KII LIQUIDATING INC 
By BRIDGETON, Mo., Nov. 12, 2010 /PRNewswire-FirstCall/ -- Katy Industries, Inc. (OTC Bulletin Board: KATY) today reported a net loss in the third quarter of 2010 of $1.6 million, or $0.20 per share, versus a net loss of $0.8 million, or $0.10 per share, in the third quarter of 2009. Operating loss in accordance with GAAP was $1.3 million, or 3.4% of net sales, in the third quarter of 2010, compared to $0.6 million, or 1.7% of net sales, in the same period in 2009.
Financial highlights for the third quarter of 2010, as compared to the same period in the prior year, included:
-- Net sales remained flat at $37.6 million during the three months ended
October 1, 2010 as compared to the three months ended October 2, 2009.
-- Gross margin was 9.9% in the third quarter of 2010, a decrease from
13.6% in the third quarter of 2009. The decrease was primarily a result
of higher prices on both resin and latex binders.
-- Selling, general and administrative expenses were $1.2 million lower in
the third quarter of 2010 than in the third quarter of 2009. The
decrease was primarily due to prior year expenses associated with the
transition and hiring of executive level personnel, a decrease in
self-insurance and environmental accruals and a decrease in stock-based
compensation expense.
-- During the third quarter of 2010, Katy reported expense from severance,
restructuring and related charges of $0.7 million associated with the
Company's initiative to close its Wilen facility in Atlanta, Georgia and
relocate the manufacturing and distribution functions to Bridgeton,
Missouri.
Katy also reported a net loss for the nine months ended October 1, 2010 of $2.2 million, or $0.28 per share, versus a net loss of $3.8 million, or $0.47 per share, for the nine months ended October 2, 2009. Operating loss in accordance with GAAP was $4.0 million, or 3.6% of net sales, for the nine months ended October 1, 2010, compared to $3.4 million, or 3.1% of net sales, in the same period in 2009. Excluding the non-cash impact of an adjustment to our LIFO reserves in both periods, operating loss would have been $3.2 million for the nine months ended October 1, 2010, versus an operating loss of $4.2 million for the same period of 2009.
Financial highlights for the nine months ended October 1, 2010, as compared to the nine months ended October 2, 2009, included:
-- Net sales for the nine months ended October 1, 2010 were $110.1 million,
a decrease of $0.3 million, or 0.3%, compared to the same period in
2009.
-- Gross margin was 12.1% for the nine months ended October 1, 2010, versus
14.9% for the same period in 2009. Gross margin was impacted by an
unfavorable variance in our LIFO adjustment of $1.5 million resulting
from an increase in resin prices. Excluding the LIFO adjustment, gross
margin would have decreased 1.5 percentage points from the nine months
ended October 2, 2009. The decrease was primarily a result of higher
prices on both resin and latex binders.
-- Selling, general and administrative expenses were $3.4 million lower for
the nine months ended October 1, 2010 than for the same period in 2009.
The decrease was primarily due to prior year expenses associated with
the transition and hiring of executive level personnel, a decrease in
self-insurance accruals and a decrease in stock-based compensation
expense.
-- During the nine months ended October 1, 2010, Katy reported expense from
severance, restructuring and related charges of $1.0 million associated
with the Company's initiative to close its Wilen facility in Atlanta,
Georgia and relocate the manufacturing and distribution functions to
Bridgeton, Missouri.
-- Other income during the nine months ended October 1, 2010 consists of a
$2.1 million gain recognized from a settlement of an existing obligation
due to Pentland USA, Inc. ("Pentland"), $0.3 million in proceeds from
the sale of process technology and $0.1 million in interest income.
Debt at October 1, 2010 was $22.8 million (67% of total capitalization), versus $15.8 million (54% of total capitalization) at December 31, 2009. During the second quarter of 2010, the Company entered into a $33.2 million credit facility with PNC Bank, National Association ("PNC Bank"). The proceeds of the credit facility were used to repay the previous credit facility with Bank of America and pay fees and expenses associated with the negotiation and consummation of the new credit facility. Debt levels increased during the nine months ended October 1, 2010 as a result of the refinancing with PNC Bank, the payments to Pentland in the amount of $2.0 million, and an increase in accounts receivable.
Operations used $5.8 million of free cash flow during the nine months ended October 1, 2010 compared to generating $2.0 million during the nine months ended October 2, 2009. The current year cash usage was a result of an increase in accounts receivable due to higher sales from the fourth quarter of 2009 to the third quarter of 2010, and the $2.0 million Pentland settlement payment, partially offset by an increase in accounts payable due to improved payment terms with certain vendors and the timing of resin purchases. Free cash flow, a non-GAAP financial measure, is discussed further below.
"Our third quarter results were impacted by rising commodity prices such as resin and latex binders while sales remained flat due to the stagnant economy," stated David J. Feldman, Katy's President and Chief Executive Officer. "We remain optimistic that our results will improve through additional cost efficiencies and increased sales performance as the economy recovers."
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 operating activities less capital expenditures. A reconciliation of this non-GAAP measure to a comparable GAAP measure is 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 "anticipates," "believes," "estimates," "expects," "intends," "plans," "projects," "may," "should," "will," "continue," "is subject to," 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, 2009. 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 October October October
1, 2, 1, 2,
2010 2009 2010 2009
---- ---- ---- ----
Net sales $37,584 $37,612 $110,057 $110,380
Cost of goods sold 33,864 32,501 96,768 93,944
------ ------ ------ ------
Gross profit 3,720 5,111 13,289 16,436
Selling, general and
administrative
expenses 4,453 5,695 16,427 19,818
Severance,
restructuring and
related charges 747 - 1,002 -
(Gain) loss on sale or
disposal of assets (189) 49 (189) 61
---- --- ---- ---
Operating loss (1,291) (633) (3,951) (3,443)
Interest expense (389) (281) (1,254) (873)
Other, net 106 118 2,466 123
--- --- ----- ---
Loss before income tax
(provision) benefit (1,574) (796) (2,739) (4,193)
Income tax (provision)
benefit (11) (14) 501 421
--- --- --- ---
Net loss $(1,585) $(810) $(2,238) $(3,772)
======= ===== ======= =======
Net loss per share of
common stock:
Basic and diluted $(0.20) $(0.10) $(0.28) $(0.47)
====== ====== ====== ======
Weighted average
common shares
outstanding:
Basic and diluted 7,951 7,951 7,951 7,951
===== ===== ===== =====
Other Information:
LIFO adjustment
expense (income) $213 $499 $715 $(804)
==== ==== ==== =====
KATY INDUSTRIES, INC. BALANCE
SHEETS -UNAUDITED
(In thousands)
October December
Assets 1, 31,
Current assets: 2010 2009
---- ----
Cash $608 $747
Accounts receivable, net 15,868 12,831
Inventories, net 16,683 16,195
Other current assets 1,720 1,144
----- -----
Total current assets 34,879 30,917
------ ------
Other assets:
Goodwill 665 665
Intangibles, net 3,632 4,010
Other 3,087 2,830
----- -----
Total other assets 7,384 7,505
----- -----
Property and equipment 101,583 101,435
Less: accumulated
depreciation (77,594) (73,417)
-------
Property and equipment, net 23,989 28,018
------ ------
Total assets $66,252 $66,440
======= =======
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $11,701 $10,476
Book overdraft 367 1,285
Accrued expenses 14,072 16,866
Current maturities of long-
term debt 1,138 6,899
Revolving credit agreement 14,993 8,856
------ -----
Total current liabilities 42,271 44,382
Long-term debt, less current
maturities 6,644 -
Other liabilities 6,030 8,739
Total liabilities 54,945 53,121
------ ------
Stockholders' equity:
Convertible preferred stock 108,256 108,256
Common stock 9,822 9,822
Additional paid-in capital 27,419 27,246
Accumulated other
comprehensive loss (2,000) (2,053)
Accumulated deficit (110,753) (108,515)
Treasury stock (21,437) (21,437)
------- -------
Total stockholders' equity 11,307 13,319
------ ------
Total liabilities and
stockholders' equity $66,252 $66,440
======= =======
KATY INDUSTRIES, INC. STATEMENTS OF
CASH FLOWS -UNAUDITED
(In thousands)
Nine Months Ended
October October
1, 2,
2010 2009
---- ----
Cash flows from operating activities:
Net loss $(2,238) $(3,772)
Depreciation and amortization 5,042 5,063
Write-off and amortization of debt
issuance costs 411 287
Stock-based compensation (110) 372
Gain (loss) on sale or disposal of
assets (189) 61
Gain on settlement of existing
obligation (2,100) -
------ ---
816 2,011
--- -----
Changes in operating assets and
liabilities:
Accounts receivable (3,022) (1,626)
Inventories (455) 3,745
Other assets (440) 1,103
Accounts payable 1,213 (731)
Accrued expenses (506) 670
Other (2,625) (1,635)
------ ------
(5,835) 1,526
------ -----
Net cash (used in) provided by
operating activities (5,019) 3,537
------ -----
Cash flows from investing activities:
Capital expenditures (773) (1,537)
Proceeds from sale of assets 128 2
--- ---
Net cash used in investing activities (645) (1,535)
---- ------
Cash flows from financing activities:
Net borrowings on revolving loans 6,114 659
Decrease in book overdraft (918) (1,200)
Proceeds from term loans 8,182 -
Repayments of term loans (7,299) (1,131)
Direct costs associated with debt
facilities (597) -
Net cash provided by (used in)
financing activities 5,482 (1,672)
----- ------
Effect of exchange rate changes on
cash 43 (118)
--- ----
Net (decrease) increase in cash (139) 212
Cash, beginning of period 747 683
Cash, end of period $608 $895
==== ====
Reconciliation of free cash flow to
GAAP Results:
Net cash (used in) provided by
operating activities $(5,019) $3,537
Capital expenditures (773) (1,537)
Free cash flow $(5,792) $2,000
======= ======
SOURCE Katy Industries, Inc.
