Katy Industries, Inc. Form 8-K dated June 6, 2007

 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
__________________
 
FORM 8-K
_______________
 
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): June 11, 2007
 
Katy Industries, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-05558
 
75-1277589
 
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
2461 South Clark Street, Suite 630
Arlington, Virginia 22202
(Address of principal executive offices) (Zip Code)
 
(703) 236-4300
(Registrant’s telephone number, including area code)

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
 
[ ] Written communications pursuant to Rule 425 under the Securities Act
 
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
 
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
 
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
 
 
 
 
Item 1.01 Entry into a Material Definitive Agreement.

The information contained in Item 2.01 is incorporated herein by reference.

Item 2.01 Completion of Acquisition or Disposition of Assets. 

On June 6, 2007, Katy Industries, Inc. (the “Company”) sold Contico Manufacturing, Ltd. (“CML”) to Invescotec Limited (“Invescotec”) for approximately $10.0 million, subject to a post-closing adjustment based on working capital, capped at an additional $1.0 million. A formal plan of disposition was not committed to by the Company’s Board of Directors until subsequent to March 31, 2007. The description of the definitive share purchase agreement set forth above is qualified in its entirety by the full text of that agreement, a copy of which is filed herewith as Exhibit 10.1 and is incorporated by reference. The sale of CML to Invescotec occurred simultaneously with the execution of the definitive agreement, which contained customary representations, warranties, covenants and indemnification agreements.

CML is a distributor of a wide range of cleaning equipment, storage solutions and washroom dispensers for the commercial and sanitary maintenance and food service markets primarily in the United Kingdom.

Item 9.01 Financial Statements and Exhibits.

(b)  
Pro Forma Financial Information.

The following unaudited pro forma financial information is presented to give effect to the disposition of CML. The unaudited pro forma balance sheet as of March 31, 2007 is based on the historical statements of the Company as of March 31, 2007 after giving effect to the disposition as if it had occurred on March 31, 2007. The unaudited pro forma statements of operations for the three months ended March 31, 2007 and the fiscal years ended December 31, 2006, 2005 and 2004 are based on the historical financial statements of the Company for such periods after giving effect to the disposition of CML as if it had occurred on January 1, 2004.

The unaudited pro forma financial information should be read in conjunction with the Company’s historical Consolidated Financial Statements and Notes thereto contained in the Company’s 2006 Annual Report on Form 10-K, filed on March 16, 2007, and the Company’s First Quarter Form 10-Q, filed on May 10, 2007.

For purposes of preparing these pro forma financial statements, the Company has made adjustments based on assumptions that it believes to be reasonable under the circumstances as of the date of this filing. However, actual adjustments may differ materially from the information presented. The unaudited pro forma financial information presented is for informational purposes only. It is not intended to represent or be indicative of the consolidated results of operations or financial position that would have occurred had the sale been completed as of the dates presented nor is it intended to be indicative of future results of operations or financial position.

 
KATY INDUSTRIES, INC. AND SUBSIDIARIES
  
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
  
AS OF MARCH 31, 2007
  
(Amounts in Thousands)
  
(Unaudited)
  
                 
   
Katy
  
Pro Forma
   
As
  
   
Historical
  
Adjustments
   
Adjusted
  
CURRENT ASSETS:
                
                 
Cash and cash equivalents  
  
$
2,919
  
$
-
      
$
2,919
  
Accounts receivable, net  
    
47,811
   
(4,287
)
  
(b)
  
43,524
 
Inventories, net 
    
61,484
   
(2,997
)
  
(b)
  
58,487
 
Other current assets 
    
3,592
   
(107
)
  
(b)
  
3,485
 
                         
 Total current assets
    
115,806
   
(7,391
)
      
108,415
 
                         
                         
OTHER ASSETS:
                        
                         
Goodwill 
    
665
   
-
       
665
 
Intangibles, net 
    
6,358
   
-
       
6,358
 
Other 
    
8,576
   
(641
)
  
(b)
  
7,935
 
                         
 Total other assets
    
15,599
   
(641
)
      
14,958
 
                         
                         
PROPERTY AND EQUIPMENT
                        
Land and improvements 
    
336
   
-
       
336
 
Buildings and improvements 
    
9,710
   
-
       
9,710
 
Machinery and equipment 
    
120,701
   
(1,779
)
  
(b)
  
118,922
 
                         
     
130,747
   
(1,779
)
      
128,968
 
Less - Accumulated depreciation 
    
(89,780
)
  
1,111
   
(b)
  
(88,669
)
                         
 Property and equipment, net
    
40,967
   
(668
)
      
40,299
 
                         
 Total assets
  
$
172,372
  
$
(8,700
)
    
$
163,672
  
                         
 
See notes to pro forma condensed financial statements.
 
 
KATY INDUSTRIES, INC. AND SUBSIDIARIES
  
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
  
AS OF MARCH 31, 2007
  
(Amounts in Thousands)
  
(Unaudited)
  
                 
   
Katy
  
Pro Forma
   
As
  
   
Historical
  
Adjustments
   
Adjusted
  
CURRENT LIABILITIES:
                
                 
Accounts payable 
  
$
32,836
  
$
(2,502
)
  
(b)
$
30,334
  
Accrued compensation 
    
3,814
   
-
       
3,814
 
Accrued expenses 
    
33,624
   
(628
)
  
(b)
  
33,246
 
           
250
   
(c)
      
Current maturities of long-term debt 
    
1,500
   
-
   
 
  
1,500
 
Revolving credit agreement 
    
41,491
   
(8,723
)
  
(a)
  
32,768
 
                         
 Total current liabilities
    
113,265
   
(11,603
)
      
101,662
 
                         
LONG-TERM DEBT, less current maturities
    
11,468
   
(1,277
)
  
(a)
  
10,191
 
                         
OTHER LIABILITIES
    
9,889
   
-
       
9,889
 
                         
Total liabilities
    
134,622
   
(12,880
)
      
121,742
 
                         
COMMITMENTS AND CONTINGENCIES (Note 9)
    
-
   
-
       
-
 
                         
STOCKHOLDERS’ EQUITY
                       
15% Convertible Preferred Stock, $100 par value, authorized 
                        
 1,200,000 shares, issued and outstanding 1,131,551 shares,
                       
 liquidation value $113,155
    
108,256
   
-
       
108,256
 
Common stock, $1 par value, authorized 35,000,000 shares, 
                        
 issued 9,822,304 shares
    
9,822
   
-
       
9,822
 
Additional paid-in capital 
    
27,145
   
-
       
27,145
 
Accumulated other comprehensive income  
    
1,862
   
(1,269
)
  
(b)
  
593
 
Accumulated deficit 
    
(87,375
)
  
5,449
   
(b)
  
(81,926
)
Treasury stock, at cost, 1,871,127 shares 
    
(21,960
)
  
-
       
(21,960
)
                         
 Total stockholders' equity
    
37,750
   
4,180
       
41,930
 
                         
 Total liabilities and stockholders' equity
  
$
172,372
  
$
(8,700
)
    
$
163,672
  
                         
 
See notes to pro forma condensed financial statements.
 

KATY INDUSTRIES, INC. AND SUBSIDIARIES
  
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
  
(Amounts in Thousands, Except Per Share Amounts)
  
(Unaudited)
  
                 
   
Three Months Ended March 31, 2007
  
                 
   
Katy
  
Pro Forma
   
As
  
   
Historical
  
Adjustments
   
Adjusted
  
 
                
Net sales
  
$
94,803
  
$
(4,756
)
  
(d)
$
90,047
  
Cost of goods sold
    
86,559
   
(3,588
)
  
(d)
  
82,971
 
Gross profit 
    
8,244
   
(1,168
)
      
7,076
 
Selling, general and administrative expenses
    
11,440
   
(949
)
  
(d)
  
10,491
 
Severance, restructuring and related charges
    
244
   
-
       
244
 
Gain on sale of assets
    
(120
)
  
-
       
(120
)
Operating income 
    
(3,320
)
  
(219
)
      
(3,539
)
Interest expense
    
(1,949
)
  
217
   
(e)
  
(1,732
)
Other, net
    
70
   
(2
)
  
(d)
  
68
 
                         
Loss from continuing operations before provision
                        
for income taxes 
    
(5,199
)
  
(4
)
      
(5,203
)
Provision for income taxes from continuing operations
    
(459
)
  
66
   
(f)
  
(393
)
                         
Loss from continuing operations
  
$
(5,658
)
$
62
      
$
(5,596
)
                         
Loss per share of common stock - Basic and diluted:
                        
Loss from continuing operations 
  
$
(0.71
)
          
$
(0.70
)
                         
Weighted average common shares outstanding:
                        
 Basic and diluted
    
7,951
             
7,951
 
                         
 
See notes to pro forma condensed financial statements.
 
 
KATY INDUSTRIES, INC. AND SUBSIDIARIES
  
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
  
(Amounts in Thousands, Except Per Share Amounts)
  
(Unaudited)
  
                 
   
Year Ended December 31, 2006
  
                 
   
Katy
  
Pro Forma
   
As
  
   
Historical
  
Adjustments
   
Adjusted
  
 
                
Net sales
  
$
396,166
  
$
(16,007
)
  
(d)
$
380,159
  
Cost of goods sold
    
344,695
   
(11,953
)
  
(d)
  
332,742
 
Gross profit 
    
51,471
   
(4,054
)
      
47,417
 
Selling, general and administrative expenses
    
46,939
   
(3,242
)
  
(d)
  
43,697
 
Severance, restructuring and related charges
    
(112
)
  
-
       
(112
)
Loss on sale of assets
    
467
   
-
       
467
 
Operating loss 
    
4,177
   
(812
)
      
3,365
 
Interest expense
    
(7,037
)
  
867
   
(e)
  
(6,170
)
Other, net
    
302
   
(13
)
  
(d)
  
289
 
                         
Loss from continuing operations before provision
                        
from income taxes 
    
(2,558
)
  
42
       
(2,516
)
Provision from income taxes from continuing operations
    
(2,326
)
  
242
   
(f)
  
(2,084
)
                         
Loss from continuing operations
  
$
(4,884
)
$
284
      
$
(4,600
)
                         
Loss per share of common stock - Basic and diluted:
                        
Loss from continuing operations 
  
$
(0.61
)
          
$
(0.58
)
                         
Weighted average common shares outstanding:
                        
 Basic and diluted
    
7,967
             
7,967
 
                         

See notes to pro forma condensed financial statements.
 
 
KATY INDUSTRIES, INC. AND SUBSIDIARIES
  
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
  
(Amounts in Thousands, Except Per Share Amounts)
  
(Unaudited)
  
                 
   
Year Ended December 31, 2005
  
                 
   
Katy
  
Pro Forma
   
As
  
   
Historical
  
Adjustments
   
Adjusted
  
 
                
Net sales
  
$
423,390
  
$
(15,983
)
  
(d)
$
407,407
  
Cost of goods sold
    
372,715
   
(11,677
)
  
(d)
  
361,038
 
Gross profit 
    
50,675
   
(4,306
)
      
46,369
 
Selling, general and administrative expenses
    
52,315
   
(2,954
)
  
(d)
  
49,361
 
Impairments of goodwill
    
1,574
   
-
       
1,574
 
Impairments of other long-lived assets
    
538
   
-
       
538
 
Severance, restructuring and related charges
    
1,090
   
-
       
1,090
 
Gain on sale of assets
    
(377
)
  
-
       
(377
)
Operating loss 
    
(4,465
)
  
(1,352
)
      
(5,817
)
Equity in income of equity method investment
    
600
   
-
       
600
 
Interest expense
    
(5,570
)
  
773
   
(e)
  
(4,797
)
Other, net
    
207
   
7
   
(d)
  
214
 
                         
Loss from continuing operations before provision
                        
for income taxes 
    
(9,228
)
  
(572
)
      
(9,800
)
Provision for income taxes from continuing operations
    
(1,608
)
  
41
   
(f)
  
(1,567
)
                         
Loss from continuing operations
  
$
(10,836
)
$
(531
)
    
$
(11,367
)
                         
Loss per share of common stock - Basic and diluted:
                        
Loss from continuing operations 
  
$
(1.37
)
          
$
(1.43
)
                         
Weighted average common shares outstanding:
                        
 Basic and diluted
    
7,949
             
7,949
 
                         

See notes to pro forma condensed financial statements.
 
 
KATY INDUSTRIES, INC. AND SUBSIDIARIES
  
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
  
(Amounts in Thousands, Except Per Share Amounts)
  
(Unaudited)
  
                 
   
Year Ended December 31, 2004
  
                 
   
Katy
  
Pro Forma
   
As
  
   
Historical
  
Adjustments
   
Adjusted
  
 
                
Net sales
  
$
416,681
  
$
(16,537
)
  
(d)
$
400,144
  
Cost of goods sold
    
361,660
   
(11,660
)
  
(d)
  
350,000
 
Gross profit 
    
55,021
   
(4,877
)
      
50,144
 
Selling, general and administrative expenses
    
52,668
   
(2,960
)
  
(d)
  
49,708
 
Impairments of goodwill
    
7,976
   
-
       
7,976
 
Impairments of other long-lived assets
    
22,080
   
-
       
22,080
 
Severance, restructuring and related charges
    
3,505
   
-
       
3,505
 
Gain on sale of assets
    
(288
)
  
-
       
(288
)
Operating loss 
    
(30,920
)
  
(1,917
)
      
(32,837
)
Interest expense
    
(3,782
)
  
495
   
(e)
  
(3,287
)
Other, net
    
(998
)
  
11
   
(d)
  
(987
)
                         
Loss from continuing operations before provision
                        
for income taxes 
    
(35,700
)
  
(1,411
)
      
(37,111
)
Provision for income taxes from continuing operations
    
(642
)
  
474
   
(f)
  
(168
)
                         
Loss from continuing operations
  
$
(36,342
)
$
(937
)
    
$
(37,279
)
                         
Loss per share of common stock - Basic and diluted:
                        
Loss from continuing operations 
  
$
(4.61
)
          
$
(4.73
)
                         
Weighted average common shares outstanding:
                        
 Basic and diluted
    
7,883
             
7,883
 
                         
 
See notes to pro forma condensed financial statements.
 
 
Notes to Unaudited Pro Forma Financial Information

1.  Basis of Presentation

The historical financial statements represent the consolidated balance sheets and statements of operations derived from the Annual Report on Form 10-K for the years ending December 31, 2006, 2005 and 2004, and the Quarterly Report on Form 10-Q for the period ended March 31, 2007.

The accompanying financial information has been presented to give effect to the disposition of CML. The unaudited pro forma balance sheet as of March 31, 2007 is based on the historical statements of the Company as of March 31, 2007 after giving effect to the disposition as if it had occurred on March 31, 2007. The unaudited pro forma statements of operations for the three months ended March 31, 2007 and the fiscal years ended December 31, 2006, 2005 and 2004 are based on the historical financial statements of the Company for such periods after giving effect to the disposition of CML as if it had occurred on January 1, 2004.

2.  Transaction

The expected proceeds to be received, net of closing costs, for CML is approximately $9.7 million. Based on these proceeds and, after taking into account transaction costs and expenses of approximately $0.3 million, the Company expects to incur a pre-tax gain of approximately $5.4 million.
 
3.  Pro Forma Adjustments

The pro forma adjustments are described below:

(a)  
Amounts represent the receipt of gross proceeds of $10.0 million used to pay down the Revolving Credit Facility and Term Loan. This pay down was required in the Bank of America Credit Agreement, but does not reduce the Company’s overall borrowing capacity. The application of proceeds between the Revolving Credit Facility and Term Loan reflects the consent given by the creditors in the Bank of America Credit Agreement.
(b)  
Amounts represent the historical account balances of CML, net of intercompany account balances prior to closing.
(c)  
Amount represents the transactional closing costs incurred.
(d)  
Amounts represent the historical account activity of CML, net of intercompany activity.
(e)  
Amounts relate to the interest expense reduction as a result of the use of the above proceeds. The interest rates applied were consistent with the terms of the Bank of America Credit Agreement.
(f)  
Amounts represent the historical income tax activity of CML. No income tax impact is present associated with the interest expense reduction as the reduction will be recognized in the United States.

(d)  
Exhibits.

Exhibit No.  Description 
10.1         Share Purchase Agreement dated June 6, 2007 by and between CEH Limited, Katy Industries, Inc. and Invescotec Limited

 
Note about Forward Looking Statements

This Current Report on Form 8-K may contain various forward-looking statements. The forward-looking statements are based on the 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, detailed from time to time in Katy’s filings with the SEC, that may lead to results that differ materially from those expressed in any forward-looking statement made by the Company or on its behalf. Katy undertakes no obligation to revise or updated such statements to reflect current events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
KATY INDUSTRIES, INC.
(Registrant)

By: /s/ Amir Rosenthal
Amir Rosenthal
Vice President, Chief Financial Officer,
General Counsel and Secretary

Date: June 11, 2007


Exhibits

Exhibit No.  Description 
10.1         Share Purchase Agreement dated June 6, 2007 by and between CEH Limited, Katy Industries, Inc. and Invescotec Limited