KII LIQUIDATING INC 
By BRIDGETON, Mo., Nov. 12 /PRNewswire-FirstCall/ -- Katy Industries, Inc. (OTC Bulletin Board: KATY) today reported a net loss in the third quarter of 2009 of $0.8 million ($0.10 per share), versus a net loss of $5.0 million ($0.62 per share), in the third quarter of 2008. Operating loss was $0.6 million (1.7% of net sales) in the third quarter of 2009, compared to $4.8 million (10.7% of net sales) in the same period in 2008.
Financial highlights for the third quarter of 2009, as compared to the same period in the prior year, included:
-- Net sales in the third quarter of 2009 were $37.6 million, a decrease of
$6.8 million, or 15.2%, 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 improved to 13.6% in the third quarter of 2009 from 6.5% in
the third quarter of 2008. Gross margin was impacted by improved
factory productivity and cost controls.
-- Selling, general and administrative expenses were $1.9 million lower in
the third quarter of 2009 than in the third quarter of 2008. Prior year
expenses included $0.2 million of costs related to the Company's
abandoned plan to deregister its common stock under the Securities
Exchange Act of 1934 and $0.2 million of accelerated depreciation
expense on abandoned leasehold improvements. Other favorable variances
quarter over quarter included a $0.9 million reduction in salaries and
related incentive accruals, a $0.3 million decrease in promotional
expenses (catalogs, samples, etc.), $0.3 million of lower consulting and
professional fees, and a $0.2 million reduction in commissions as
related sales are down. Partially offsetting these favorable variances
were current quarter costs of $0.2 million associated with the
transition and hiring of executive level personnel.
During the third quarter of 2008, Katy reported net activity from discontinued operations of $0.1 million.
Katy also reported a net loss for the nine months ended October 2, 2009 of $3.8 million ($0.47 per share), versus a net loss of $12.6 million ($1.58 per share), for the nine months ended September 30, 2008. Operating loss was $3.4 million (3.1% of net sales) for the nine months ended October 2, 2009, compared to $13.6 million (10.3% of net sales) in the same period in 2008.
Financial highlights for the nine months ended October 2, 2009, as compared to the nine months ended September 30, 2008, included:
-- Net sales for the nine months ended October 2, 2009 were $110.4 million,
a decrease of $20.8 million, or 15.9%, 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 14.9% for the nine months ended October 2, 2009, versus
7.0% 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 $2.8 million resulting from a
decrease in resin costs and lower inventory levels.
-- Selling, general and administrative expenses were $2.6 million lower for
the nine months ended October 2, 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 and $0.5 million of accelerated depreciation
expense on abandoned leasehold improvements. Other favorable variances
year over year included a $0.5 million reduction in commissions, a $0.5
million decrease in promotional expenses (catalogs, samples, etc.), $0.5
million of lower consulting and professional fees, a $0.4 million
reduction in salaries and related incentive accruals, a $0.4 million
reduction in expense related to environmental liability accruals, $0.4
million less expense related to self-insurance programs, a $0.1 million
reduction of costs related to the Company's abandoned plan to
deregister, and a $0.1 million reduction in bad debt expense. Partially
offsetting these favorable variances were current year expenses of $1.6
million associated with the transition and hiring of executive level
personnel and $0.1 million additional stock option expense.
For the first nine months 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 $1.0 million, which included the recognition of a final working capital adjustment of business units sold in 2007.
Operations generated $2.0 million of free cash flow during the nine months ended October 2, 2009 compared to an $11.0 million usage during the nine months ended September 30, 2008. The fluctuation was primarily a result of lower net loss year over year and was also positively impacted by reduced capital spending. Free cash flow, a non-GAAP financial measure, is discussed further below.
Debt at October 2, 2009 was $17.2 million (52% of total capitalization), versus $17.5 million (48% of total capitalization) at December 31, 2008.
"Third quarter results show continued improvement versus last year despite much lower sales volumes resulting from the weakened economy. Our focus on business basics is paying off," stated David J. Feldman, Katy's President and Chief Executive Officer. "We remain optimistic that we will see continued improvements in performance as the economy stabilizes, with our biggest risks being continued lower volumes and rising material costs from petroleum based raw materials."
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 Nine Months Ended
October 2, September 30, October 2, September 30,
2009 2008 2009 2008
---- ---- ---- ----
Net sales $37,612 $44,364 $110,380 $131,189
Cost of goods sold 32,501 41,494 93,944 122,025
------ ------ ------ -------
Gross profit 5,111 2,870 16,436 9,164
Selling, general
and administrative
expenses 5,695 7,603 19,818 22,370
Severance,
restructuring and
related charges - - - (410)
Loss on sale or
disposal of assets 49 28 61 762
--- --- --- ---
Operating loss (633) (4,761) (3,443) (13,558)
Interest expense (281) (394) (873) (1,297)
Other, net 118 18 123 34
--- --- --- ---
Loss from continuing
operations before
income tax
(provision) benefit (796) (5,137) (4,193) (14,821)
Income tax
(provision) benefit
from continuing
operations (14) 65 421 1,222
--- --- --- -----
Loss from continuing
operations (810) (5,072) (3,772) (13,599)
Loss from operations
of discontinued
businesses (net of
tax) - (71) - (738)
Gain on sale of
discontinued
businesses (net of
tax) - 190 - 1,735
--- --- --- -----
Net loss $(810) $(4,953) $(3,772) $(12,602)
===== ======= ======= ========
Loss per share of
common stock - basic
and diluted:
Continuing operations $(0.10) $(0.64) $(0.47) $(1.71)
Discontinued
operations - 0.02 - 0.13
--- ---- --- ----
Net loss $(0.10) $(0.62) $(0.47) $(1.58)
====== ====== ====== ======
Weighted average
common shares
outstanding -
basic and diluted 7,951 7,951 7,951 7,951
===== ===== ===== =====
October 2, September 30,
Other Information: 2009 2008
Working capital $(6,233) $(2,130)
======= =======
Working capital,
exclusive of deferred tax assets and
liabilities and debt classified as current $5,178 $5,999
====== ======
Long-term debt, including current maturities $17,209 $15,513
======= =======
Stockholders' equity $15,961 $23,463
======= =======
Capital expenditures $1,537 $5,122
====== ======
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets October 2, December 31, September 30,
Current assets: 2009 2008 2008
---- ---- ----
Cash $895 $683 $928
Accounts receivable, net 15,520 13,773 20,589
Inventories, net 16,207 19,911 22,994
Other current assets 1,292 3,516 2,480
----- ----- -----
Total current assets 33,914 37,883 46,991
------ ------ ------
Other assets:
Goodwill 665 665 665
Intangibles, net 4,108 4,455 4,562
Other 2,909 1,809 2,045
----- ----- -----
Total other assets 7,682 6,929 7,272
----- ----- -----
Property and equipment 103,117 101,715 107,227
Less: accumulated depreciation (73,763) (69,232) (74,872)
------- ------- -------
Property and equipment, net 29,354 32,483 32,355
------ ------ ------
Total assets $70,950 $77,295 $86,618
======= ======= =======
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $9,631 $10,283 $13,207
Book overdraft 1,089 2,289 3,425
Accrued expenses 18,016 17,281 24,360
Current maturities of long-
term debt 1,500 1,500 1,500
Revolving credit agreement 9,911 9,118 6,629
----- ----- -----
Total current liabilities 40,147 40,471 49,121
Long-term debt, less current
maturities 5,798 6,928 7,384
Other liabilities 9,044 10,603 6,650
----- ------ -----
Total liabilities 54,989 58,002 63,155
------ ------ ------
Stockholders' equity:
Convertible preferred stock 108,256 108,256 108,256
Common stock 9,822 9,822 9,822
Additional paid-in capital 27,162 27,248 27,147
Accumulated other
comprehensive loss (1,674) (1,742) (1,351)
Accumulated deficit (106,169) (102,397) (98,517)
Treasury stock (21,436) (21,894) (21,894)
------- ------- -------
Total stockholders' equity 15,961 19,293 23,463
------ ------ ------
Total liabilities and
stockholders' equity $70,950 $77,295 $86,618
======= ======= =======
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Nine Months Ended
October 2, September 30,
2009 2008
---- ----
Cash flows from operating activities:
Net loss $(3,772) $(12,602)
Income from operations of discontinued
businesses - (997)
--- ----
Loss from continuing operations (3,772) (13,599)
Depreciation and amortization 5,063 6,209
Amortization of debt issuance costs 287 286
Stock-based compensation 372 (210)
Loss on sale or disposal of assets 61 762
--- ---
2,011 (6,552)
----- ------
Changes in operating assets and liabilities:
Accounts receivable (1,626) (2,577)
Inventories 3,745 3,037
Other assets 1,103 181
Accounts payable (731) 2,835
Accrued expenses 670 (382)
Other (1,635) (1,550)
------ ------
1,526 1,544
----- -----
Net cash provided by (used in) continuing
operations 3,537 (5,008)
Net cash used in discontinued operations - (897)
--- ----
Net cash provided by (used in) operating
activities 3,537 (5,905)
----- ------
Cash flows from investing activities:
Capital expenditures of continuing
operations (1,537) (5,122)
Proceeds from sale of assets 2 99
--- ---
Net cash used in continuing operations (1,535) (5,023)
Net cash provided by discontinued
operations - 8,979
--- -----
Net cash (used in) provided by investing
activities (1,535) 3,956
------ -----
Cash flows from financing activities:
Net borrowings on revolving loans 659 3,776
Decrease in book overdraft (1,200) (1,118)
Repayments of term loans (1,131) (1,716)
------ ------
Net cash (used in) provided by financing
activities (1,672) 942
------ ---
Effect of exchange rate changes on cash (118) (80)
---- ---
Net increase (decrease) in cash 212 (1,087)
Cash, beginning of period 683 2,015
--- -----
Cash, end of period $895 $928
==== ====
Reconciliation of free cash flow to GAAP Results:
Net cash provided by (used in) operating
activities $3,537 $(5,905)
Capital expenditures (1,537) (5,122)
------ ------
Free cash flow $2,000 $(11,027)
====== ========
SOURCE Katy Industries, Inc.
