Katy Industries, Inc. Reports 2010 Third Quarter Results

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.

SOURCE Katy Industries, Inc.