KII LIQUIDATING INC 
By
Katy also reported a net loss for the six months ended
During the second quarter of 2008, Katy reported restructuring and other
non-recurring or unusual items of
For the six months ended
Financial highlights for the second quarter of 2008, as compared to the same period in the prior year, included:
-- Net sales in the second quarter of 2008 were
-- Gross margins were 5.5% in the second quarter of 2008, versus 13.3% in
the second quarter of 2007. In 2008, our margins were adversely impacted by
an unfavorable variance incurred in our LIFO adjustment of
-- Selling, general and administrative expenses were
-- Debt at
-- Katy used free cash flow of
"The results of the second quarter were reflective of the current economic
environment. Since joining the company in mid-April, my focus has been to
determine how best to improve both our top and bottom line results," said
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 net 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 financial 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 measures 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 net 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.
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 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, 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 focused on the manufacturing and distribution of commercial cleaning products and consumer home products.
Company contact:
Katy Industries, Inc.
Amir Rosenthal
(314) 656-4321
KATY INDUSTRIES, INC. SUMMARY OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Net sales $45,134 $49,972 $86,825 $95,524
Cost of goods sold 42,668 43,332 80,531 83,288
Gross profit 2,466 6,640 6,294 12,236
Selling, general and administrative
expenses 8,030 6,797 14,767 14,371
Severance, restructuring and related
charges (548) 2,402 (410) 2,610
Loss on sale of assets 201 1,691 734 1,571
Operating loss (5,217) (4,250) (8,797) (6,316)
Interest expense (420) (919) (903) (2,114)
Other, net 30 70 16 102
Loss from continuing operations
before benefit from
(provision for) income taxes (5,607) (5,099) (9,684) (8,328)
Benefit from (provision for) income
taxes from continuing operations 805 (136) 1,157 (225)
Loss from continuing operations (4,802) (5,235) (8,527) (8,553)
Loss from operations of discontinued
businesses (net of tax) (415) (108) (667) (2,235)
Gain on sale of discontinued
businesses (net of tax) 1,002 7,151 1,545 8,817
Net (loss) income $(4,215) $1,808 $(7,649) $(1,971)
(Loss) income per share of common
stock - basic and diluted:
Loss from continuing operations $(0.60) $(0.66) $(1.07) $(1.08)
Discontinued operations 0.07 0.89 0.11 0.83
Net (loss) income $(0.53) $0.23 $(0.96) $(0.25)
Weighted average common shares
outstanding - basic and diluted 7,951 7,951 7,951 7,951
June 30, June 30,
Other Information: 2008 2007
Working capital $3,279 $6,496
Working capital, exclusive of deferred
tax assets and liabilities and debt
classified as current $10,256 $44,686
Long-term debt, including current
maturities $14,906 $48,889
Stockholders' equity $28,417 $37,045
Capital expenditures $2,934 $2,040
KATY INDUSTRIES, INC. RECONCILIATIONS OF GAAP RESULTS
TO RESULTS EXCLUDING CERTAIN UNUSUAL ITEMS - UNAUDITED
(In thousands, except percentages and per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Reconciliation of net (loss) income to
net loss, as adjusted:
Net (loss) income $(4,215) $1,808 $(7,649) $(1,971)
Unusual items:
Severance, restructuring and related
charges (548) 2,402 (410) 2,610
Loss on sale of assets 201 1,691 734 1,571
Discontinued operations (587) (7,043) (878) (6,582)
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items 1,458 518 2,400 1,801
Net loss, as adjusted $(3,691) $(624) $(5,803) $(2,571)
Net loss, as adjusted per share:
Net (loss) income per share $(0.53) $0.23 $(0.96) $(0.25)
Unusual items per share (0.12) (0.37) (0.07) (0.30)
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items per share 0.19 0.06 0.30 0.23
Net loss, as adjusted per share $(0.46) $(0.08) $(0.73) $(0.32)
Weighted average common shares
outstanding:
Basic and diluted 7,951 7,951 7,951 7,951
Operating loss, as adjusted:
Operating loss $(5,217) $(4,250) $(8,797) $(6,316)
Severance, restructuring and related
charges (548) 2,402 (410) 2,610
Loss on sale of assets 201 1,691 734 1,571
Operating loss, as adjusted: $(5,564) $(157) $(8,473) $(2,135)
Operating loss, as adjusted, as a % of
sales -12.3% -0.3% -9.8% -2.2%
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets June 30, December 31, June 30,
Current assets: 2008 2007 2007
Cash and cash equivalents $1,167 $2,015 $2,483
Accounts receivable, net 21,736 18,077 40,272
Inventories, net 25,490 26,160 63,976
Other current assets 2,296 9,319 3,004
Total current assets 50,689 55,571 109,735
Other assets:
Goodwill 665 665 665
Intangibles, net 4,659 4,853 5,237
Other 2,204 3,470 8,067
Total other assets 7,528 8,988 13,969
Property and equipment 106,677 106,652 126,055
Less: accumulated depreciation (74,425) (72,647) (88,610)
Property and equipment, net 32,252 34,005 37,445
Total assets $90,469 $98,564 $161,149
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $15,739 $14,995 $28,206
Accrued expenses 24,694 24,954 35,936
Current maturities of long-term
debt 1,500 1,500 1,500
Revolving credit agreement 5,477 2,853 37,597
Total current liabilities 47,410 44,302 103,239
Long-term debt, less current
maturities 7,929 9,100 9,792
Other liabilities 6,713 8,706 11,073
Total liabilities 62,052 62,108 124,104
Stockholders' equity:
Convertible preferred stock 108,256 108,256 108,256
Common stock 9,822 9,822 9,822
Additional paid-in capital 27,041 27,338 27,274
Accumulated other comprehensive
(loss) income (1,244) (1,112) 38
Accumulated deficit (93,564) (85,915) (86,385)
Treasury stock (21,894) (21,933) (21,960)
Total stockholders' equity 28,417 36,456 37,045
Total liabilities and stockholders'
equity $90,469 $98,564 $161,149
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Six Months Ended June 30,
2008 2007
Cash flows from operating activities:
Net loss $(7,649) $(1,971)
Income from operations of
discontinued businesses (878) (6,582)
Loss from continuing operations (8,527) (8,553)
Depreciation and amortization 4,094 3,799
Write-off and amortization of debt
issuance costs 191 906
Write-off of assets due to lease
termination - 751
Stock option (income) expense (258) 171
Loss on sale of assets 734 1,571
Deferred income taxes - (94)
(3,766) (1,449)
Changes in operating assets and
liabilities:
Accounts receivable (3,693) (3,667)
Inventories 603 (1,009)
Other assets 487 (107)
Accounts payable 1,342 2,427
Accrued expenses (289) (2,186)
Other, net (1,539) 1,997
(3,089) (2,545)
Net cash used in continuing
operations (6,855) (3,994)
Net cash used in discontinued operations (654) (3,989)
Net cash used in operating activities (7,509) (7,983)
Cash flows from investing activities:
Capital expenditures of continuing
operations (2,934) (2,040)
Proceeds from sale of assets, net 49 197
Net cash used in continuing operations (2,885) (1,843)
Net cash provided by discontinued
operations 8,685 15,661
Net cash provided by investing activities 5,800 13,818
Cash flows from financing activities:
Net borrowings (repayments) on
revolving loans 2,624 (6,282)
Decrease in book overdraft (544) (2,143)
Repayments of term loans (1,171) (1,700)
Direct costs associated with debt
facilities - (127)
Repurchases of common stock - (3)
Net cash provided by (used in)
continuing operations 909 (10,255)
Net cash used in discontinued
operations - (381)
Net cash provided by (used in)
financing activities 909 (10,636)
Effect of exchange rate changes on
cash and cash equivalents (48) (108)
Net decrease in cash and cash equivalents (848) (4,909)
Cash and cash equivalents, beginning
of period 2,015 7,392
Cash and cash equivalents, end of period $1,167 $2,483
Reconciliation of free cash flow to
GAAP Results:
Net cash used in operating activities $(7,509) $(7,983)
Capital expenditures (2,934) (2,040)
Free cash flow $(10,443) $(10,023)
SOURCE Katy Industries, Inc.
