KII Liquidating Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - November 10, 2014

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8-K - KATY INDUSTRIES, INC 8-K 11-10-2014 - KII Liquidating Inc.form8k.htm
Exhibit 99.1
 
KATY NEWS
FOR IMMEDIATE RELEASE
 
KATY INDUSTRIES, INC.
REPORTS NET INCOME IN 2014 THIRD QUARTER RESULTS
 
BRIDGETON, MO – November 10, 2014 – Katy Industries, Inc. (OTC BB: KATY) today reported net income in the third quarter of 2014 of $1.4 million, or $0.17 per basic ($0.05 per diluted) share versus net income of $0.2 million, or $0.02 per basic ($0.00 per diluted) share, in the third quarter of 2013.  Income from continuing operations was $1.4 million in the third quarter of 2014 compared to income of $0.2 million in the third quarter of 2013. Operating income was $1.5 million, or 5.8% of net sales, in the third quarter of 2014, compared to income of $0.4 million, or 2.0% of net sales, for the same period in 2013.
 
Financial highlights for the third quarter of 2014, as compared to the same period in the prior year, included:
 
· Net sales in the third quarter of 2014 were $26.5 million, an increase of $5.7 million, or 27.3%, compared to the same period in 2013.  The increase was a result of the acquisition of Ft. Wayne Plastics (“FWP”); which contributed $4.4 million in net sales for the three months ended September 26, 2014, and increased demand in our Continental business unit.
 
· Gross margin was 18.8% in the third quarter of 2014, an increase from 17.3% in the third quarter of 2013.  The increase in gross margin was primarily a result of a mix of higher margin product sales and operational efficiencies. 
 
· Selling, general and administrative (”SG&A”) expenses increased from $3.0 million in the third quarter of 2013 to $3.5 million in the third quarter of 2014. The increase was primarily due to the first quarter acquisition of FWP, which increased SG&A expenses for the three months ended September 26, 2014, and better casualty insurance experience during the three months ended September 27, 2013 as compared to the three months ended September 26, 2014.
 
 The Company reported net income for the nine months ended September 26, 2014 of $3.1 million, or $0.38 per basic ($0.11 per diluted) share, versus a net loss of $0.5 million, or $0.06 per share, for the nine months ended September 27, 2013. Income from continuing operations was $3.1 million for the nine months ended September 26, 2014 compared to a loss of $0.9 million for the nine months ended September 27, 2013. Operating income was $1.4 million, or 2.0% of net sales, for the nine months ended September 26, 2014, compared to a loss of $0.3 million, or 0.1% of net sales, for the nine months ended September 27, 2013.
 
Financial highlights for the nine months ended September 26, 2014, as compared to the nine months ended September 27, 2013, included:
 
· Net sales for the nine months ended September 26, 2014 were $72.1 million, an increase of $12.3 million, or 20.5%, compared to the same period in 2013. The increase was a result of the acquisition of FWP, which contributed $9.6 million in net sales for the nine months ended September 26, 2014, and increased demand in our Continental business unit. The increase in net sales was partially offset, however, by a volume shortfall in our Wilen business unit and two less shipping days in the first nine months of 2014 versus the first nine months of 2013. Gross margin was 16.7% for the nine months ended September 26, 2014, an increase of 90 basis points from the same period a year ago. The increase was primarily a result of higher margins on the sales mix in our Continental business unit.
 
· Selling, general and administrative expenses were $10.6 million for the first nine months of 2014 as compared to $9.2 million for the first nine months of 2013. The increase was primarily due to the acquisition of FWP for the nine months ended September 26, 2014, which was partially offset by better casualty insurance experience and one-time settlements received during the nine months ended September 27, 2013.
 
· Income tax benefit for the nine months ended September 26, 2014 includes a benefit as a result of the acquisition of FWP. 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.
 
Cash provided by operating activities before changes in operating assets and liabilities was $2.7 million in the first nine months of 2014 as compared to $1.1 million in the same period of 2013.  Changes in operating assets and liabilities from continuing operations used $5.7 million in the first nine months of 2014 as compared to $0.7 million in the same period of 2013. The increase in usage is primarily attributable to an increase in accounts receivables and inventory, which was partially offset by an increase in accounts payable.

Debt at September 26, 2014 was $22.0 million, versus $7.7 million at December 31, 2013.
 “We are pleased to report net income for a third consecutive quarter” stated David J. Feldman, Katy’s President and Chief Executive Officer.  “The acquisition of FWP has been a great addition to our company and we expect to realize ongoing benefits as we continue to implement our strategic operational plans.”
 
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, 2013. 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
  
   
September 26, 2014
    
September 27, 2013
    
September 26, 2014
    
September 27, 2013
  
                 
Net sales
  
$
26,543
    
$
20,852
    
$
72,077
    
$
59,817
  
Cost of goods sold
    
21,549
      
17,246
      
60,020
      
50,364
  
Gross profit
    
4,994
      
3,606
      
12,057
      
9,453
  
Selling, general and administrative expenses
    
3,451
      
2,951
      
10,633
      
9,236
  
Severance, restructuring and related charges
    
-
      
-
      
-
      
321
  
Loss on disposal of assets
            
230
              
230
  
Operating income (loss)
    
1,543
      
425
      
1,424
      
(334
)
Interest expense
    
(229
)
    
(302
)
    
(786
)
    
(678
)
Other, net
    
40
      
66
      
117
      
137
  
Income (loss) from continuing operations before income tax benefit (expense)
    
1,354
      
189
      
755
      
(875
)
Income tax (expense) benefit from continuing operations
    
(4
)
    
(4
)
    
2,303
      
(17
)
Income (loss) from continuing operations
    
1,350
      
185
      
3,058
      
(892
)
(Loss) income from operations of discontinued business (net of tax)
    
-
      
(14
)
    
-
      
373
  
Net income (loss)
  
$
1,350
    
$
171
    
$
3,058
    
$
(519
)
                                 
Net income (loss)
  
$
1,350
    
$
171
    
$
3,058
    
$
(519
)
Other comprehensive loss
                                
Foreign currency translation
    
(43
)
    
(34
)
    
(75
)
    
(45
)
Total comprehensive income (loss)
  
$
1,307
    
$
137
    
$
2,983
    
$
(564
)
                                 
                                 
Income (loss) income per share of common stock - Basic
                                
Income (loss) from continuing operations
  
$
0.17
    
$
0.02
    
$
0.38
    
$
(0.11
)
Discontinued operations
    
-
      
-
      
-
      
0.05
  
Net income (loss)
  
$
0.17
    
$
0.02
    
$
0.38
    
$
(0.07
)
                                 
Income (loss) income per share of common stock - Diluted
                                
Income (loss) from continuing operations
  
$
0.05
    
$
0.01
    
$
0.11
    
$
(0.12
)
Discontinued operations
    
-
      
(0.01
)
    
-
      
0.05
  
Net income (loss)
  
$
0.05
    
$
(0.00
)
  
$
0.11
    
$
(0.06
)
                                 
                                 
                                 
Weighted average common shares outstanding:
                                
Basic
    
7,951
      
7,951
      
7,951
      
7,951
  
Diluted
    
26,810
      
26,810
      
26,810
      
7,951
  
Other Information:
                                
                                 
LIFO adjustment expense
  
$
19
    
$
(9
)
  
$
251
    
$
179
  
 
KATY INDUSTRIES, INC. BALANCE SHEETS - UNAUDITED
(In thousands)

 
September 26, 2014
    
December 31, 2013
  
Assets
Current assets:
        
Cash
  
$
399
    
$
708
  
Accounts receivable, net
    
11,719
      
7,206
  
Inventories, net
    
17,804
      
10,004
  
Other current assets
    
777
      
663
  
Assets held for sale
    
-
      
74
  
Total current assets
    
30,699
      
18,655
  
                 
Other Assets:
                
Goodwill
    
2,556
      
-
  
Intangibles, net
    
3,958
      
-
  
Other
    
1,895
      
1,375
  
Total other assets
    
8,409
      
1,375
  
                 
Property and equipment
    
60,424
      
55,495
  
Less: accumulated depreciation
    
(50,008
)
    
(48,533
)
Property and equipment, net
    
10,416
      
6,962
  
                 
Total assets
  
$
49,524
    
$
26,992
  
                 
                 
Liabilities and stockholders' equity
                
Current liabilities:
                
Accounts payable
  
$
9,507
    
$
5,983
  
Book overdraft
    
361
      
264
  
Accrued expenses
    
9,527
      
8,473
  
Payable to related party
    
3,525
      
2,750
  
Deferred revenue
    
186
      
186
  
Revolving credit agreement
    
22,043
      
7,706
  
Total current liabilities
    
45,149
      
25,362
  
                 
Deferred revenue
    
170
      
316
  
Other liabilities
    
3,702
      
3,794
  
Total liabilities
    
49,021
      
29,472
  
                 
Stockholders' equity (deficit):
                
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
    
(923
)
    
(848
)
Accumulated deficit
    
(122,325
)
    
(125,383
)
Treasury stock
    
(21,437
)
    
(21,437
)
Total stockholders' equity (deficit)
    
503
      
(2,480
)
                 
Total liabilities and stockholders' equity
  
$
49,524
    
$
26,992
  
 
KATY INDUSTRIES, INC. STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)

   
Nine Months Ended
  
   
September 26, 2014
    
September 27, 2013
  
Cash flows from operating activities:
        
Net income (loss)
  
$
3,058
    
$
(519
)
Income from discontinued operations
    
-
      
373
  
Income (loss) from continuing operations
    
3,058
      
(892
)
Depreciation and amortization
    
1,655
      
1,550
  
Amortization of debt issuance costs
    
272
      
155
  
Stock-based compensation
    
50
      
15
  
Loss on sale or disposal of assets
    
-
      
230
  
Deferred income taxes
    
(2,318
)
    
-
  
     
2,717
      
1,058
  
Changes in operating assets and liabilities:
                
Accounts receivable
    
(2,985
)
    
(1,830
)
Inventories
    
(6,395
)
    
(742
)
Other assets
    
(65
)
    
379
  
Accounts payable
    
2,912
      
1,390
  
Accrued expenses
    
843
      
265
  
Payable to related party
    
375
      
375
  
Deferred revenue
    
(147
)
    
(155
)
Other
    
(275
)
    
(393
)
     
(5,737
)
    
(711
)
                 
Net cash (used in) provided by continuing operations
    
(3,020
)
    
347
  
Net cash provided by discontinued operations
    
74
      
1,133
  
Net cash (used in) provided by operating activities
    
(2,946
)
    
1,480
  
                 
Cash flows from investing activities:
                
Payment for acquisition, net of cash received
    
(10,774
)
    
-
  
Capital expenditures
    
(642
)
    
(391
)
Net cash used in continuing operations
    
(11,416
)
    
(391
)
Net cash provided by discontinued operations
    
-
      
1,913
  
Net cash (used in) provided by investing activities
    
(11,416
)
    
1,522
  
                 
Cash flows from financing activities:
                
Net borrowings
    
14,337
      
(2,193
)
Loan from related party
    
400
      
-
  
Decrease in book overdraft
    
97
      
(303
)
Direct costs associated with debt facilities
    
(672
)
    
-
  
Net cash provided by (used in) financing activities
    
14,162
      
(2,496
)
                 
Effect of exchange rate changes on cash from continuing operations
    
(109
)
    
(49
)
Effect of exchange rate changes on cash from discontinued operations
    
-
      
(16
)
Effect of exchange rate changes on cash
    
(109
)
    
(65
)
                 
Net decrease in cash
    
(309
)
    
441
  
Cash, beginning of period
    
708
      
621
  
Cash, end of period
  
$
399
    
$
1,062
  
 

KII Liquidating Inc. Reports