8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________

FORM 8-K

_______________

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 27, 2005

Katy Industries, Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-05558	75--1277589
(State of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

765 Straits Turnpike

Middlebury, Connecticut 06762

(Address of principal executive offices) (Zip Code)

(203) 598-0397

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

Item 2.02Results of Operations and Financial Condition.

On October 27, 2005, Katy Industries, Inc. issued a press release regarding its results of operations for the third quarter of 2005. The release and accompanying schedules are being furnished as Exhibit 99.1 to this Current Report on Form 8-K.

In accordance with General Instruction B.2. of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01Financial Statements and Exhibits.

(c)Exhibits.

Exhibit 99.1Press release issued by Katy Industries, Inc. on October 27, 2005.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

KATY INDUSTRIES, INC.

(Registrant)

By: /s/ Amir Rosenthal

Amir Rosenthal

Vice President, Chief Financial Officer,

General Counsel and Secretary

Date: October 28, 2005

Exhibits

Exhibit No.Description

99.1Press release issued by Katy Industries, Inc. on October 27, 2005.

EX-99.1

KATY NEWS

FOR IMMEDIATE RELEASE

KATY INDUSTRIES, INC.

REPORTS 2005 THIRD QUARTER RESULTS

MIDDLEBURY, CT - October 27, 2005 - 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 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 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 onKaty’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 September 30,						Nine Months Ended 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 EXCLDING CERTAIN UNUSUAL ITEMS - UNAUDITED
(In thousands, except percentages and per share data)
		Three Months Ended September 30,						Nine Months Ended 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 September 30,						Nine Months Ended 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	)