SOURCE: Katy Industries, Inc.

August 10, 2015 16:47 ET

Katy Industries, Inc. Reports 2015 Second Quarter Results

BRIDGETON, MO--(Marketwired - August 10, 2015) -

  • Net Sales Increased 22% over Prior Year Second Quarter
  • Completed Acquisition of Ohio Manufacturing Facility
  • Amended Credit Agreement with BMO Harris Bank N.A.
  • Entered into Second Lien Credit Agreement with Victory Park Management, LLC
  • Richard Mark Appointed as Chairman of the Board of Directors

Katy Industries, Inc. (OTCBB: KATY), a leading manufacturer, importer and distributor of commercial cleaning and consumer storage products, as well as a contract manufacturer of structural foam products, today reported financial results for the second quarter ended June 26, 2015.

"We were pleased to announce the acquisition of an Ohio manufacturing facility which brings a breadth of shelving and storage cabinet solutions to the Katy consumer storage product line," said David J. Feldman, Katy Chief Executive Officer. "As a result of the acquisition we amended our credit agreement with BMO Harris Bank N.A. and entered into a second lien credit agreement with Victory Park Management, LLC. In addition, we continued the relocation of our Bridgeton Facility to Jefferson City. We anticipate the acquisition of the Ohio manufacturing facility and the relocation of our primary manufacturing location will drive significant improvement in both sales and profitability for future years."

Mr. Feldman continued, "We achieved significant gains in operating income, excluding one-time costs associated with the aforementioned acquisition and relocation costs, with our ongoing strategic initiatives to improve gross margins."

Second Quarter Financial Results

Financial highlights for the second quarter of 2015, as compared to the same period in the prior year, included:

  • Net sales in the second quarter of 2015 were $31.3 million, an increase of $5.7 million, or 22.4%, compared to the same period in 2014. The increase was a result of increased demand in our Continental business unit and the acquisition of the Tiffin, Ohio manufacturing facility during the three months ended June 26, 2015 as compared to the three months ended June 27, 2014.
  • Selling, general and administrative expenses were $1.1 million higher in the second quarter of 2015 than in the second quarter of 2014. The increase was primarily due to acquisition costs related to the Tiffin, Ohio manufacturing facility.
  • Severance, restructuring and related charges were $0.5 million for the three months ended June 26, 2015 for costs associated with the relocation of our Bridgeton, Missouri manufacturing facility to Jefferson City, Missouri.
  • Operating income was $0.3 million, or 0.9% of net sales, in the second quarter of 2015, compared to $0.8 million, or 3.1% of net sales, for the same period in 2014. With the exclusion of one-time items related to our facility relocation and acquisition of the Tiffin, Ohio manufacturing facility, operating income was $1.9 million for the three months ended June 26, 2015 versus operating income of $0.8 million for the three months ended June 27, 2014.
  • Interest expense increased by $1.0 million during the second quarter as a result of the increased borrowings under the First and Second Lien Credit Agreements during the period.
  • Net loss in the second quarter of 2015 was $1.0 million, or $0.12 per basic and diluted share, versus net income of $0.5 million, or $0.07 per basic ($0.02 per diluted) share, in the second quarter of 2014. With the exclusion of one-time items related to our facility relocation and acquisition of the Tiffin, Ohio manufacturing facility, net income was $0.6 million for the three months ended June 26, 2015 versus net income of $0.5 million for the three months ended June 27, 2014.

Year-to-Date Second Quarter Financial Results

Financial highlights for the six months ended June 26, 2015, as compared to the six months ended June 27, 2014, included:

  • Net sales for the six months ended June 26, 2015 were $52.7 million, an increase of $7.1 million, or 15.6%, compared to the same period in 2014. The increase was a result of the acquisition of the Tiffin, Ohio manufacturing facility, which contributed $4.9 million in net sales for the six months ended June 26, 2015, and increased demand in our Continental business unit.
  • Selling, general and administrative expenses were $7.6 million for the first half of 2015 as compared to $7.2 million for the first half of 2014. The increase was primarily due to one-time acquisition costs for the Tiffin, Ohio manufacturing facility for the six months ended June 26, 2015, partially offset by one-time acquisition costs for Ft. Wayne Holdings Inc. ("FTW") in the prior year.
  • Severance, restructuring and related charges of $2.1 million for the six months ended June 26, 2015, were for the relocation of our Bridgeton, Missouri facility to Jefferson City, Missouri.
  • Operating loss was $1.4 million, or 2.6% of net sales during the six months ended June 26, 2015, compared to an operating loss of $0.1 million, or 0.3% of net sales, for the same period in 2014. With the exclusion of one-time items related to our facility relocation and acquisition of the Tiffin, Ohio manufacturing facility, operating income was $1.3 million for the six months ended June 26, 2015 versus an operating loss of $0.1 million for the three months ended June 27, 2014.
  • Interest expense increased by $0.9 million during the six months ended June 26, 2015 as compared to the six months ended June 27, 2014 as a result of the increased borrowings under the First and Second Lien Credit Agreements during the period.
  • The income tax benefit for the six months ended June 27, 2014 includes a benefit as a result of the acquisition of FTW. The Company recorded deferred tax liabilities of $2.4 million which reduced its net deferred tax assets. The reduction in deferred tax assets caused a release of a valuation allowance of $2.3 million.
  • The Company reported a net loss for the six months ended June 26, 2015 of $2.8 million, or $0.35 per basic and diluted share, versus net income of $1.7 million, or $0.21 per basic share ($0.06 per diluted share), for the six months ended June 27, 2014. With the exclusion of one-time items related to our facility relocation and acquisition costs included in selling, general, and administrative expenses in 2015 and the one-time tax benefit and acquisition costs in 2014, net income was $0.6 million for the six months ended June 26, 2015 versus a net loss of $0.6 million for the six months ended June 27, 2014.

Liquidity and Capital Resources

Cash used by operating activities before changes in operating assets and liabilities was $0.7 million in the first half of 2015 as compared to cash provided of $0.8 million in the same period of 2014. Changes in operating assets and liabilities from continuing operations provided $1.7 million in the first half of 2015 as compared to using $4.0 million in the same period of 2014. The increase is primarily attributable to increased accounts payable, partially offset by an increase in inventories and accounts receivable.

Cash flows used in investing activities of $25.3 million in the first half of 2015 were primarily for the acquisition of the Tiffin, Ohio manufacturing facility.

Debt at June 26, 2015 was $49.7 million, versus $22.0 million at December 31, 2014. On April 7, 2015, in conjunction with the acquisition of the Tiffin, Ohio manufacturing facility, the Company amended the BMO Credit Agreement resulting in an increase of $6.0 million to the revolving credit facility and entered into a Second Lien Credit and Security Agreement with Victory Park Management, LLC which provided the company with a $24.0 million term loan.

Non-GAAP Financial Measures

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, 2014. 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, consumer home products and a contract manufacturer of structural foam products.

 
KATY INDUSTRIES, INC. SUMMARY OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - UNAUDITED    
(In thousands, except per share data)            
 
   Three Months Ended   Six Months Ended  
   June 26,   June 27,   June 26,   June 27,  
   2015   2014   2015   2014  
                      
Net sales  $31,344   $25,608   $52,654   $45,534  
Cost of goods sold   26,152    21,534    44,257    38,471  
 Gross profit   5,192    4,074    8,397    7,063  
Selling, general and administrative expenses   4,374    3,292    7,626    7,182  
Severance, restructuring and related charges   537    -    2,137    -  
 Operating income (loss)   281    782    (1,366 )  (119 )
Interest expense   (1,291 )  (276 )  (1,500 )  (557 )
Other, net   37    37    65    77  
(Loss) income before income tax (expense) benefit   (973 )  543    (2,801 )  (599 )
Income tax (expense) benefit   (7 )  3    (15 )  2,307  
Net (loss) income  $(980 ) $546   $(2,816 ) $1,708  
                      
                      
Net (loss) income  $(980 ) $546   $(2,816 ) $1,708  
Other comprehensive income                     
 Foreign currency translation   (26 )  6    (84 )  (32 )
Total comprehensive (loss) income  $(1,006 ) $552   $(2,900 ) $1,676  
                      
                      
Basic (loss) earnings per share  $(0.12 ) $0.07   $(0.35 ) $0.21  
Basic weighted average common shares outstanding:   7,951    7,951    7,951    7,951  
                      
Diluted (loss) earnings per share  $(0.12 ) $0.02   $(0.35 ) $0.06  
Diluted weighted average common shares outstanding:   7,951    26,810    7,951    26,810  
                 
  
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED  
(In thousands)  
          
   June 26,   December 31,  
Assets  2015   2014  
Current assets:           
 Cash  $48   $66  
 Accounts receivable, net   13,495    10,840  
 Inventories, net   19,356    15,881  
 Other current assets   876    659  
Total current assets   33,775    27,446  
            
Other assets:           
 Goodwill   14,361    2,556  
 Intangibles, net   15,472    3,909  
 Other   4,322    1,839  
            
Other Assets   34,155    8,304  
            
Property and equipment   63,553    59,421  
Less: accumulated depreciation   (50,402 )  (49,263 )
Property and equipment, net   13,151    10,158  
            
Total assets  $81,081   $45,908  
            
            
Liabilities and stockholders' (deficit) equity           
Current liabilities:           
 Accounts payable  $14,263   $7,327  
 Book overdraft   293    699  
 Accrued expenses   10,862    8,550  
 Payable to related party   3,987    3,650  
 Deferred revenue   186    186  
 Revolving credit agreement   25,432    21,967  
Total current liabilities   55,023    42,379  
            
Deferred revenue   41    130  
Long-term debt   24,227    -  
Other liabilities   5,381    4,090  
Total liabilities   84,672    46,599  
            
Stockholders' (deficit) equity:           
 Convertible preferred stock   108,256    108,256  
 Common stock   9,822    9,822  
 Additional paid-in capital   27,110    27,110  
 Accumulated other comprehensive loss   (1,628 )  (1,544 )
 Accumulated deficit   (125,714 )  (122,898 )
 Treasury stock   (21,437 )  (21,437 )
Total stockholders' (deficit) equity   (3,591 )  (691 )
            
Total liabilities and stockholders' (deficit) equity  $81,081   $45,908  
            
  
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED  
(In thousands)  
   Six Months Ended  
   June 26,   June 27,  
   2015   2014  
Cash flows from operating activities:           
  Net (loss) income  $(2,816 ) $1,708  
 Depreciation and amortization of long-lived assets   1,543    1,171  
 Amortization of debt issuance costs   278    213  
 Stock-based compensation   63    35  
 Payment In Kind (PIK) interest expense   227    -  
 Deferred income taxes   -    (2,318 )
     (705 )  809  
 Changes in operating assets and liabilities:           
  Accounts receivable   (1,886 )  (4,031 )
  Inventories   (2,049 )  (940 )
  Other assets   (349 )  (1,245 )
  Accounts payable   4,250    1,812  
  Accrued expenses   257    338  
  Payable to related party   337    250  
  Deferred revenue   (89 )  (90 )
  Other   1,215    (66 )
    1,686    (3,972 )
            
 Net cash provided by (used in) continuing operations   981    (3,163 )
 Net cash provided by discontinued operations   -    53  
 Net cash provided by (used in) operating activities   981    (3,110 )
            
Cash flows from investing activities:           
 Payment for acquisition, net of cash received   (23,855 )  (11,006 )
 Capital expenditures   (1,437 )  (373 )
 Net cash used in investing activities   (25,292 )  (11,379 )
            
Cash flows from financing activities:           
 Net borrowings on revolving credit facility   3,465    14,531  
 Proceeds from term loan facility   24,000    -  
 Loan from related party   -    400  
 Decrease in book overdraft   (406 )  64  
 Direct costs associated with debt facilities   (2,627 )  (672 )
 Net cash provided by financing activities   24,432    14,323  
            
Effect of exchange rate changes on cash   (139 )  (30 )
            
Net decrease in cash   (18 )  (196 )
Cash, beginning of period   66    708  
Cash, end of period  $48   $512  
            
Supplemental information of non-cash investing and financing activity           
Accrued contingent earnout payment  $2,000   $-  
Capital expenditures included in accounts payable  $526   $-  

Contact Information

  • Company contact:
    Katy Industries, Inc.
    James W. Shaffer
    (314) 656-4321