Exhibit 99.2
The unaudited pro forma condensed consolidated financial statements are based on the historical financial statements of Katy Industries, Inc. (the “Company”) and the Tiffin, Ohio manufacturing facility of Centrex Plastics, LLC (“Tiffin”) after giving effect to the cash paid by the Company to consummate the Tiffin acquisition, as well as certain pro forma adjustments.
The unaudited pro forma condensed consolidated balance sheet data assumes that the acquisition of Tiffin occurred on December 31, 2014. The pro forma condensed consolidated balance sheet combines the historical balances of the Company as of December 31, 2014 with the historical balances of Tiffin as of December 31, 2014, plus pro forma adjustments.
The unaudited pro forma condensed consolidated statements of operations assume that the acquisition of Tiffin occurred on January 1, 2014. As the Company has a fiscal year ending on December 31 and Tiffin 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, 2014 with the historical results of Tiffin for the year ended December 31, 2014, 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 December 31, 2014 or January 1, 2014.
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KATY INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2014
(Amounts in Thousands)
(Unaudited)
ASSETS
Historical KATY | Historical Tiffin | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||
| CURRENT ASSETS: | (Note 2) | |||||||||||||||||||
| Cash | $ | 66 | $ | - | $ | - | $ | 66 | ||||||||||||
| Accounts receivable, net | 10,840 | 3,060 | - | 13,900 | ||||||||||||||||
| Inventories, net | 15,881 | 1,624 | 69 | A | 17,574 | |||||||||||||||
| Other current assets | 659 | - | - | 659 | ||||||||||||||||
| Total current assets | 27,446 | 4,684 | 69 | 32,199 | ||||||||||||||||
| OTHER ASSETS: | ||||||||||||||||||||
| Goodwill | 2,556 | - | 11,805 | C | 14,361 | |||||||||||||||
| Intangibles, net | 3,909 | - | 11,215 | B,I | 15,124 | |||||||||||||||
| Other assets | 1,839 | - | 2,627 | D | 4,466 | |||||||||||||||
| Total other assets | 8,304 | - | 25,647 | 33,951 | ||||||||||||||||
| PROPERTY AND EQUIPMENT | ||||||||||||||||||||
| Land and improvements | 535 | 190 | (190 | ) | G | 535 | ||||||||||||||
| Buildings and improvements | 6,175 | - | - | 6,175 | ||||||||||||||||
| Machinery and equipment | 52,711 | 11,529 | (9,211 | ) | H | 55,029 | ||||||||||||||
| 59,421 | 11,719 | (9,401 | ) | 61,739 | ||||||||||||||||
| Less - Accumulated depreciation | (49,263 | ) | (4,176 | ) | 4,176 | H,J | (49,263 | ) | ||||||||||||
| Property and equipment, net | 10,158 | 7,543 | (5,225 | ) | 12,476 | |||||||||||||||
| Total assets | $ | 45,908 | $ | 12,227 | $ | 20,491 | $ | 78,626 | ||||||||||||
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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KATY INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2014
(Amounts in Thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Historical KATY | Historical Tiffin | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||
| CURRENT LIABILITIES: | (Note 2) | |||||||||||||||||||
| �� | ||||||||||||||||||||
| Accounts payable | $ | 7,327 | $ | 2,157 | $ | - | $ | 9,484 | ||||||||||||
| Book overdraft | 699 | - | - | 699 | ||||||||||||||||
| Accrued compensation | 1,457 | 88 | - | 1,545 | ||||||||||||||||
| Accrued expenses | 7,093 | 100 | 2,000 | E | 9,193 | |||||||||||||||
| Payable to related party | 3,650 | - | - | 3,650 | ||||||||||||||||
| Deferred revenue | 186 | - | - | 186 | ||||||||||||||||
| Current maturities of long term debt | - | 419 | (419 | ) | D | - | ||||||||||||||
| Current portion of capital leases | - | 1,545 | (1,545 | ) | D | - | ||||||||||||||
| Revolving credit agreement | 21,967 | 2,544 | (2,544 | ) | D | 21,967 | ||||||||||||||
| Total current liabilities | 42,379 | 6,853 | (2,508 | ) | 46,724 | |||||||||||||||
| DEFERRED REVENUE | 130 | - | - | 130 | ||||||||||||||||
| LONG TERM CAPITAL LEASES | - | 3,042 | (3,042 | ) | D | - | ||||||||||||||
| LONG TERM DEBT | - | 871 | 22,984 | D | 23,855 | |||||||||||||||
| OTHER LIABILITIES | 4,090 | - | - | 4,090 | ||||||||||||||||
| Total liabilities | 46,599 | 10,766 | 17,434 | 74,799 | ||||||||||||||||
| STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||||||||||||||
| Preferred stock | 108,256 | - | - | 108,256 | ||||||||||||||||
| Common stock | 9,822 | - | - | 9,822 | ||||||||||||||||
| Additional paid-in capital | 27,110 | - | - | 27,110 | ||||||||||||||||
| Accumulated other comprehensive loss | (1,544 | ) | - | - | (1,544 | ) | ||||||||||||||
| Accumulated (deficit) equity | (122,898 | ) | 1,461 | 3,057 | F | (118,380 | ) | |||||||||||||
| Treasury stock | (21,437 | ) | - | - | (21,437 | ) | ||||||||||||||
| Total stockholders' (deficit) equity | (691 | ) | 1,461 | 3,057 | 3,827 | |||||||||||||||
| Total liabilities and stockholders' (deficit) equity | $ | 45,908 | $ | 12,227 | $ | 20,491 | $ | 78,626 | ||||||||||||
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2014
(Amounts in Thousands)
(Unaudited)
Historical KATY | Historical Tiffin | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||
| (Note 2) | ||||||||||||||||||||
| Net sales | $ | 99,657 | $ | 26,902 | $ | - | $ | 126,559 | ||||||||||||
| Cost of goods sold | 84,605 | 24,368 | (1,144 | ) | J,L,M | 107,829 | ||||||||||||||
| Gross profit | 15,052 | 2,534 | 1,144 | 18,730 | ||||||||||||||||
| Selling, general and administrative expenses | 13,990 | 821 | (481 | ) | I,L,M,N | 14,330 | ||||||||||||||
| Operating income | 1,062 | 1,713 | 1,625 | 4,400 | ||||||||||||||||
| Interest expense | (1,011 | ) | (275 | ) | (4,193 | ) | K | (5,479 | ) | |||||||||||
| Other, net | 155 | - | - | 155 | ||||||||||||||||
| Income (loss) before tax benefit | 206 | 1,438 | (2,568 | ) | (924 | ) | ||||||||||||||
| Income tax benefit | 2,279 | - | - | 2,279 | ||||||||||||||||
| Net income (loss) | $ | 2,485 | $ | 1,438 | $ | (2,568 | ) | $ | 1,355 | |||||||||||
| Basic earnings per share | $ | 0.31 | $ | 0.17 | ||||||||||||||||
| Diluted earnings per share | $ | 0.09 | $ | 0.05 | ||||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||
| Basic | 7,951 | 7,951 | ||||||||||||||||||
| Diluted | 26,810 | 26,810 | ||||||||||||||||||
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| Note 1. | PURCHASE PRICE ALLOCATION |
The purchase price was $23.9 million in cash at closing, plus certain post-closing earnout payments of not less than $2.0 million over three years, as described in the Asset Purchase Agreement dated April 7, 2015 (the “Purchase Agreement”) by and between Continental Commercial Products (“CCP”) and Centrex. The purchase price was funded primarily by monies borrowed under a new credit agreement.
The purchase price was allocated to Tiffin tangible and intangible assets acquired and liabilities assumed, based on their preliminary valuation of fair values as of the acquisition date and is subject to change. 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):
| Accounts receivable | $ | 757 | ||
| Inventory | 1,399 | |||
| Property and equipment | 2,317 | |||
| Intangible assets | 11,805 | |||
| Goodwill | 11,805 | |||
| Total assets acquired | 28,083 | |||
| Accounts payable | 2,162 | |||
| Accrued expenses | 66 | |||
| Total liabilities assumed | 2,228 | |||
| Net assets acquired | $ | 25,855 |
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 their estimated fair value.
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 were customer relationships.
| Note 2. | PRO FORMA ADJUSTMNENTS |
The following adjustments have been reflected in the unaudited pro forma condensed consolidated financial statements (amounts in thousands):
| A. | To record step-up in finished goods inventory to reflect estimated fair value at the assumed transaction date. |
| B. | To record the preliminary valuation of acquired customer-based intangible assets and is subject to change. Customer-based intangibles have a 20 year useful life. |
| C. | To record the preliminary valuation of goodwill related to the acquisition of Tiffin and is subject to change |
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| D. | To record debt acquisition costs of approximately $2,627, to record the acquisition of debt related to the transaction of $23,855 and eliminate Tiffin’s historical debt and capital leases of $8,421 that were not assumed as part of the acquisition. |
| E. | To record accrued earnout payments as part of post-closing payments associated with the acquisition of Tiffin. |
| F. | To eliminate Tiffin's historical equity balances and fair value adjustments. |
| G. | To eliminate Tiffin’s land and improvements which were not acquired as part of the transaction. |
| H. | To record step-down in building and equipment based on their estimated fair value. |
| I. | To record the estimated amortization expense of $590 related to the preliminary valuation of identifiable intangible assets recognized upon the acquisition of Tiffin. These amounts are subject to change. |
| J. | To record the estimated depreciation expense related to the step-down in building and equipment recognized upon the acquisition of Tiffin. |
| K. | 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. |
| L. | To record cost savings on insurance and electricity by bringing Tiffin under Company contracts and as part of other strategic initiatives. |
| M. | To eliminate Tiffin’s component costs which would have been absorbed in Katy’s shared services as part of the acquisition. |
| N. | To record additional rent expense for the Tiffin, Ohio facility. |
| Note 3. | TRANSACTION COSTS |
The Company expensed $1.3 million in costs related to the acquisition in 2015.
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