SOURCE: Katy Industries, Inc.

November 09, 2015 16:33 ET

Katy Industries, Inc. Reports 2015 Third Quarter Results

BRIDGETON, MO--(Marketwired - November 09, 2015) -

  • Net Sales Increased 17% over Prior Year Third Quarter
  • Nearing completion of relocation of the Bridgeton, Missouri manufacturing facility to Jefferson City, Missouri
  • Continued to integrate Tiffin, Ohio manufacturing facility

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 third quarter ended September 25, 2015.

"We continue to execute the relocation plan of the Bridgeton, Missouri manufacturing facility to Jefferson City, Missouri," said David J. Feldman, Katy Chief Executive Officer. "In addition, we continue to integrate the recently acquired Tiffin, Ohio manufacturing facility. We also continue to believe the acquisition will help drive significant improvement in both sales and profitability in the coming years."

Mr. Feldman also stated, "We continue to have strong gains in operating income, excluding one-time costs associated with the aforementioned relocation and acquisition costs, driven by our ongoing strategic initiatives to improve gross margins. We look forward to having a strong fourth quarter as we complete our relocation and close out 2015."

Third Quarter Financial Results

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

  • Net sales in the third quarter of 2015 were $31.0 million, an increase of $4.5 million, or 17.0%, compared to the same period in 2014. The increase was a result of the acquisition of the Tiffin, Ohio manufacturing facility, which was partially offset by decreased demand in our Continental business unit during the three months ended September 25, 2015 as compared to the three months ended September 26, 2014. Gross margin was 15.4% for the three months ended September 25, 2015, a decrease of 340 basis points from the same period a year ago. The decrease was primarily a result of lower margins on sales from our Tiffin, Ohio facility and increased rent expense incurred due to operating of both our Bridgeton, Missouri and Jefferson City, Missouri facilities during our relocation for the three months ended September 25, 2015 as compared to the three months ended September 26, 2014.
  • Severance, restructuring and related charges were $1.8 million for the three months ended September 25, 2015 for costs associated with the relocation of our Bridgeton, Missouri manufacturing facility to Jefferson City, Missouri.
  • Operating loss was $0.5 million, or 1.7% of net sales, in the third quarter of 2015, compared to $1.5 million, or 5.8% of net sales, for the same period in 2014. With the exclusion of one-time items related to the increased rent aforementioned and other restructuring costs associated with our facility relocation, operating income was $1.8 million for the three months ended September 25, 2015 versus operating income of $1.5 million for the three months ended September 26, 2014.
  • Interest expense increased by $1.0 million during the third quarter as a result of the increased borrowings under the First and Second Lien Credit Agreements during the period.
  • Net loss in the third quarter of 2015 was $1.6 million, or $0.20 per basic and diluted share, versus net income of $1.4 million, or $0.17 per basic ($0.05 per diluted) share, in the third quarter of 2014. With the exclusion of the aforementioned one-time items related to our facility relocation, net income was $0.7 million for the three months ended September 25, 2015 versus net income of $1.4 million for the three months ended September 26, 2014.

Year-to-Date Third Quarter Financial Results

Financial highlights for the nine months ended September 25, 2015, as compared to the nine months ended September 26, 2014, included:

  • Net sales for the nine months ended September 25, 2015 were $83.7 million, an increase of $11.6 million, or 16.1%, compared to the same period in 2014. The increase was a result of the acquisition of the Tiffin, Ohio manufacturing facility, which contributed $11.7 million in net sales for the nine months ended September 25, 2015. Gross margin was 15.7% for the nine months ended September 25, 2015, a decrease of 100 basis points from the same period a year ago. The decrease was primarily a result of lower margins on sales from our Tiffin, Ohio facility and increased rent expense incurred due to operating at both our Bridgeton, Missouri and Jefferson City, Missouri facilities during our relocation for the nine months ended September 25, 2015 as compared to the nine months ended September 26, 2014.
  • Selling, general and administrative expenses were $11.1 million for the nine months ended September 25, 2015 as compared to $10.6 million for the nine months ended September 26, 2014. The increase was primarily due to one-time acquisition costs for the Tiffin, Ohio manufacturing facility for the nine months ended September 25, 2015.
  • Severance, restructuring and related charges of $3.9 million for the nine months ended September 25, 2015, were for the relocation of our Bridgeton, Missouri facility to Jefferson City, Missouri.
  • Operating loss was $1.9 million, or 2.3% of net sales during the nine months ended September 25, 2015, compared to an operating income of $1.4 million, or 2.0% of net sales, for the same period in 2014. With the exclusion of one-time items related to the increased rent aforementioned and other restructuring costs associated with our facility relocation and the acquisition costs of the Tiffin, Ohio manufacturing facility, operating income was $3.0 million for the nine months ended September 25, 2015 versus an operating income of $1.4 million for the nine months ended September 26, 2014.
  • Interest expense increased by $1.9 million during the nine months ended September 25, 2015 as compared to the nine months ended September 26, 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 nine months ended September 26, 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 nine months ended September 25, 2015 of $4.4 million, or $0.56 per basic and diluted share, versus net income of $3.1 million, or $0.38 per basic share ($0.11 per diluted share), for the nine months ended September 26, 2014. With the exclusion of the aforementioned one-time items related to our facility relocation and acquisition costs in 2015 and the one-time tax benefit and acquisition costs in 2014, net income was $1.3 million for the nine months ended September 25, 2015 versus a net income of $0.8 million for the nine months ended September 26, 2014.

Liquidity and Capital Resources

Cash used in operating activities before changes in operating assets and liabilities was $0.9 million in the nine months ended September 25, 2015 as compared to cash provided of $2.7 million in the same period of 2014. Changes in operating assets and liabilities from continuing operations provided $1.5 million in the nine months ended September 25, 2015 as compared to using $5.7 million in the same period of 2014. The decrease in usage is primarily attributable to an increase in accounts payables, partially offset by increases in inventories, accounts receivable and decreases in accrued expenses.

Cash flows used by investing activities of $26.0 million in the nine months ended September 25, 2015 were primarily due to the purchase of our Tiffin, Ohio manufacturing facility and capital expenditures related to the relocation of the Bridgeton, Missouri facility to Jefferson City, Missouri.

Debt at September 25, 2015 was $50.8 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 (LOSS) INCOME - UNAUDITED  
(In thousands, except per share data)  
             
     Three Months Ended    Nine Months Ended  
     September 25, 2015    September 26, 2014    September 25, 2015    September 26, 2014  
                       
Net sales  $31,048    $26,543    $83,702    $72,077  
Cost of goods sold   26,273     21,549     70,530     60,020  
  Gross profit   4,775     4,994     13,172     12,057  
Selling, general and administrative expenses   3,518     3,451     11,144     10,633  
Severance, restructuring and related charges   1,777     -     3,914     -  
  Operating (loss) income   (520 )   1,543     (1,886 )   1,424  
Interest expense   (1,233 )   (229 )   (2,733 )   (786 )
Other, net   35     40     100     117  
(Loss) income before income tax benefit (expense)   (1,718 )   1,354     (4,519 )   755  
Income tax benefit (expense)   113     (4 )   98     2,303  
Net (loss) income  $(1,605 )  $1,350    $(4,421 )  $3,058  
                           
(Loss) income before income tax benefit (expense)  $(1,605 )  $1,350    $(4,421 )  $3,058  
Other comprehensive (loss) income                        
  Foreign currency translation   (94 )   (43 )   (178 )   (75 )
Total comprehensive (loss) income  $(1,699 )  $1,307    $(4,599 )  $2,983  
                           
Basic (loss) earnings per share  $(0.20 )  $0.17    $(0.56 )  $0.38  
Basic weighted average common shares outstanding:   7,951     7,951     7,951     7,951  
                           
Diluted (loss) earnings per share  $(0.20 )  $0.05    $(0.56 )  $0.11  
Diluted weighted average common shares outstanding:   7,951     26,810     7,951     26,810  
                 
 
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)
               
Assets  September 25, 2015   December 31, 2014  
Current assets:            
  Cash  $55   $ 66  
  Accounts receivable, net   12,296     10,840  
  Inventories, net   20,182     15,881  
  Other current assets   2,290     659  
Total current assets   34,823     27,446  
               
Other assets:            
  Goodwill   8,377     2,556  
  Intangibles, net   21,153     3,909  
  Other   4,145     1,839  
               
Other Assets   33,675     8,304  
               
Property and equipment   64,721     59,421  
Less: accumulated depreciation   (50,771 )   (49,263 )
Property and equipment, net   13,950     10,158  
               
Total assets  $82,448   $ 45,908  
               
               
Liabilities and stockholders' (deficit) equity            
Current liabilities:            
  Accounts payable  $17,127   $ 7,327  
  Book overdraft   584     699  
  Accrued expenses   9,226     8,550  
  Payable to related party   4,131     3,650  
  Deferred revenue   170     186  
  Current maturities of long term debt   600     -  
  Revolving credit agreement   26,342     21,967  
Total current liabilities   58,180     42,379  
               
Deferred revenue   -     130  
Long-term debt   23,862     -  
Other liabilities   5,696     4,090  
Total liabilities   87,738     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   (1,722 )   (1,544 )
  Accumulated deficit   (127,319 )   (122,898 )
  Treasury stock   (21,437 )   (21,437 )
Total stockholders' (deficit) equity   (5,290 )   (691 )
               
Total liabilities and stockholders' (deficit) equity  $82,448   $ 45,908  
               
 
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
       Nine Months Ended  
       September 25, 2015    September 26, 2014  
Cash flows from operating activities:            
  Net (loss) income  $(4,421 )  $3,058  
  Depreciation and amortization of long-lived assets   2,571     1,655  
  Amortization of debt issuance costs   458     272  
  Stock-based compensation   76     50  
  Payment In Kind (PIK) interest expense   462     -  
  Deferred income taxes   -     (2,318 )
        (854 )   2,717  
  Changes in operating assets and liabilities:            
    Accounts receivable   (668 )   (2,985 )
    Inventories   (2,842 )   (6,395 )
    Other assets   (1,762 )   (65 )
    Accounts payable   6,487     2,912  
    Accrued expenses   (1,367 )   843  
    Payable to related party   481     375  
    Deferred revenue   (146 )   (147 )
    Other   1,358     (275 )
        1,541     (5,737 )
                 
  Net cash provided by (used in) continuing operations   687     (3,020 )
  Net cash provided by discontinued operations   -     74  
  Net cash provided by (used in) operating activities   687     (2,946 )
                 
Cash flows from investing activities:            
  Payment for acquisition, net of cash received   (23,855 )   (10,774 )
  Capital expenditures   (2,167 )   (642 )
  Net cash used in investing activities   (26,022 )   (11,416 )
                 
Cash flows from financing activities:            
  Net borrowings on revolving credit facility   4,375     14,337  
  Proceeds from term loan facility   24,000     -  
  Loan from related party   -     400  
  (Decrease) increase in book overdraft   (115 )   97  
  Direct costs associated with debt facilities   (2,627 )   (672 )
  Net cash provided by financing activities   25,633     14,162  
                 
Effect of exchange rate changes on cash   (309 )   (109 )
                 
Net decrease in cash   (11 )   (309 )
Cash, beginning of period   66     708  
Cash, end of period  $55    $399  
                 
Suuplemental cash flow disclosure            
  Interest paid  $1,637    $484  
Supplemental information of non-cash investing and financing activity            
  Accrued contingent earnout payment  $2,000    $-  
  Capital expenditures included in accounts payable  $1,159    $-  

Contact Information

  • Company contact:
    Katy Industries, Inc.
    Curt Kroll
    (314) 656-4381