KII LIQUIDATING INC 
By
Katy also reported a net loss for the nine months ended
During the third quarter of 2008, Katy reported restructuring and other
non-recurring or unusual items of
For the nine months ended
Financial highlights for the third quarter of 2008, as compared to the same period in the prior year, included:
-- Net sales in the third quarter of 2008 were
-- Gross margins were 6.5% in the third quarter of 2008, versus 11.3% in
the third quarter of 2007. In 2008, our margins were adversely impacted by
lower volume within the above business units along with material costs
increases which were not fully recovered from the marketplace. In addition,
the remaining factor impacting gross margins was 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 third quarter were very reflective of the current
economic environment," 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.
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
September 30, September 30,
2008 2007 2008 2007
Net sales $44,364 $49,208 $131,189 $144,732
Cost of goods sold 41,494 43,669 122,025 126,957
Gross profit 2,870 5,539 9,164 17,775
Selling, general and administrative
expenses 7,603 6,611 22,370 20,982
Severance, restructuring and related
charges - 46 (410) 2,656
Loss (gain) on sale of assets 28 (44) 762 1,527
Operating loss (4,761) (1,074) (13,558) (7,390)
Interest expense (394) (1,051) (1,297) (3,165)
Other, net 18 (230) 34 (128)
Loss from continuing operations
before benefit from (provision
for) income taxes (5,137) (2,355) (14,821) (10,683)
Benefit from (provision for) income
taxes from continuing operations 65 (19) 1,222 (651)
Loss from continuing operations (5,072) (2,374) (13,599) (11,334)
(Loss) income from operations of
discontinued businesses (net of tax) (71) 1,564 (738) (264)
Gain on sale of discontinued
businesses (net of tax) 190 - 1,735 8,817
Net loss $(4,953) $(810) $(12,602) $(2,781)
Loss per share of common stock -
basic and diluted:
Loss from continuing operations $(0.64) $(0.30) $(1.71) $(1.43)
Discontinued operations 0.02 0.20 0.13 1.08
Net loss $(0.62) $(0.10) $(1.58) $(0.35)
Weighted average common shares
outstanding - basic and diluted 7,951 7,951 7,951 7,951
September September
30, 30,
Other Information: 2008 2007
Working capital, exclusive of
deferred tax assets and liabilities
and debt classified as current $5,999 $48,558
Long-term debt, including current
maturities $15,513 $52,395
Stockholders' equity $23,463 $33,807
Capital expenditures $5,122 $2,811
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 Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Reconciliation of net loss to net
loss, as adjusted:
Net loss $(4,953) $(810) $(12,602) $(2,781)
Unusual items:
Severance, restructuring and
related charges - 46 (410) 2,656
Loss (gain) on sale of assets 28 (44) 762 1,527
Discontinued operations (119) (1,564) (997) (8,553)
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items 1,876 913 4,276 3,121
Net loss, as adjusted $(3,168) $(1,459) $(8,971) $(4,030)
Net loss, as adjusted per share:
Net loss per share $(0.62) $(0.10) $(1.58) $(0.35)
Unusual items per share (0.01) (0.20) (0.08) (0.55)
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items per share 0.23 0.12 0.53 0.39
Net loss, as adjusted per share $(0.40) $(0.18) $(1.13) $(0.51)
Weighted average common shares
outstanding:
Basic and diluted 7,951 7,951 7,951 7,951
Operating loss, as adjusted:
Operating loss $(4,761) $(1,074) $(13,558) $(7,390)
Severance, restructuring and
related charges - 46 (410) 2,656
Loss (gain) on sale of assets 28 (44) 762 1,527
Operating loss, as adjusted: $(4,733) $(1,072) $(13,206) $(3,207)
Operating loss, as adjusted, as a %
of sales -10.7% -2.2% -10.1% -2.2%
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
September December September
Assets 30, 31, 30,
Current assets: 2008 2007 2007
Cash and cash equivalents $928 $2,015 $2,171
Accounts receivable, net 20,589 18,077 22,994
Inventories, net 22,994 26,160 23,822
Other current assets 2,480 9,319 2,160
Assets held for sale - - 74,660
Total current assets 46,991 55,571 125,807
Other assets:
Goodwill 665 665 665
Intangibles, net 4,562 4,853 5,001
Other 2,045 3,470 7,070
Total other assets 7,272 8,988 12,736
Property and equipment 107,227 106,652 112,524
Less: accumulated depreciation (74,872) (72,647) (77,595)
Property and equipment, net 32,355 34,005 34,929
Total assets $86,618 $98,564 $173,472
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $16,632 $14,995 $18,317
Accrued expenses 24,360 24,954 29,267
Current maturities of long-term
debt 1,500 1,500 1,500
Revolving credit agreement 6,629 2,853 41,977
Liabilities held for sale - - 28,758
Total current liabilities 49,121 44,302 119,819
Long-term debt, less current
maturities 7,384 9,100 8,918
Other liabilities 6,650 8,706 10,928
Total liabilities 63,155 62,108 139,665
Stockholders' equity:
Convertible preferred stock 108,256 108,256 108,256
Common stock 9,822 9,822 9,822
Additional paid-in capital 27,147 27,338 27,296
Accumulated other comprehensive
loss (1,351) (1,112) (2,439)
Accumulated deficit (98,517) (85,915) (87,195)
Treasury stock (21,894) (21,933) (21,933)
Total stockholders' equity 23,463 36,456 33,807
Total liabilities and stockholders'
equity $86,618 $98,564 $173,472
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Nine Months Ended September 30,
2008 2007
Cash flows from operating activities:
Net loss $(12,602) $(2,781)
Income from operations of discontinued
businesses (997) (8,553)
Loss from continuing operations (13,599) (11,334)
Depreciation and amortization 6,209 5,492
Write-off and amortization of debt issuance
costs 286 1,194
Write-off of assets due to lease termination - 751
Stock option (income) expense (152) 220
Loss on sale of assets 762 1,527
Deferred income taxes - (94)
(6,494) (2,244)
Changes in operating assets and liabilities:
Accounts receivable (2,577) (3,557)
Inventories 3,037 (3,064)
Other assets 181 (584)
Accounts payable 2,835 3,190
Accrued expenses (440) (1,467)
Other, net (1,550) 2,330
1,486 (3,152)
Net cash used in continuing operations (5,008) (5,396)
Net cash used in discontinued operations (897) (5,648)
Net cash used in operating activities (5,905) (11,044)
Cash flows from investing activities:
Capital expenditures of continuing operations (5,122) (2,811)
Proceeds from sale of assets, net 99 246
Net cash used in continuing operations (5,023) (2,565)
Net cash provided by discontinued operations 8,979 15,556
Net cash provided by investing activities 3,956 12,991
Cash flows from financing activities:
Net borrowings (repayments) on revolving loans 3,776 (1,903)
Decrease in book overdraft (1,118) (1,646)
Repayments of term loans (1,716) (2,574)
Direct costs associated with debt facilities - (130)
Repurchases of common stock - (3)
Net cash provided by (used in) continuing
operations 942 (6,256)
Net cash used in discontinued operations - (779)
Net cash provided by (used in) financing
activities 942 (7,035)
Effect of exchange rate changes on cash and
cash equivalents (80) (133)
Net decrease in cash and cash equivalents (1,087) (5,221)
Cash and cash equivalents, beginning of period 2,015 7,392
Cash and cash equivalents, end of period $928 $2,171
Reconciliation of free cash flow to GAAP Results:
Net cash used in operating activities $(5,905) $(11,044)
Capital expenditures (5,122) (2,811)
Free cash flow $(11,027) $(13,855)
SOURCE Katy Industries, Inc.
