KII LIQUIDATING INC 
By
During the first quarter of 2008, Katy reported restructuring and other
non-recurring or unusual items of
Financial highlights for the first quarter of 2008, as compared to the same period in the prior year, included:
-- Net sales in the first quarter of 2008 were $41.7 million, a decrease
of $3.9 million compared to the same period in 2007. Overall, the
decrease of 9% resulted from lower volumes which are reflective of
activity within the janitorial and food service markets in which we
serve as well as reduced building industry activity.
-- Gross margins were 9.2% in the first quarter of 2008, versus 12.3% in
the first quarter of 2007. In 2008, our margins were adversely
impacted by overall lower volume within several of our manufacturing
facilities as well as an unfavorable variance incurred in our LIFO
adjustment of $0.6 million.
-- Selling, general and administrative expenses were $0.8 million lower
than the first quarter of 2007. These costs represented 16.2% of net
sales in the first quarter of 2008, a decrease from 16.6% of net sales
for the same period of 2007. The reduction in percentage reflects the
lower requirements under the Company's incentive compensation program
as well as various cost improvements.
-- Debt at March 31, 2008 was $16.0 million [33% of total capitalization],
versus $54.5 million [60% of total capitalization] at March 31, 2007.
The decrease in the ratio of debt to total capitalization was
principally due to the reduction of debt levels from the proceeds
received on the sale of businesses in 2007. Cash on hand at March 31,
2008 was $0.6 million versus $2.9 million at March 31, 2007.
-- Katy used free cash flow of $6.2 million during the three month period
ended March 31, 2008 versus using $5.8 million of free cash flow during
the three month period ended March 31, 2007. The free cash flow usage
during the first quarter of 2008 was comparable to 2007 as the first
quarter includes higher working capital requirements. Free cash flow,
a non-GAAP financial measure, is discussed further below.
"The results of the first quarter were disappointing. Since joining the
company in mid-April, my focus has been to conduct a thorough review of our
organization to understand how we can improve 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 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 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
(703) 236-4300
KATY INDUSTRIES, INC. SUMMARY OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
Three Months Ended March 31,
2008 2007
Net sales $41,691 $45,552
Cost of goods sold 37,863 39,956
Gross profit 3,828 5,596
Selling, general and administrative expenses 6,737 7,574
Severance, restructuring and related charges 138 208
Loss (gain) on sale of assets 533 (120)
Operating loss (3,580) (2,066)
Interest expense (483) (1,195)
Other, net (14) 32
Loss from continuing operations before
benefit from (provision for) income taxes (4,077) (3,229)
Benefit from (provision for) income
taxes from continuing operations 352 (89)
Loss from continuing operations (3,725) (3,318)
Loss from operations of discontinued
businesses (net of tax) (252) (2,127)
Gain on sale of discontinued
businesses (net of tax) 543 1,666
Net loss $(3,434) $(3,779)
Loss per share of common stock -
basic and diluted:
Loss from continuing operations $(0.47) $(0.42)
Discontinued operations 0.04 (0.06)
Net loss $(0.43) $(0.48)
Weighted average common shares
outstanding - basic and diluted 7,951 7,951
Other Information:
Working capital $8,735 $1,774
Working capital, exclusive of
deferred tax assets and liabilities and debt
classified as current $16,029 $43,858
Long-term debt, including current
maturities $15,995 $54,459
Stockholders' equity $32,894 $36,983
Capital expenditures $1,037 $979
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 March 31,
2008 2007
Reconciliation of net loss to net loss,
as adjusted:
Net loss $(3,434) $(3,779)
Unusual items:
Severance, restructuring and
related charges 138 208
Loss (gain) on sale of assets 533 (120)
Discontinued operations (291) 461
Adjustment to reflect a more normalized
effective tax rate excluding unusual items 942 1,283
Net loss, as adjusted $(2,112) $(1,947)
Net loss, as adjusted per share -
basic and diluted:
Net loss per share $(0.43) $(0.48)
Unusual items per share 0.04 0.07
Adjustment to reflect a more normalized
effective tax rate excluding unusual items
per share 0.12 0.17
Net loss, as adjusted per share $(0.27) $(0.24)
Weighted average common shares outstanding:
Basic and diluted 7,951 7,951
Operating loss, as adjusted:
Operating loss $(3,580) $(2,066)
Severance, restructuring and
related charges 138 208
Loss (gain) on sale of assets 533 (120)
Operating loss, as adjusted: $(2,909) $(1,978)
Operating loss, as adjusted, as a % of sales -7.0% -4.3%
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
Assets March 31, December 31, March 31,
Current assets: 2008 2007 2007
Cash and cash equivalents $618 $2,015 $2,919
Accounts receivable, net 19,868 18,077 47,811
Inventories, net 25,150 26,160 60,717
Other current assets 5,617 9,319 3,592
Total current assets 51,253 55,571 115,039
Other assets:
Goodwill 665 665 665
Intangibles, net 4,733 4,853 6,358
Other 2,959 3,470 8,576
Total other assets 8,357 8,988 15,599
Property and equipment 105,834 106,652 130,747
Less: accumulated depreciation (73,090) (72,647) (89,780)
Property and equipment, net 32,744 34,005 40,967
Total assets $92,354 $98,564 $171,605
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $11,340 $14,995 $32,836
Accrued expenses 23,884 24,954 37,438
Current maturities of long-term
debt 1,500 1,500 1,500
Revolving credit agreement 5,794 2,853 41,491
Total current liabilities 42,518 44,302 113,265
Long-term debt, less current
maturities 8,701 9,100 11,468
Other liabilities 8,241 8,706 9,889
Total liabilities 59,460 62,108 134,622
Stockholders' equity:
Convertible preferred stock 108,256 108,256 108,256
Common stock 9,822 9,822 9,822
Additional paid-in capital 27,375 27,338 27,196
Accumulated other comprehensive
(loss) income (1,277) (1,112) 1,862
Accumulated deficit (89,349) (85,915) (88,193)
Treasury stock (21,933) (21,933) (21,960)
Total stockholders' equity 32,894 36,456 36,983
Total liabilities and stockholders'
equity $92,354 $98,564 $171,605
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Three Months Ended March 31,
2008 2007
Cash flows from operating activities:
Net loss $(3,434) $(3,779)
(Income) loss from discontinued
operations (291) 461
Loss from continuing operations (3,725) (3,318)
Depreciation and amortization 1,823 1,865
Write-off and amortization of debt
issuance costs 96 619
Stock option expense 37 94
Loss (gain) on sale of assets 533 (120)
Deferred income taxes - (94)
(1,236) (954)
Changes in operating assets and
liabilities:
Accounts receivable (1,833) (2,075)
Inventories 928 (807)
Other assets 134 77
Accounts payable (1,489) 261
Accrued expenses (1,017) (1,995)
Other, net (363) 843
(3,640) (3,696)
Net cash used in continuing
operations (4,876) (4,650)
Net cash used in discontinued
operations (320) (195)
Net cash used in operating
activities (5,196) (4,845)
Cash flows from investing activities:
Capital expenditures (1,037) (979)
Proceeds from sale of assets, net 35 120
Net cash used in continuing
operations (1,002) (859)
Net cash provided by discontinued
operations 4,424 5,995
Net cash provided by investing
activities 3,422 5,136
Cash flows from financing activities:
Net borrowings (repayments) on
revolving loans 2,940 (2,388)
Decrease in book overdraft (2,110) (2,123)
Repayments of term loans (399) (24)
Direct costs associated with debt facilities - (125)
Repurchases of common stock - (3)
Net cash provided by (used in)
continuing operations 431 (4,663)
Net cash used in discontinued
operations - (97)
Net cash provided by (used in)
financing activities 431 (4,760)
Effect of exchange rate changes on
cash and cash equivalents (54) (4)
Net decrease in cash and cash
equivalents (1,397) (4,473)
Cash and cash equivalents, beginning
of period 2,015 7,392
Cash and cash equivalents, end of period $618 $2,919
Reconciliation of free cash flow to
GAAP Results:
Net cash used in operating activities $(5,196) $(4,845)
Capital expenditures (1,037) (979)
Free cash flow $(6,233) $(5,824)
SOURCE Katy Industries, Inc.
