For more information contact:
Amir Rosenthal
(203) 598-0397
Vice President, Chief Financial Officer,
General Counsel & Secretary

KATY INDUSTRIES, INC.
REPORTS 2003 THIRD QUARTER RESULTS

---

MIDDLEBURY, CT – October 30, 2003 – Katy Industries, Inc. (NYSE: KT) today reported income from continuing operations in the third quarter of 2003 of $2.0 million, or $0.24 per share, versus income from continuing operations of $1.9 million, or $0.23 per share, in the third quarter of 2002, excluding restructuring and other non-recurring or unusual items, which are discussed below. Net sales in the third quarter of 2003 were $125.9 million, down 6.3% compared to the same period in 2002. Earnings before interest, taxes, depreciation and amortization (EBITDA), excluding all restructuring and other non-recurring or unusual items, was $9.7 million in the third quarter of 2003, compared to $10.6 million in the same period in 2002. Please see discussion of EBITDA and non-GAAP financial measures below.

Katy also reported a loss from continuing operations for the nine months ended September 30, 2003 of ($4.1) million, or ($0.49) per share, versus income from continuing operations of $0.1 million, or $0.01 per share, in the same period of 2002, excluding restructuring and other non-recurring or unusual items, which are discussed below. Net sales in the nine months ended September 30, 2003 were $317.8 million, down 4.8% from the same period in 2002 (excluding SESCO, a business which was exited in April 2002). EBITDA, excluding all restructuring and other non-recurring or unusual items, was $19.1 million in the nine months ended September 30, 2003, compared to $21.8 million for the same period in 2002.

During the third quarter of 2003, Katy reported restructuring and other non-recurring or unusual items of ($14.9) million pre-tax [($1.78) per share], including impairments of long-lived assets of ($5.3) million, severance, restructuring and related costs of ($3.9) million, a write down of its equity investment in Sahlman Holding Company Inc. of ($5.5) million and a loss on the sale of real estate of ($0.2) million. Katy also recorded income from discontinued operations of $12.2 million, net of tax [$1.49 per share], principally due to the sale of Duckback Products, Inc. (Duckback), as well as the impact of paid-in-kind dividends earned on convertible preferred stock of ($3.3) million [($0.40) per share]. Including these items, Katy reported a net loss attributable to common shareholders of ($3.7) million, or ($0.45) per share, in the third quarter of 2003, versus a net loss attributable to common shareholders of ($23.4) million, or ($2.79) per share, in the same period of 2002. During the third quarter of 2002, Katy reported restructuring and other non-recurring or unusual items of ($20.5) million pre-tax [($2.34) per share], including impairments of long-lived assets of ($11.0) million and severance, restructuring and related costs of ($9.5) million. Also during the third quarter of 2002, Katy reported results of discontinued operations of $1.0 million, net of tax [$0.13 per share], a cumulative effect of a change in accounting principle of ($4.2 million) [($0.50) per share], as well as the impact of paid-in-kind dividends earned on convertible preferred stock of ($2.6) million [($0.31) 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, 2003, Katy reported restructuring and other non-recurring or unusual items of ($17.9) million pre-tax [($2.16) 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) and a net gain on the sale of real estate of $0.5 million. Katy also reported results of discontinued operations (including an $11.5 million gain on sale of Duckback) of $14.5 million, net of tax [$1.75 per share], a gain on the early redemption of a preferred interest in a subsidiary of $6.6 million [$0.79 per share], and the impact of paid-in-kind dividends earned on convertible preferred stock of $(9.3) million [($1.12) per share]. Including these items, Katy reported a net loss attributable to common shareholders of ($10.3) million, or ($1.23) per share, in the nine months ended September 30, 2003, versus a net loss attributable to common shareholders of ($42.8) million, or $(5.11) per share, in the same period of 2002. During the nine months ended September 30, 2002, Katy reported restructuring and other non-recurring or unusual items of ($35.0) million pre-tax [($4.22) per share], including impairments of long-lived assets of ($13.4) million, severance, restructuring and related costs of ($15.6) million, and a loss on exit of the SESCO business of ($6.0) million. Also during the nine months ended September 30, 2002, Katy reported results of discontinued operations of $4.6 million, net of tax [$0.54 per share], a cumulative effect of a change in accounting principle of ($4.2 million) [($0.50) per share], as well as the impact of paid-in-kind dividends earned on convertible preferred stock of $(7.9) million [$(0.94) per share]. Details regarding these items are provided in the "Reconciliations of GAAP Results to Results Excluding Certain Unusual Items" accompanying this press release.

"We are nearing the completion of our restructuring program. The cost reductions realized from restructuring will allow us to further improve our margins and drive growth through more competitive pricing," said C. Michael Jacobi, Katy Industries’ President and Chief Executive Officer. "We continue to explore and execute new cost reduction initiatives to offset the negative effect of increases in the cost of resin and insurance. The sale of Duckback has substantially completed our program to divest our non-core businesses and has positioned us to consider acquisitions," added Mr. Jacobi.

Gross margins were 16.1% in the third quarter of 2003, unchanged from the third quarter of 2002. The favorable impact of restructuring and cost containment was offset by an unfavorable mix of higher sales to lower-margin customers and higher costs for resins. Gross margins are expected to be positively impacted in 2004 by lower depreciation expense (estimated annual impact of approximately $5 million), as a result of a significant number of assets becoming fully depreciated at the Contico business unit by the end of 2003. Selling, general and administrative expenses were down slightly year-over-year but were higher as a percentage of sales principally due to higher insurance costs. Selling, general and administrative costs discussed here exclude severance, restructuring and related costs, which are detailed in the "Reconciliations of GAAP Results to Results Excluding Certain Unusual Items" accompanying this press release.

Interest expense declined by $0.6 million in the third quarter of 2003 versus the same period of 2002 due to lower levels of borrowings and lower interest rates. Debt at September 30, 2003 was $51.5 million [33% of total capitalization], versus $76.6 million [38% of total capitalization] at September 30, 2002. Cash on hand at September 30, 2003 was $5.4 million, versus $4.8 million at September 30, 2002.

Liquidity was negatively impacted during the nine months ended September 30, 2003, as the company used free cash flow of $17.2 million versus $4.2 million of free cash flow generated during the nine months ended September 30, 2002. Katy defines free cash flow as cash generated from operations less capital expenditures and cash dividends. Contributing to the uses of cash during the first nine months of 2003 were payments on previously recorded restructuring liabilities and higher accounts receivable balances. Also during 2003, liquidity benefited from the sale of the GC/Waldom Electronics (GC/Waldom) and Duckback businesses, which together generated $21.9 million in net proceeds and were used to pay down a portion of Katy’s indebtedness.

Katy expects to continue to incur costs associated with restructuring initiatives through the end of 2003 and into the first half of 2004. Capital expenditures, severance, restructuring and related costs, and potential asset impairments related to these initiatives are expected to be in the range of $5 to $7 million. 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.

Katy has completed the following sales of non-core businesses: Duckback on September 16, 2003, GC/Waldom on April 2, 2003, and the Hamilton Precision Metals, L.P. business on October 31, 2002. The results of these businesses have been classified as discontinued operations for all periods presented.

The accompanying schedules include disclosure of Katy’s EBITDA (which is a non-GAAP financial measure) for certain periods with reconciliation to the comparable GAAP measure. EBITDA 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. EBITDA should not be considered in isolation or as an alternative to measures determined in accordance with accounting principles generally accepted in the United States. Katy believes that, while it is a non-GAAP financial measure, EBITDA is used extensively on an internal basis, acting as a primary metric for operating performance measurement related to incentive compensation for management. EBITDA is also the prime measure of operating results used by the lenders in Katy’s bank group when evaluating its performance. Katy also believes it is useful for investors to understand EBITDA because it provides a link between profitability and operating cash flow, and also enables the investor to view performance in a manner similar to the method used by management. Details regarding these items and other non-GAAP items are provided in the "Reconciliations of GAAP Results to Results Excluding Certain Unusual Items" accompanying this press release. In accordance with SEC regulations regarding the disclosure of non-GAAP financial measures, the "Reconciliations of GAAP Results to Results Excluding Certain Unusual Items" accompanying this press release exclude certain unusual items that were previously included in similar reconciliations in Katy’s prior press releases.

This press release may contain various forward-looking statements. The forward-looking statements are based on the beliefs of the company’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.

2003 Third Quarter Report

Back to top