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| 8-K - KATY INDUSTRIES INC 8-K 11-12-2012 - KII Liquidating Inc. | form8k.htm |
EXHIBIT 99.1
KATY NEWS
FOR IMMEDIATE RELEASE
KATY INDUSTRIES, INC.
REPORTS 2012 THIRD QUARTER RESULTS
BRIDGETON, MO – November 13, 2012 – Katy Industries, Inc. (OTC BB: KATY) today reported a loss from continuing operations of $1.2 million in the third quarter of 2012, an improvement from the $1.5 million loss in the third quarter of 2011. Operating loss was $0.9 million, or 3.4% of net sales, in the third quarter of 2012, compared to $1.0 million, or 3.4% of net sales, for the same period in 2011. During the third quarter of 2012 Katy closed its Container manufacturing operation at Norwalk, California and sold its Gemtex division. The closure and sale have been accounted for as discontinued operations. The net loss in the third quarter of 2012 was $2.8 million, or $0.35 per share, versus a net loss of $1.1 million, or $0.14 per share, in the third quarter of 2011.
Financial highlights for the third quarter of 2012, as compared to the same period in the prior year, included:
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Net sales in the third quarter of 2012 were $27.3 million, a decrease of $1.8 million, or 6.2%, compared to the same period in 2011. The majority of the decrease relates to volume decreases in our Continental and Glit business units.
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Gross margin was 10.6% for the three months ended September 28, 2012, a decrease of 1.8 percentage points from the same period a year ago. Gross margin was impacted by an unfavorable LIFO adjustment of $0.3 million resulting from inventory fluctuations in the three months ended September 28, 2012 as compared to a $0.2 million unfavorable adjustment for the three months ended September 30, 2011. Excluding the LIFO adjustment in both periods, gross margin was 11.7% for the three months ended September 28, 2012 as compared to 13.1% for the three months ended September 30, 2011, respectively.
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Selling, general and administrative (“SG&A”) expenses decreased to $3.8 million for the three months ended September 28, 2012 from $4.2 million for the same period a year ago. The decrease in SG&A expenses was primarily due to favorable quarter over quarter experience in group insurance and legal costs.
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Katy also reported a net loss for the nine months ended September 28, 2012 of $6.1 million, or $0.76 per share, versus a net loss of $3.7 million, or $0.46 per share, for the nine months ended September 30, 2011. Loss from continuing operations was $4.0 million for the nine months ended September 28, 2012 compared to $5.0 million for the nine months ended September 30, 2011. Operating loss was $3.6 million, or 4.6% of net sales, for the nine months ended September 28, 2012, compared to $4.2 million, or 5.3% of net sales, for the nine months ended September 30, 2011.
Financial highlights for the nine months ended September 28, 2012, as compared to the nine months ended September 30, 2011, included:
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Net sales for the nine months ended September 28, 2012 were $77.8 million, a decrease of $2.0 million, or 2.5%, compared to the same period in 2011. The majority of the decrease was a result of volume shortfall in our Wilen and Glit business units.
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Gross margin was 11.5% for the nine months ended September 28, 2012, an increase of 0.3 percentage points from the same period a year ago. Gross margin was impacted by an unfavorable LIFO adjustment of $0.7 for the nine months ended September 28, 2012 and also for the nine months ending September 30, 2011 resulting from inventory fluctuations. Excluding the LIFO adjustment in both periods, gross margin increased by 0.3 percentage points from the first nine months of 2011.
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Selling, general and administrative expenses were $12.5 million for the nine months ended September 28, 2012, compared to $12.7 million for the same time period a year ago.
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Operations provided $2.6 million of free cash flow in the nine months ended September 28, 2012 compared to a use of $1.1 million during the same period a year ago. This increase was primarily the result of a decrease in inventories as we continue to manage inventory, an increase in accounts receivable and a decrease in other assets due to a return of cash collateral posted in connection with our lines of credit. Free cash flow, a non-GAAP financial measure, is discussed further below.
Debt at September 28, 2012 was $11.3 million (64% of total capitalization), versus $14.4 million (53% of total capitalization) at December 31, 2011.
“We continued to see progress in our continuing operations that led to year over year improvements” stated David J. Feldman, Katy’s President and Chief Executive Officer. “We expect to see additional improvement as we continue to implement our operational strategies and the economy strengthens.”
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 regulatory 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, 2011. 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)
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Three Months Ended
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Nine Months Ended | |||||||||||||||
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September 28,
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September 30,
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September 28,
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September 30,
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2012
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2011
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2012
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2011
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Net sales
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$ | 27,283 | $ | 29,080 | $ | 77,823 | $ | 79,801 | ||||||||
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Cost of goods sold
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24,395 | 25,480 | 68,882 | 70,893 | ||||||||||||
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Gross profit
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2,888 | 3,600 | 8,941 | 8,908 | ||||||||||||
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Selling, general and administrative expenses
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3,828 | 4,187 | 12,507 | 12,691 | ||||||||||||
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Severance, restructuring and related charges
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- | 393 | - | 393 | ||||||||||||
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Loss on disposal of assets
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- | 6 | - | 16 | ||||||||||||
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Operating loss
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(940 | ) | (986 | ) | (3,566 | ) | (4,192 | ) | ||||||||
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Interest expense
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(272 | ) | (533 | ) | (652 | ) | (1,234 | ) | ||||||||
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Other, net
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46 | (12 | ) | 270 | 224 | |||||||||||
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Loss from continuing operations before income tax (expense) benefit
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(1,166 | ) | (1,531 | ) | (3,948 | ) | (5,202 | ) | ||||||||
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Income tax (expense) benefit from continuing operations
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(3 | ) | (9 | ) | (2 | ) | 239 | |||||||||
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Loss from continuing operations
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(1,169 | ) | (1,540 | ) | (3,950 | ) | (4,963 | ) | ||||||||
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(Loss) income from operations of discontinued business (net of tax)
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(969 | ) | 408 | (1,488 | ) | 1,274 | ||||||||||
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Loss on sale of discontinued business (net of tax)
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(616 | ) | - | (616 | ) | - | ||||||||||
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Net loss
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$ | (2,754 | ) | $ | (1,132 | ) | $ | (6,054 | ) | $ | (3,689 | ) | ||||
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Net loss
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$ | (2,754 | ) | $ | (1,132 | ) | $ | (6,054 | ) | $ | (3,689 | ) | ||||
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Other comprehensive income (loss)
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Foreign currency translation
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67 | (94 | ) | 61 | 98 | |||||||||||
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Total comprehensive loss
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$ | (2,687 | ) | $ | (1,226 | ) | $ | (5,993 | ) | $ | (3,591 | ) | ||||
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Income (loss) income per share of common stock - Basic and Diluted
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Loss from continuing operations
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$ | (0.15 | ) | $ | (0.19 | ) | $ | (0.50 | ) | $ | (0.62 | ) | ||||
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Discontinued operations
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(0.20 | ) | 0.05 | (0.26 | ) | 0.16 | ||||||||||
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Net loss
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$ | (0.35 | ) | $ | (0.14 | ) | $ | (0.76 | ) | $ | (0.46 | ) | ||||
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Weighted average common shares outstanding:
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Basic and Diluted
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7,951 | 7,951 | 7,951 | 7,951 | ||||||||||||
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Other Information:
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LIFO adjustment expense from continuing operations
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$ | 301 | $ | 195 | $ | 678 | $ | 717 | ||||||||
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
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September 28,
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December 31,
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Assets
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2012
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2011
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Current assets:
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Cash
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$ | 937 | $ | 730 | ||||
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Accounts receivable, net
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14,010 | 11,759 | ||||||
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Inventories, net
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12,443 | 15,911 | ||||||
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Other current assets
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1,358 | 4,086 | ||||||
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Assets held for sale
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564 | 2,655 | ||||||
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Total current assets
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29,312 | 35,141 | ||||||
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Other assets:
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Goodwill
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329 | 329 | ||||||
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Intangibles, net
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2,153 | 2,478 | ||||||
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Other
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2,111 | 2,032 | ||||||
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Total other assets
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4,593 | 4,839 | ||||||
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Property and equipment
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85,689 | 86,638 | ||||||
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Less: accumulated depreciation
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(69,989 | ) | (68,805 | ) | ||||
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Property and equipment, net
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15,700 | 17,833 | ||||||
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Total assets
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$ | 49,605 | $ | 57,813 | ||||
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Liabilities and stockholders' equity
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Current liabilities:
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Accounts payable
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$ | 8,796 | $ | 8,928 | ||||
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Book overdraft
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730 | 946 | ||||||
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Accrued expenses
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11,569 | 10,018 | ||||||
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Payable to related party
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2,125 | 1,750 | ||||||
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Deferred revenue
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688 | 688 | ||||||
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Revolving credit agreement
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11,271 | 14,359 | ||||||
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Total current liabilities
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35,179 | 36,689 | ||||||
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Deferred revenue
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2,064 | 2,605 | ||||||
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Other liabilities
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5,740 | 5,904 | ||||||
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Total liabilities
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42,983 | 45,198 | ||||||
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Stockholders' equity:
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Convertible preferred stock
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108,256 | 108,256 | ||||||
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Common stock
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9,822 | 9,822 | ||||||
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Additional paid-in capital
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27,110 | 27,110 | ||||||
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Accumulated other comprehensive loss
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(2,300 | ) | (2,361 | ) | ||||
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Accumulated deficit
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(114,829 | ) | (108,775 | ) | ||||
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Treasury stock
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(21,437 | ) | (21,437 | ) | ||||
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Total stockholders' equity
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6,622 | 12,615 | ||||||
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Total liabilities and stockholders' equity
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$ | 49,605 | $ | 57,813 | ||||
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
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Nine Months Ended
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September 28,
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September 30,
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2012
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2011
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Cash flows from operating activities:
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Net loss
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$ | (6,054 | ) | $ | (3,689 | ) | ||
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Income from discontinued operations
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2,104 | (1,274 | ) | |||||
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Loss from continuing operations
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(3,950 | ) | (4,963 | ) | ||||
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Depreciation and amortization
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3,076 | 3,306 | ||||||
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Amortization of debt issuance costs
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178 | 415 | ||||||
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Stock-based compensation
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52 | (610 | ) | |||||
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Loss on sale or disposal of assets
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(2 | ) | 16 | |||||
| (646 | ) | (1,836 | ) | |||||
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Changes in operating assets and liabilities:
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Accounts receivable
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(2,253 | ) | (3,637 | ) | ||||
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Inventories
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2,311 | (119 | ) | |||||
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Other assets
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3,263 | 899 | ||||||
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Accounts payable
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(47 | ) | 1,031 | |||||
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Accrued expenses
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430 | 4 | ||||||
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Payable to related party
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500 | 1,125 | ||||||
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Deferred revenue
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(541 | ) | - | |||||
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Other
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96 | 11 | ||||||
| 3,759 | (686 | ) | ||||||
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Net cash provided by (used in) operating activities
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3,113 | (2,522 | ) | |||||
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Net cash provided by discontinued operations
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485 | 1,528 | ||||||
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Net cash provided by (used in) operating activities
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3,598 | (994 | ) | |||||
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Cash flows from investing activities:
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Capital expenditures
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(548 | ) | (106 | ) | ||||
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Proceeds from sale of assets
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- | 81 | ||||||
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Net cash used in continuing operations
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(548 | ) | (25 | ) | ||||
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Net cash provided by (used in) discontinued operations
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258 | (132 | ) | |||||
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Net cash used in investing activities
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(290 | ) | (157 | ) | ||||
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Cash flows from financing activities:
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Net borrowings
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(3,126 | ) | 3,353 | |||||
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Decrease in book overdraft
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(216 | ) | (223 | ) | ||||
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Repayments of term loans
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- | (1,081 | ) | |||||
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Direct costs associated with debt facilities
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- | (272 | ) | |||||
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Net cash (used in) provided by financing activities
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(3,342 | ) | 1,777 | |||||
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Effect of exchange rate changes on cash by continuing operations
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388 | (164 | ) | |||||
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Effect of exchange rate changes on cash by discontinued operations
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(147 | ) | 296 | |||||
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Net effect of exchange rate changes on cash
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241 | 132 | ||||||
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Net increase in cash
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207 | 758 | ||||||
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Cash, beginning of period
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730 | 1,319 | ||||||
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Cash, end of period
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$ | 937 | $ | 2,077 | ||||
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Reconciliation of free cash flow to GAAP Results:
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Net cash used in operating activities
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$ | 3,113 | $ | (994 | ) | |||
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Capital expenditures
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(548 | ) | (106 | ) | ||||
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Free cash flow
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$ | 2,565 | $ | (1,100 | ) | |||