98.7	%
Interest expense			(1,017	)		(1,153	)		136			11.8	%
Other, net			(30	)		(544	)		514			94.5	%
Income (loss) before (provision) benefit for income taxes			1,794			(11,728	)		13,522			115.3	%
(Provision) benefit for income taxes			(918	)		3,194			(4,112	)		(128.7	%)
Income (loss) from continuing operations			876			(8,534	)		9,410			110.3	%
Income from operations of discontinued businesses (net of tax)			-			478			(478	)		(100.0	%)
Gain on sale of discontinued businesses (net of tax)			-			7,638			(7,638	)		(100.0	%)
Net income (loss)			876			(418	)		1,294			309.6	%
Payment-in-kind (PIK) dividends on convertible preferred stock			(3,822	)		(3,324	)		(498	)		(15.0	%)
Net loss attributable to common stockholders		$	(2,946	)	$	(3,742	)	$	796			21.3	%
Income (loss) per share of common stock - basic and diluted:
Income (loss) from continuing operations		$	0.11		$	(1.04	)	$	1.15			110.6	%
Payment-in-kind (PIK) dividends on convertible preferred stock			(0.48	)		(0.40	)		(0.08	)		(20.0	%)
Loss from continuing operations attributable to common stockholders			(0.37	)		(1.44	)		1.07			74.3	%
Discontinued operations (net of tax)			-			0.99			(0.99	)		(100.0	%)
Net loss attributable to common stockholders		$	(0.37	)	$	(0.45	)	$	0.08			17.8	%
Weighted average common shares outstanding - basic and diluted			7,870			8,237