EX-99.3 4 ex99_3.htm EXHIBIT 99.3
Exhibit 99.3

The unaudited pro forma condensed consolidated financial statements are based on the historical financial statements of Katy Industries, Inc. (the “Company”) and Fort Wayne Holdings, Inc. (“FTW”) after giving effect to the cash paid by the Company to consummate the FTW acquisition, as well as certain pro forma adjustments.
 
The unaudited pro forma condensed consolidated balance sheet data assumes that the acquisition of FTW occurred on September 27, 2013. The pro forma condensed consolidated balance sheet combines the historical balances of the Company as of September 27, 2013 with the historical balances of FTW as of September 30, 2013, plus pro forma adjustments.
 
The unaudited pro forma condensed consolidated statements of operations assumes that the acquisition of FTW occurred on January 1, 2012. As the Company has a fiscal year ending on December 31 and FTW had a fiscal year ending on December 31, the pro forma condensed consolidated financial statements include a pro forma statement of operations combining the historical results of the Company for the year ended December 31, 2012 with the historical results of FTW for the year ended December 31, 2012, plus pro forma adjustments.  In addition, they include a pro forma statement of operations combining the historical results of the Company for the nine months ended September 27, 2013 with the historical results of FTW for the nine months ended September 30, 2013, plus pro forma adjustments.
 
The unaudited pro forma condensed consolidated financial statements assume that the acquisition is accounted for in accordance with generally accepted accounting principles for business combinations and represents the current pro forma information based upon available information of the combining companies' results of operations during the periods presented.
 
The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not purport to be indicative of the results of operations or financial position for future periods or the results that actually would have been realized had the acquisition described above been consummated as of September 27, 2013 or January 1, 2012.
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KATY INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 27, 2013
 (Amounts in Thousands)
(Unaudited)

ASSETS

 
  
Historical
    
Historical
    
Pro Forma
      
Pro Forma
  
 
  
KATY
    
FTW
    
Adjustments
      
Combined
  
 
  
   
   
(Note 2)
      
 
CURRENT ASSETS:
  
   
   
     
 
 
  
   
   
     
 
Cash
  
$
1,062
    
$
2,445
    
$
(2,445
)
A
  
$
1,062
  
Accounts receivable, net
    
8,666
      
2,238
      
-
        
10,904
  
Inventories, net
    
11,385
      
1,668
      
171
  
B
    
13,224
  
Other current assets
    
681
      
209
      
(56
)
C
    
834
  
Assets held for sale
    
74
      
-
      
-
        
74
  
 
                                  
Total current assets
    
21,868
      
6,560
      
(2,330
)
      
26,098
  
 
                                  
Goodwill
    
-
      
-
      
2,788
  
F,N
    
2,788
  
Tradenames
    
-
      
-
      
306
  
E
    
306
  
Customer relationships
    
-
      
-
      
3,760
  
E
    
3,760
  
Other assets
    
1,617
      
447
      
226
  
D,G
    
2,290
  
 
                                  
Total other assets
    
1,617
      
447
      
7,080
        
9,144
  
 
                                  
PROPERTY AND EQUIPMENT
                                  
Land and improvements
    
251
      
285
      
-
        
536
  
Buildings and improvements
    
3,084
      
3,151
      
2,150
  
I
    
8,385
  
Machinery and equipment
    
52,145
      
9,677
      
5
  
I
    
61,827
  
 
                                  
 
    
55,480
      
13,113
      
2,155
        
70,748
  
Less - Accumulated depreciation
    
(48,210
)
    
(10,838
)
    
(81
)
K
    
(59,129
)
 
                                  
Property and equipment, net
    
7,270
      
2,275
      
2,074
        
11,619
  
 
                                  
Total assets
  
$
30,755
    
$
9,282
    
$
6,824
      
$
46,861
  

See accompanying notes to unaudited proforma condensed consolidated financial statements.

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KATY INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 27, 2013
 (Amounts in Thousands)
(Unaudited)

LIABILITIES AND STOCKHOLDERS’ EQUITY

 
  
Historical
    
Historical
    
Pro Forma
      
Pro Forma
  
 
  
KATY
    
FTW
    
Adjustments
      
Combined
  
 
  
   
   
(Note 2)
      
 
CURRENT LIABILITIES:
  
   
   
     
 
Accounts payable
  
$
6,710
    
$
1,792
    
$
-
      
$
8,502
  
Book overdraft
    
190
      
-
      
-
        
190
  
Accrued compensation
    
1,277
      
-
      
-
        
1,277
  
Accrued expenses
    
8,221
      
310
      
-
        
8,531
  
Payable to related party
    
2,625
      
-
      
-
        
2,625
  
Deferred revenue
    
186
      
-
      
-
        
186
  
Current maturities of long-term debt
    
-
      
134
      
(134
)
G
    
-
  
Revolving credit agreement
    
8,710
      
-
      
11,564
  
G
    
20,274
  
 
                                  
Total current liabilities
    
27,919
      
2,236
      
11,430
        
41,585
  
 
                                  
DEFERRED REVENUE
    
356
      
-
      
-
        
356
  
 
                                  
OTHER LIABILITIES:
                                  
Long-term debt, less current maturities
    
-
      
676
      
(676
)
G
    
-
  
Deferred tax liability
-
-
 122 N 122
Other Liabilities
    
5,602
      
-
      
-
        
5,602
  
 
                                  
Total noncurrent liabilities
    
5,602
      
676
      
(554
)
      
5,724
  
 
                                  
Total liabilities
    
33,877
      
2,912
      
10,876
        
47,665
  
 
                                  
STOCKHOLDERS’ EQUITY
                                  
Preferred stock
    
108,256
      
-
      
-
        
108,256
  
Common stock
    
9,822
      
-
      
-
        
9,822
  
Additional paid-in capital
    
27,110
      
7,282
      
(7,282
)
H
    
27,110
  
Accumulated other comprehensive loss
    
(2,473
)
    
-
      
-
        
(2,473
)
Accumulated deficit
    
(124,400
)
    
(813
)
    
3,131
  
H,N
    
(122,082
)
Treasury stock
    
(21,437
)
    
(99
)
    
99
  
H
    
(21,437
)
 
                                  
Total stockholders' equity
    
(3,122
)
    
6,370
      
(4,052
)
      
(804
)
 
                                  
Total liabilities and stockholders' equity
  
$
30,755
    
$
9,282
    
$
6,824
      
$
46,861
  

See accompanying notes to unaudited proforma condensed consolidated financial statements.
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KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 2013
(Amounts in Thousands)
(Unaudited)

 
  
Historical
    
Historical
    
Pro Forma
      
Pro Forma
  
 
  
KATY
    
FTW
    
Adjustments
      
Combined
  
 
  
   
   
(Note 2)
      
 
 
  
   
   
     
 
Net sales
  
$
59,817
    
$
13,075
    
$
-
      
$
72,892
  
Cost of goods sold
    
50,364
      
11,003
      
81
  
K
    
61,448
  
Gross profit
    
9,453
      
2,072
      
(81
)
      
11,444
  
Selling, general and administrative expenses
    
9,236
      
939
      
141
  
J
    
10,316
  
Severance, restructuring and related charges
    
321
      
-
      
-
        
321
  
Loss on disposal of assets
    
230
      
-
      
-
        
230
  
Operating (loss) income
    
(334
)
    
1,133
      
(222
)
      
577
  
Interest expense
    
(678
)
    
(27
)
    
(403
)
L
    
(1,108
)
Other, net
    
137
      
-
      
-
        
137
  
 
                                  
(Loss) income from continuing operations before income tax expense
    
(875
)
    
1,106
      
(625
)
      
(394
)
Income tax (benefit) expense from continuing operations
    
(17
)
    
(440
)
    
440
  
M
    
(17
)
 
                                  
(Loss) income from continuing operations
    
(892
)
    
666
      
(185
)
      
(411
)
Income from operations of discontinued businesses (net of tax)
    
373
      
-
      
-
        
373
  
 
                                  
Net (loss) Income
  
$
(519
)
  
$
666
    
$
(185
)
    
$
(38
)
 
                                  
Loss (income) per share of common stock - Basic and Diluted:
  
$
(0.07
)
                    
$
(0.00
)
 
                                  
Weighted average common shares outstanding:
                                  
Basic and diluted
    
7,951
                        
7,951
  

See accompanying notes to unaudited proforma condensed consolidated financial statements.
4
KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
(Amounts in Thousands)
(Unaudited)

 
  
Historical
    
Historical
    
Pro Forma
      
Pro Forma
  
 
  
KATY
    
FTW
    
Adjustments
      
Combined
  
 
  
   
   
(Note 2)
      
 
 
  
   
   
     
 
Net sales
  
$
80,315
    
$
17,115
    
$
-
      
$
97,430
  
Cost of goods sold
    
68,060
      
14,164
      
108
  
K
    
82,332
  
Gross profit
    
12,255
      
2,951
      
(108
)
      
15,098
  
Selling, general and administrative expenses
    
15,224
      
991
      
188
  
J
    
16,403
  
Impairment of long-lived assets
    
1,934
      
-
      
-
        
1,934
  
Operating (loss) income
    
(4,903
)
    
1,960
      
(296
)
      
(3,239
)
Interest expense
    
(730
)
    
(108
)
    
(465
)
L
    
(1,303
)
Other, net
    
279
      
-
      
-
        
279
  
 
                                  
(Loss) income from continuing operations before income tax expense
    
(5,354
)
    
1,852
      
(761
)
      
(4,263
)
Income tax (benefit) expense from continuing operations
    
(19
)
    
906
      
(996
)
M
    
(109
)
 
                                  
(Loss) income from continuing operations
    
(5,373
)
    
2,758
      
(1,757
)
      
(4,372
)
Loss from operations of discontinued businesses (net of tax)
    
(9,453
)
    
-
      
-
        
(9,453
)
Loss on sale of discontinued business (net of tax)
    
(280
)
    
-
      
-
        
(280
)
 
                                  
Net (loss) income
  
$
(15,106
)
  
$
2,758
    
$
(1,757
)
    
$
(14,105
)
 
                                  
(Loss) income per share of common stock - Basic and Diluted:
  
$
(1.90
)
                    
$
(1.77
)
 
                                  
Weighted average common shares outstanding:
                                  
Basic and diluted
    
7,951
                        
7,951
  

See accompanying notes to unaudited proforma condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.  Purchase Price Allocation
 
The purchase price was $11.5 million in cash, subject to certain pre-closing and post-closing purchase price adjustments described in the Stock Purchase Agreement dated January 24, 2014 (the “Purchase Agreement”) by and between Continental Commercial Products, LLC, a wholly-owned subsidiary of the Company, FTW, the shareholders of FTW, and Fort Wayne Plastics, Inc. a wholly-owned subsidiary of FTW. The purchase price was funded primarily by monies borrowed under a new credit agreement.
 
The purchase price was allocated to FTW tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values as of the acquisition date. The excess of the purchase price over the net tangible and identifiable intangible assets will be recorded as goodwill. The purchase price was allocated as follows:
 
(Amounts in thousands)
 
Current assets
  
$
3,076
  
Property and equipment
    
4,349
  
Intangible assets
    
4,066
  
Goodwill
    
2,788
  
Total Assets Acquried
    
14,279
  
 
        
Deferred tax liabilities
    
(2,440
)
Total liabilities assumed
    
(833
)
Net assets acquired
  
$
11,006
  

Cash and other net tangible assets/liabilities: Cash and other net tangible assets and liabilities were recorded at their respective carrying amounts for the purpose of these unaudited pro forma condensed consolidated statements. It was assumed that these carrying values approximate their fair values.
 
Property and equipment: Property and equipment were recorded based on independent third party appraisals.
 
Goodwill: Goodwill represents the excess of the purchase price over the estimated fair value of tangible and identifiable intangible net assets acquired.
 
Identifiable intangible assets: Identifiable intangible assets acquired include customer relationships and tradenames.
 
Note 2.  Pro Forma Adjustments
 
The following adjustments have been reflected in the unaudited pro forma condensed consolidated financial statements (amounts in thousands):
 
A. Represents the elimination of FTW's existing cash balances which were withdrawn by former ownership prior to closing.
B. To record step-up in finished goods inventory to reflect estimated fair value at the assumed transaction date.
C. To eliminate FTW's prepaid balances related to the transaction and current deferred tax assets.
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D. To eliminate FTW's historical debt issuance costs and long-term deferred tax assets.
E. To record the preliminary valuation of identifiable intangible assets related to the acquisition of FTW.
 
    
Estimated
Useful Life
  
Acquired customer-based intangible assets
  
$
3,760
    
20 years
  
Acquired tradenames
    
306
      
*
  
Total
  
$
4,066
          

* Acquired tradenames are assumed to have an indefinite life.
 
F. To record the valuation of goodwill related to the acquisition of FTW.
G. To record debt acquisition costs of approximately $672, to record the acquisition of debt related to the transaction of $11,006 and eliminate FTW’s historical debt of $810 that was liquidated at closing.
H. To eliminate FTW's historical equity balances.
I. To record step-up in building and equipment to reflect estimated fair value at the assumed transaction date.
J. To record the estimated amortization expense related to the identifiable intangible assets recognized upon the acquisition of FTW.
 
 
  
Year
Ended
12/31/2012
    
 Nine
Months
Ended
9/27/2013
  
Estimated amortization on acquired intangible assets
  
$
188
    
$
141
  

K. To record the estimated depreciation expense related to the step-up in building and equipment recognized upon the acquisition of FTW.
L. To record estimated interest expense from debt issued and the amortization of debt acquisition costs. These amounts were estimated using the interest rates in effect at the inception of the loans.
M. To record the estimated income tax effect of the acquisition had FTW and the Company filed a consolidated return.
N. To record the deferred tax liability related to the acquisition of FTW and corresponding decrease in the reserve allowance against the Company’s deferred tax assets.

 
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