KII LIQUIDATING INC 
By ARLINGTON, Va.,
Katy also reported a net loss for the year ended
During the fourth quarter of 2007, Katy reported restructuring and other
non-recurring or unusual items of
For the year ended
Financial highlights for the fourth quarter of 2007, as compared to the same period in the prior year, included:
-- On November 30, 2007, the Company completed the sale of the Woods U.S.
and Woods Canada businesses, which comprised our Electrical Products
Group. Gross proceeds received were $49.8 million, including
$6.8 million being held in escrow and expected to be received primarily
in the first two quarters of 2008. As a result, Katy recorded a
$1.3 million gain on the sale of these businesses. These proceeds were
used to pay down the outstanding revolving loan which was $2.9 million
at December 31, 2007 as compared to $43.9 million at December 31, 2006.
Besides the Woods U.S. and Woods Canada businesses, the discontinued
operations also include the Metal Truck Box business, Contico Europe
Limited (the UK consumer plastics business) and Contico Manufacturing,
Ltd. (the UK commercial plastics business), all of which were sold in
either 2006 or 2007.
-- Net sales in the fourth quarter of 2007 were $43.0 million, a decrease
of $0.6 million compared to the same period in 2006 primarily due to
lower volume activity within our Contico business unit. Overall, the
decrease in net sales of 1% resulted from lower volumes of 2%,
partially offset by favorable foreign currency translation of 1%.
-- Gross margins were 5.8% in the fourth quarter of 2007, versus 13.4% in
the fourth quarter of 2006. In 2007, our margins were adversely
impacted by an unfavorable year over year variance of approximately
$1.1 million to a quarterly LIFO adjustment and production
inefficiencies at our Glit business unit. The unfavorable LIFO
variance was primarily driven by the trend in resin prices occurring in
2007 as compared to 2006.
-- Selling, general and administrative expenses in the fourth quarter of
2007 were $1.7 million lower than the same period of 2006. These costs
represented 11.6% of net sales in the fourth quarter of 2007, a
decrease from 15.4% of net sales for the same period of 2006. The
reduction in percentage reflects the lower requirements under the
Company's incentive compensation plan and self insurance programs as
well as various cost improvements implemented during the past year.
-- On November 30, 2007, the Company entered into a new credit facility
with Bank of America, N.A., one of the lenders under our previous
agreement. The agreement provides for a total facility of
$50.6 million with a $10.6 million term loan and a $40.0 million
revolving loan that expires November 2010. Debt at December 31, 2007
was $13.5 million [27% of total capitalization], versus $56.9 million
[58% of total capitalization] at December 31, 2006. The decrease in
the debt level and the ratio of debt to total capitalization was
principally due to the reduction of debt from the divestiture of Woods
U.S. and Woods Canada, as described above. In addition, the Company
sold its investment in Sahlman Seafoods, Inc. for $3.0 million in
December 2007. Cash on hand at December 31, 2007 was $2.0 million
versus $7.4 million at December 31, 2006.
-- Katy used free cash flow of $14.5 million during 2007 versus using
$1.0 million of free cash flow during 2006. The increased use of cash
was primarily attributable to the higher working capital requirements
in 2007 associated with inventory as compared to 2006. Free cash flow,
a non-GAAP financial measure, is discussed further below.
"With the completion of the divestiture of the Electrical Products Group,
Katy will now be able to focus on a single-business model that will allow the
organization to further focus its resources on our core business, Continental
Commercial Products, which services the janitorial/sanitary and food service
markets," said Anthony T. Castor III, Katy's President and Chief Executive
Officer. "While our quarterly performance was impacted by the LIFO variance
and certain production inefficiencies, we believe that our overall cost
position will improve as we continue to focus on our core business," added
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 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 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.
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, including but not limited to: the Company's receipt of proceeds held in escrow related to the sale of the Electrical Products Group, the Company's ability to reduce its overall cost position and the affect of the Company's refocused business strategy. 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 with current interests primarily in Maintenance Products and Electrical Products. After the sale of the Electrical Products Group, Katy is focused on the manufacturing and distribution of commercial cleaning products and consumer home products.
Company contact:
Katy Industries, Inc.
Amir Rosenthal
(703) 236-4300
KATY INDUSTRIES, INC. SUMMARY OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31,
2007 2006 2007 2006
Net sales $43,039 $43,593 $187,771 $192,416
Cost of goods sold 40,560 37,753 167,517 167,347
Gross profit 2,479 5,840 20,254 25,069
Selling, general and administrative
expenses 5,003 6,729 25,985 30,450
Severance, restructuring and related
charges (75) (1,574) 2,581 17
Loss on sale of assets 907 364 2,434 412
Operating (loss) income (3,356) 321 (10,746) (5,810)
Equity in income of equity method
investment 783 - 783 -
Gain on SESCO joint venture
transaction - - - 563
Interest expense (1,400) (1,010) (4,565) (4,221)
Other, net 56 (137) (72) 278
Loss from continuing operations
before benefit from (provision
for) income taxes (3,917) (826) (14,600) (9,190)
Benefit from (provision for) income
taxes from continuing operations 1,370 (312) 719 529
Loss from continuing operations (2,547) (1,138) (13,881) (8,661)
Income from operations of
discontinued businesses (net of tax) 2,523 633 2,259 2,443
Gain (loss) on sale of discontinued
businesses (net of tax) 1,304 (2,175) 10,121 (5,405)
Income (loss) before cumulative
effect of a change in accounting
principle 1,280 (2,680) (1,501) (11,623)
Cumulative effect of a change in
accounting principle (net of tax) - - - (756)
Net income (loss) $1,280 $(2,680) $(1,501) $(12,379)
Earnings (loss) per share of common
stock - basic and diluted:
Loss from continuing operations $(0.32) $(0.14) $(1.75) $(1.09)
Discontinued operations 0.48 (0.20) 1.56 (0.37)
Cumulative effect of a change in
accounting principle - - - (0.09)
Net income (loss) $0.16 $(0.34) $(0.19) $(1.55)
Weighted average common shares
outstanding - basic and diluted 7,951 7,955 7,951 7,967
December December
31, 31,
Other Information: 2007 2006
Working capital $11,269 $4,467
Working capital, exclusive of
deferred tax assets and liabilities
and debt classified as current $15,622 $48,564
Long-term debt, including current maturities $13,453 $56,871
Stockholders' equity $36,456 $42,032
Capital expenditures from continuing
operations $4,403 $3,733
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 Year Ended
December 31, December 31,
2007 2006 2007 2006
Reconciliation of net income (loss)
to net loss, as adjusted:
Net income (loss) $1,280 $(2,680) $(1,501) $(12,379)
Unusual items:
Severance, restructuring and
related charges (75) (1,574) 2,581 17
Loss on sale of assets 907 364 2,434 412
Equity in income of equity method
investment (783) - (783) -
Gain on SESCO joint venture
transaction - - - (563)
Discontinued operations (3,827) 1,542 (12,380) 2,962
Cumulative effect of a change in
accounting principle - - - 756
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items 100 1,086 3,221 3,014
Net loss, as adjusted $(2,398) $(1,262) $(6,428) $(5,781)
Net loss, as adjusted per share -
basic and diluted:
Net income (loss) per share $0.16 $(0.34) $(0.19) $(1.55)
Unusual items per share (0.47) 0.04 (1.02) 0.45
Adjustment to reflect a more
normalized effective tax rate
excluding unusual items per share 0.01 0.14 0.40 0.37
Net loss, as adjusted per share $(0.30) $(0.16) $(0.81) $(0.73)
Weighted average common shares
outstanding:
Basic and diluted 7,951 7,955 7,951 7,967
Operating loss, as adjusted:
Operating (loss) income $(3,356) $321 $(10,746) $(5,810)
Severance, restructuring and
related charges (75) (1,574) 2,581 17
Loss on sale of assets 907 364 2,434 412
Operating loss, as adjusted: $(2,524) $(889) $(5,731) $(5,381)
Operating loss, as adjusted, as a
% of sales -5.9% -2.0% -3.1% -2.8%
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets December 31, December 31,
Current assets: 2007 2006
Cash and cash equivalents $2,015 $7,392
Accounts receivable, net 18,077 55,014
Inventories, net 26,160 54,980
Other current assets 9,319 2,991
Asset held for sale - 4,483
Total current assets 55,571 124,860
Other assets:
Goodwill 665 665
Intangibles, net 4,853 6,435
Other 3,470 8,990
Total other assets 8,988 16,090
Property and equipment 106,652 129,708
Less: accumulated depreciation (72,647) (87,964)
Property and equipment, net 34,005 41,744
Total assets $98,564 $182,694
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $14,995 $33,684
Accrued expenses 24,954 41,705
Current maturities of long-term debt 1,500 1,125
Revolving credit agreement 2,853 43,879
Total current liabilities 44,302 120,393
Long-term debt, less current maturities 9,100 11,867
Other liabilities 8,706 8,402
Total liabilities 62,108 140,662
Stockholders' equity:
Convertible preferred stock 108,256 108,256
Common stock 9,822 9,822
Additional paid-in capital 27,338 27,120
Accumulated other comprehensive
(loss) income (1,112) 2,242
Accumulated deficit (85,915) (83,434)
Treasury stock (21,933) (21,974)
Total stockholders' equity 36,456 42,032
Total liabilities and stockholders' equity $98,564 $182,694
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Year Ended December 31,
2007 2006
Cash flows from operating activities:
Net loss $(1,501) $(12,379)
(Income) loss from operations of
discontinued businesses (12,380) 2,962
Loss from continuing operations (13,881) (9,417)
Cumulative effect of a change in
accounting principle - 756
Depreciation and amortization 7,294 7,628
Write-off and amortization of debt
issuance costs 2,007 1,178
Write-off of assets due to lease termination 751 -
Stock option expense 262 587
Loss on sale of assets 2,434 412
Equity in income of equity method investment (783) -
Deferred income taxes (48) 14
(1,964) 1,158
Changes in operating assets and liabilities:
Accounts receivable 1,383 3,272
Inventories (5,330) 7,045
Other assets (220) (283)
Accounts payable 60 (3,076)
Accrued expenses (5,541) (1,062)
Other, net 1,399 (4,236)
(8,249) 1,660
Net cash (used in) provided by
continuing operations (10,213) 2,818
Net cash provided by (used in)
discontinued operations 74 (75)
Net cash (used in) provided by
operating activities (10,139) 2,743
Cash flows from investing activities:
Capital expenditures of continuing
operations (4,403) (3,733)
Proceeds from sale of assets, net 246 289
Net cash used in continuing operations (4,157) (3,444)
Net cash provided by discontinued
operations 55,195 3,738
Net cash provided by investing activities 51,038 294
Cash flows from financing activities:
Net (repayments) borrowings on
revolving loans (41,026) 1,934
Decrease in book overdraft (1,903) (1,534)
Proceeds of term loans 573 1,364
Repayments of term loans (2,965) (4,086)
Direct costs associated with debt facilities (236) (312)
Repurchases of common stock (3) (111)
- 147
Net cash used in continuing operations (45,560) (2,598)
Net cash used in discontinued operations (570) (1,071)
Net cash used in financing activities (46,130) (3,669)
Effect of exchange rate changes on
cash and cash equivalents (146) (397)
Net decrease in cash and cash equivalents (5,377) (1,029)
Cash and cash equivalents, beginning
of period 7,392 8,421
Cash and cash equivalents, end of period $2,015 $7,392
Supplemental disclosure of non-cash
investing activities:
Receivable from sale of discontinued
operations $6,799 $1,200
Reconciliation of free cash flow to
GAAP Results:
Net cash (used in) provided by
operating activities $(10,139) $2,743
Capital expenditures (4,403) (3,733)
Free cash flow $(14,542) $(990)
SOURCE Katy Industries, Inc.
