KII LIQUIDATING INC 
By BRIDGETON, Mo., Aug. 12 /PRNewswire-FirstCall/ -- Katy Industries, Inc. (OTC Bulletin Board: KATY) today reported a net loss in the second quarter of 2009 of $0.5 million ($0.07 per share), versus a net loss of $4.2 million ($0.53 per share), in the second quarter of 2008. Operating loss was $0.8 million (2.1% of net sales) in the second quarter of 2009, compared to $5.2 million (11.6% of net sales) in the same period in 2008.
Financial highlights for the second quarter of 2009, as compared to the same period in the prior year, included:
-- Net sales in the second quarter of 2009 were $37.7 million, a decrease
of $7.5 million, or 16.5%, compared to the same period in 2008. The
decrease resulted from lower volumes across almost all of the business
units driven by market softness, as well as the decision to exit certain
unprofitable business lines.
-- Gross margin improved to 16.4% in the second quarter of 2009 from 5.5%
in the second quarter of 2008. Gross margin was impacted by improved
factory productivity and cost controls, as well as a favorable quarter
over quarter variance in the LIFO adjustment of $1.2 million resulting
from a decrease in resin costs and lower inventory levels.
-- Selling, general and administrative expenses were $1.1 million lower in
the second quarter of 2009 than in the second quarter of 2008. Prior
year expenses included a net charge of $0.9 million associated with the
transition and hiring of our Chief Executive Officer ("CEO")
and forfeiture of stock options by our former CEO. Other favorable
variances quarter over quarter included a $0.2 million reduction in
commissions as related sales are down, $0.2 million of lower consulting
and professional fees, $0.2 million less expense related to
self-insurance programs, and a $0.1 million reduction in bad debt
expense. Partially offsetting these net favorable variances were
current quarter costs of $0.5 million associated with the transition and
hiring of executive level personnel.
During the second quarter of 2008, Katy reported income from severance, restructuring and related charges of $0.5 million, which resulted primarily from favorable adjustments to accruals for lease exit costs, as well as net activity from discontinued operations of $0.6 million, which included the recognition of a final working capital adjustment of business units sold in 2007.
Katy also reported a net loss for the six months ended July 3, 2009 of $3.0 million ($0.37 per share), versus a net loss of $7.6 million ($0.96 per share), for the six months ended June 30, 2008. Operating loss was $2.8 million (3.9% of net sales) for the six months ended July 3, 2009, compared to $8.8 million (10.1% of net sales) in the same period in 2008.
Financial highlights for the six months ended July 3, 2009, as compared to the six months ended June 30, 2008, included:
-- Net sales for the six months ended July 3, 2009 were $72.8 million, a
decrease of $14.1 million, or 16.2%, compared to the same period in
2008. The decrease resulted from lower volumes across almost all of the
business units driven by market softness, as well as the decision to
exit certain unprofitable business lines.
-- Gross margin was 15.6% for the six months ended July 3, 2009, versus
7.2% for the same period in 2008. Gross margin was impacted by improved
factory productivity and cost controls, as well as a favorable year over
year variance in the LIFO adjustment of $2.7 million resulting from a
decrease in resin costs and lower inventory levels.
-- Selling, general and administrative expenses were $0.6 million lower for
the six months ended July 3, 2009 than for the same period in 2008.
Prior year expenses included a net charge of $0.9 million associated
with the transition and hiring of our CEO and forfeiture of stock
options by our former CEO. Current year expenses include $1.1 million
associated with the transition and hiring of executive level personnel
and $0.1 million of costs related to the Company's plan to
deregister. These costs were largely offset by a $0.3 million reduction
in commissions, $0.3 million of lower consulting and professional fees,
$0.2 million less expense related to self-insurance programs, and a $0.1
million reduction in bad debt expense.
For the first half of 2008, Katy reported income from severance, restructuring and related charges of $0.4 million, which resulted primarily from favorable adjustments to accruals for lease exit costs, as well as net activity from discontinued operations of $0.9 million, which included the recognition of a final working capital adjustment of business units sold in 2007.
Operations generated $2.4 million of free cash flow during the six months ended July 3, 2009 compared to a $10.4 million usage during the six months ended June 30, 2008. The fluctuation was primarily a result of lower net loss year over year and was also positively impacted by reduced capital spending and lower inventory balances. Free cash flow, a non-GAAP financial measure, is discussed further below.
Debt at July 3, 2009 was $16.9 million (50% of total capitalization), versus $17.5 million (48% of total capitalization) at December 31, 2008.
"The second quarter performance, an improvement over last year's second quarter as well as sequentially, was a result of the changes we have made to the business over the last year. The upgrading of our senior and middle management, and our focus on execution and business basics are paying off," said David J. Feldman, Katy's President and Chief Executive Officer. "We remain optimistic that we will see continued performance improvements in the coming quarters as the overall economy stabilizes."
Non-GAAP Financial Measures
To provide transparency about measures of Katy's financial performance which management considers most relevant, the Company supplements the reporting of Katy's consolidated financial information under GAAP with a non-GAAP financial measure, Free Cash Flow. Free cash flow is defined by Katy as cash flow from operations less capital expenditures and cash dividends paid. Details regarding this measure and a reconciliation of this non-GAAP measure to a comparable GAAP measure are provided in the "Statements of Cash Flows" accompanying this press release. This non-GAAP financial measure 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 financial measure to analyze the Company's performance would have material limitations because its 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 measures reflected below to understand and analyze the results of its business. Katy believes this measure is nonetheless 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 forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Forward-looking statements include all statements of the Company's plans, beliefs or expectations with respect to future events or developments and often may be identified by such words or phrases as "should", "intends", "is subject to", "expects", "will", "continue", "anticipate", "estimated", "projected", "may", "we believe", "future prospects", or similar expressions. These forward-looking statements are based on the opinions and 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 that may lead to results that differ materially from those expressed in any forward-looking statement made by the Company or on its behalf. These risks and uncertainties include, without limitation, conditions in the general economy and in the markets served by the Company, including changes in the demand for its products; success of any restructuring or cost control efforts; an increase in interest rates; competitive factors, such as price pressures and the potential emergence of rival technologies; interruptions of suppliers' operations or other causes affecting availability of component materials or finished goods at reasonable prices; changes in product mix, costs and yields; labor issues at the Company's facilities or those of its suppliers; legal claims or other regulator actions; and other risks identified from time to time in the Company's filings with the SEC, including its Report on Form 10-K for the year ended December 31, 2008. 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 focused on the manufacture, import and distribution of commercial cleaning products and consumer home products.
Company contact:
Katy Industries, Inc.
James W. Shaffer
(314) 656-4321
KATY INDUSTRIES, INC. SUMMARY OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
Three Months Ended Six Months Ended
July 3, June 30, July 3, June 30,
2009 2008 2009 2008
---- ---- ---- ----
Net sales $37,676 $45,134 $72,768 $86,825
Cost of goods sold 31,488 42,668 61,443 80,531
------ ------ ------ ------
Gross profit 6,188 2,466 11,325 6,294
Selling, general and administrative
expenses 6,959 8,030 14,123 14,767
Severance, restructuring and
related charges - (548) - (410)
Loss on sale or disposal of assets 12 201 12 734
--- --- --- ---
Operating loss (783) (5,217) (2,810) (8,797)
Interest expense (283) (420) (592) (903)
Other, net 78 30 5 16
--- --- --- ---
Loss from continuing operations
before income tax benefit (988) (5,607) (3,397) (9,684)
Income tax benefit from continuing
operations 441 805 435 1,157
--- --- --- -----
Loss from continuing operations (547) (4,802) (2,962) (8,527)
Loss from operations of
discontinued businesses (net of tax) - (415) - (667)
Gain on sale of discontinued
businesses (net of tax) - 1,002 - 1,545
--- ----- --- -----
Net loss $(547) $(4,215) $(2,962) $(7,649)
===== ======= ======= =======
Loss per share of common stock -
basic and diluted:
Continuing operations $(0.07) $(0.60) $(0.37) $(1.07)
Discontinued operations - 0.07 - 0.11
--- ---- --- ----
Net loss $(0.07) $(0.53) $(0.37) $(0.96)
====== ====== ====== ======
Weighted average common shares
outstanding -basic and diluted 7,951 7,951 7,951 7,951
===== ===== ===== =====
July 3, June 30,
Other Information: 2009 2008
Working capital $(5,736) $3,279
======= ======
Working capital, exclusive of deferred tax
assets and liabilities and debt
classified as current $4,989 $10,256
====== =======
Long-term debt, including current maturities $16,903 $14,906
======= =======
Stockholders' equity $16,653 $28,417
======= =======
Capital expenditures $420 $2,934
==== ======
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets July 3, December 31, June 30,
Current assets: 2009 2008 2008
---- ---- ----
Cash $870 $683 $1,167
Accounts receivable, net 16,981 13,773 21,736
Inventories, net 16,395 19,911 25,490
Other current assets 1,259 3,516 2,296
----- ----- -----
Total current assets 35,505 37,883 50,689
------ ------ ------
Other assets:
Goodwill 665 665 665
Intangibles, net 4,235 4,455 4,659
Other 2,753 1,809 2,204
----- ----- -----
Total other assets 7,653 6,929 7,528
----- ----- -----
Property and equipment 102,178 101,715 106,677
Less: accumulated depreciation (72,405) (69,232) (74,425)
------- ------- -------
Property and equipment, net 29,773 32,483 32,252
------ ------ ------
Total assets $72,931 $77,295 $90,469
======= ======= =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $12,143 $10,283 $11,740
Book overdraft 839 2,289 3,999
Accrued expenses 17,534 17,281 24,694
Current maturities of long-term debt 1,500 1,500 1,500
Revolving credit agreement 9,225 9,118 5,477
----- ----- -----
Total current liabilities 41,241 40,471 47,410
Long-term debt, less current maturities 6,178 6,928 7,929
Other liabilities 8,859 10,603 6,713
----- ------ -----
Total liabilities 56,278 58,002 62,052
------ ------ ------
Stockholders' equity:
Convertible preferred stock 108,256 108,256 108,256
Common stock 9,822 9,822 9,822
Additional paid-in capital 27,064 27,248 27,041
Accumulated other comprehensive loss (1,694) (1,742) (1,244)
Accumulated deficit (105,359) (102,397) (93,564)
Treasury stock (21,436) (21,894) (21,894)
------- ------- -------
Total stockholders' equity 16,653 19,293 28,417
------ ------ ------
Total liabilities and stockholders'
equity $72,931 $77,295 $90,469
======= ======= =======
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Six Months Ended
July 3, June 30,
2009 2008
---- ----
Cash flows from operating activities:
Net loss $(2,962) $(7,649)
Income from operations of discontinued
businesses - (878)
--- ----
Loss from continuing operations (2,962) (8,527)
Depreciation and amortization 3,399 4,094
Amortization of debt issuance costs 191 191
Stock-based compensation 266 (210)
Loss on sale or disposal of assets 12 734
--- ---
906 (3,718)
--- ------
Changes in operating assets and liabilities:
Accounts receivable (3,148) (3,693)
Inventories 3,632 603
Other assets 1,035 487
Accounts payable 1,812 1,342
Accrued expenses 232 (337)
Other (1,689) (1,539)
------ ------
1,874 (3,137)
----- ------
Net cash provided by (used in) continuing
operations 2,780 (6,855)
Net cash used in discontinued operations - (654)
--- ----
Net cash provided by (used in) operating
activities 2,780 (7,509)
----- ------
Cash flows from investing activities:
Capital expenditures of continuing
operations (420) (2,934)
Proceeds from sale of assets 2 49
--- ---
Net cash used in continuing operations (418) (2,885)
Net cash provided by discontinued
operations - 8,685
--- -----
Net cash (used in) provided by investing
activities (418) 5,800
---- -----
Cash flows from financing activities:
Net borrowings on revolving loans 47 2,624
Decrease in book overdraft (1,450) (544)
Repayments of term loans (750) (1,171)
---- ------
Net cash (used in) provided by financing
activities (2,153) 909
------ ---
Effect of exchange rate changes on cash (22) (48)
--- ---
Net increase (decrease) in cash 187 (848)
Cash, beginning of period 683 2,015
--- -----
Cash, end of period $870 $1,167
==== ======
Reconciliation of free cash flow to GAAP Results:
Net cash provided by (used in) operating
activities $2,780 $(7,509)
Capital expenditures (420) (2,934)
---- ------
Free cash flow $2,360 $(10,443)
====== ========
SOURCE Katy Industries, Inc.
