-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, INgog/7P98/kkDeBmuCBHTwZ7UpZE8Ehy+OHLYQCrGUV7Ou6zvCtn+myfmetgKT8 HPRc8nsMx6Sx2XmAq+XSxQ== 0000054681-96-000007.txt : 19960517 0000054681-96-000007.hdr.sgml : 19960517 ACCESSION NUMBER: 0000054681-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KATY INDUSTRIES INC CENTRAL INDEX KEY: 0000054681 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 751277589 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05558 FILM NUMBER: 96567056 BUSINESS ADDRESS: STREET 1: 6300 S SYRACUSE WAY STE 300 CITY: ENGLEWOOD STATE: CO ZIP: 80111-6723 BUSINESS PHONE: 3034860017 MAIL ADDRESS: STREET 1: 6300 S SYRACUSE WAY SUITE 300 CITY: ENGLEWOOD STATE: CO ZIP: 80111 10-Q 1 Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: March 31, 1996 Commission File Number 1-5558 Katy Industries, Inc. (Exact name of registrant as specified in its charter) Delaware 75-1277589 (State of Incorporation) (I.R.S. Employer Identification No.) 6300 S. Syracuse Way, Suite 300, Englewood, Colorado 80111 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (303)290-9300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding at May 13, 1996 Common stock, $1 par value 8,252,387 KATY INDUSTRIES, INC. FORM 10-Q MARCH 31, 1996 INDEX Page No. PART I FINANCIAL INFORMATION Condensed Consolidated Balance Sheets March 31, 1996 and December 31, 1995 2 Statements of Condensed Consolidated Operations Three months ended March 31, 1996 and 1995 4 Statements of Condensed Consolidated Cash Flows Three months ended March 31, 1996 and 1995 5 Notes to Condensed Consolidated Financial Information 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II OTHER INFORMATION Item 1 Legal Proceedings 12 Item 6 Exhibits and Reports on Form 8-K 12 Signatures 13 KATY INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995
March 31, December 31, 1996 1995 (In Thousands) CURRENT ASSETS: Cash and cash equivalents $ 47,894 $ 43,701 Marketable securities - available for sale 7,892 16,653 Accounts receivable, trade, net 26,749 22,399 Notes and other receivables, net 3,048 15,645 Inventories - Note 1 38,532 35,902 Other current assets 15,710 15,297 Total current assets 139,825 149,597 OTHER ASSETS: Investments, at equity, in unconsolidated subsidiaries - Note 3 7,028 7,328 Investments in waste-to-energy facility 11,285 11,360 Notes receivable, net 1,490 1,566 Cost in excess of net assets of businesses acquired, net 7,186 7,249 Miscellaneous 5,825 5,664 Total other assets 32,814 33,167 PROPERTIES, at cost: Land and improvements 4,188 4,308 Buildings and improvements 32,532 32,464 Machinery and equipment 40,223 38,723 76,943 75,495 Accumulated depreciation ( 33,886) (32,847) Net properties 43,057 42,648 $215,696 $225,412 See Notes to Condensed Consolidated Financial Information.
KATY INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 March 31, December 31, 1996 1995 (In Thousands) CURRENT LIABILITIES: Notes payable - banks $ - $ 14,193 Accounts payable 9,563 8,361 Accrued compensation 2,298 3,792 Accrued expenses 27,348 23,947 Accrued interest and taxes 3,640 1,342 Current maturities, long-term debt 816 913 Dividends payable 700 624 Total current liabilities 44,365 53,172 LONG-TERM DEBT, less current maturities 9,045 9,346 DEFERRED INCOME TAXES 26,173 24,598 OTHER LIABILITIES 8,642 7,966 Total liabilities 88,225 95,082 SHAREHOLDERS' EQUITY: Common stock, $1 par value, authorized 25,000,000 shares, issued 9,821,329 shares 9,821 9,821 Additional paid-in capital 51,111 51,111 Foreign currency translation and other adjustments ( 1,798) ( 1,640) Unrealized holding gains, net of tax 2,607 5,297 Retained earnings 85,711 81,925 Treasury stock 1,413,342 and 1,097,142 shares ( 19,981) ( 16,184) Total shareholders' equity 127,471 130,330 $215,696 $225,412
See Notes to Condensed Consolidated Financial Information. KATY INDUSTRIES, INC. STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Three Months Ended March 31, 1996 1995 (In Thousands, Except Per Share Data) Net sales $ 42,465 $ 38,358 Cost of goods sold 28,551 27,374 Gross profit 13,914 10,984 Selling, general and administrative 11,794 11,413 Income (loss) from operations 2,120 ( 429) Interest expense ( 307) ( 418) Interest income 701 276 Other income (expense) - Note 4 4,923 ( 238) Income (loss) from consolidated operations before provision for income taxes 7,437 ( 809) Provision for income taxes 2,825 628 Income (loss) from consolidated operations 4,612 ( 1,437) Equity in income (loss) of unconsolidated subsidiaries (net of tax)- Note 3 ( 183) 700 Net income (loss) $ 4,429 $ (737) Earnings (loss) per share $ .52 $ (.08) Average shares outstanding 8,600 9,076 Dividends paid per share - Common stock $ .0625 $ .0625
See Notes to Condensed Consolidated Financial Information. KATY INDUSTRIES, INC. STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Three Months Ended March 31, 1996 1995 (In Thousands) Cash flows from operating activities: Net income (loss) $ 4,429 $ ( 737) Depreciation and amortization 1,553 1,378 Equity in (income) loss of unconsolidated subsidiaries 183 ( 700) Gain on marketable securities transactions ( 4,914) - Gain on sale of assets ( 52) ( 3) Adjustments to reconcile net income to net cash flows from operating activities 1,448 251 Net cash flows from operating activities 2,647 189 Cash flows from investing activities: Proceeds from sale of assets 255 41 Collections of notes and other receivables 13,204 143 Marketable securities activity, net 9,191 - Purchase of subsidiary, net of cash acquired - ( 23,717) Capital expenditures ( 2,171) ( 3,372) Net cash flows from investing activities 20,479 ( 26,905) Cash flows from financing activities: Notes payable activity, net ( 14,193) 18,267 Principal payments on long-term debt ( 398) ( 1,150) Purchase of treasury shares ( 3,797) - Payment of dividends ( 545) ( 567) Proceeds from issuance of long-term debt - 4,298 Net cash flows from financing activities ( 18,933) 20,848 Net increase (decrease) in cash and cash equivalents 4,193 ( 5,868) Cash and cash equivalents beginning of period 43,701 8,475 Cash and cash equivalents end of period $ 47,894 $ 2,607
See Notes to Condensed Consolidated Financial Information. KATY INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION MARCH 31, 1996 (1) Significant Accounting Policies: Consolidation Policy The financial statements include, on a consolidated basis, the accounts of Katy Industries, Inc. and subsidiaries (Katy) in which it has greater than 50% interest or exercises significant influence or control. The information furnished reflects all known adjustments which are, in the opinion of management, necessary for a fair presentation of financial condition and results of operations. Interim figures are subject to year-end audit adjustments and may not be indicative of results to be realized for the entire year. Inventories The components of inventories are as follows: March 31, December 31, 1996 1995 (Thousands of Dollars) Raw materials $ 15,153 $ 14,471 Work in process 8,233 7,132 Finished goods 15,146 14,299 $ 38,532 $ 35,902 Stock-Based Compensation In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which is effective for the Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosure of stock-based compensation arrangements with employees. Companies are permitted to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of equity instruments awarded. Katy will continue to apply APB Opinion No. 25 to its stock-based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share. (2) Subsequent Event On April 4, 1996, the Company sold its Walsh Press operation for $1,125,000 resulting in a nominal gain. (3) Investments in Unconsolidated Subsidiaries, at Equity Katy's investments in unconsolidated subsidiaries are comprised of the following: March 31, December 31, 1996 1995 (Thousands of Dollars) Schon & Cie, AG $ - $ - Bee Gee Holding Company, Inc. 7,028 7,328 $ 7,028 $ 7,328 In December 1995, the Company sold its wholly owned subsidiary, WSC Liquidating Co., whose sole asset was 2,555,500 common shares of Syratech Corporation, to Syratech. The Company also sold to Syratech the remaining 509,251 shares of Syratech stock held directly by Katy. The investment in Syratech had been accounted for using the equity method. The net proceeds from both transactions was approximately $50,800,000 and resulted in a total after tax gain of $7,500,000. As a result of the Company's sale of one-half of its interest in Schon & CIE, AG (Schon) on June 30, 1995, Schon's assets and liabilities and sales and costs and expenses are included in the following tables subsequent to June 30, 1995, but there is no effect on the Company's investment or equity in income of unconsolidated subsidiaries. The condensed financial information which follows reflects Katy's proportionate share in the financial position and results of operations of its unconsolidated subsidiaries: March 31, December 31, 1996 1995 (Thousands of Dollars) Current assets $ 15,931 $ 15,968 Current liabilities ( 15,800) ( 15,105) Working capital 131 863 Properties, net 9,528 9,112 Other assets 3,776 3,785 Long-term debt ( 3,897) ( 3,998) Other liabilities ( 1,618) ( 1,514) Shareholders' equity 7,920 8,248 Shareholders' equity of Schon ( 1,638) ( 1,604) Unamortized excess of cost over net assets acquired 746 684 Investments, at equity, in unconsolidated subsidiaries $ 7,028 $ 7,328 (3) Investments in Unconsolidated Subsidiaries, at Equity: (Continued) Sales $7,226 $25,355 Cost and expenses ( 8,246) ( 24,039) Net income (loss) ( 1,020) 1,316 Unrecorded losses of Schon 796 - Amortization of excess of cost over net assets acquired ( 76) ( 102) Benefit (provision) for income taxes 117 ( 514) Equity in income (loss) of unconsolidated subsidiaries $ ( 183) $ 700 (4) Marketable Securities: During the first quarter of 1996 the Company sold 135,000 shares of Union Pacific Corporation common stock for proceeds of $9,191,000, resulting in a pre-tax gain of $4,914,000. (5) Stock Repurchase Program: In August 1995, Katy's Board of Directors authorized the Company to repurchase up to 400,000 of its common shares over the subsequent twelve months in open market transactions. On January 2, 1996, the Board authorized the Company to repurchase an additional 500,000 shares. In connection therewith, Katy repurchased 316,200 shares in the quarter ended March 31, 1996 at a total cost of $3,797,000, bringing the total shares repurchased under these authorizations to 668,400. Subsequent to March 31, 1996 through May 10, 1996 the Company purchased an additional 155,600 shares at a cost of $2,089,000. RESULTS OF OPERATIONS Three Months Ended March 31, 1996 Following are summaries of sales and operating income for the three months ended March 31, 1996 and 1995 by industry segment:
Sales Increase (Decrease) 1996 1995 Amount Per Cent (Thousands of Dollars) Distribution and Service $ 20,204 $ 9,092 $ 11,112 122.2% Industrial and Consumer Manufacturing 14,537 12,569 1,968 15.7 Machinery Manufacturing 7,724 16,697 ( 8,973) (53.7) Total sales $ 42,465 $ 38,358 $ 4,107 10.7% Operating Income Percent of Sales 1996 1995 1996 1995 (Thousands of Dollars) Distribution and Service $ 1,799 $ 898 8.9% 9.9% Industrial and Consumer Manufacturing 1,659 1,461 11.4 11.6 Machinery Manufacturing 759 (813) 9.8 (4.9) Total operating income $ 4,217 $ 1,546 9.9% 4.0% The Distribution and Service Group's sales increased $11,112,000 or 122%. The acquisition of GC Thorsen, effective March 31, 1995, provided the majority of the increase, although all other product lines within the group recorded year-to-year sales increases. Operating income for the group was up by $901,000 although the operating margin dropped by a percentage point. The margin decline is primarily due to the change in product mix with the addition of GC Thorsen and sales increases in certain other product lines. The increased sales of the Industrial and Consumer Manufacturing Group is impacted by the acquisition of Gemtex in August 1995, partially offset by the sale of Moldan in December 1995. Other product lines had modest increases for the quarter. Operating income for the group increased by $198,000, however, margins declined slightly due to the inclusion of Gemtex and due to preseason sales of stain at discounted prices. The Machinery Manufacturing Group's significant sales decrease results primarily from the sale of one-half of Katy's interest in Schon in June 1995 and the sale of B.M. Root in July 1995. Sales of food packaging machinery were up from last year and sales of testing and measuring instruments were down from last year. Other product lines were either flat or slightly down for the prior year. Operating income improved $1,572,000 from last year's loss due almost entirely to the exclusion of Schon. As a result of the factors described above, gross profit increased $2,930,000 from last year and gross margins were 32.8%, up 4.2 points from 28.6% last year. Selling, general and administrative expenses increased by $381,000, or 3.3% primarily the result of increased sales expenses due to the higher volume levels in 1996. Interest expense decreased due to lower debt levels, while interest income increased due to higher levels of investable funds resulting from the sale of Syratech stock and Union Pacific stock. Other, net was much higher due to the gain on the sale of Union Pacific stock. Income before income taxes increased by $8,246,000 primarily the result of the Union Pacific sale and the improvement in operating income. The provision for income taxes in 1996 equates to an effective rate of 38%. The effective rate in 1995 was impacted by the fact that losses from Schon were not tax effected. Equity in income of unconsolidated subsidiaries decreased by $883,000. This decrease is due to the sale of Katy's interest in Syratech in December 1995. LIQUIDITY AND CAPITAL RESOURCES Combined cash, cash equivalents and marketable securities decreased $4,568,000 to $55,786,000 on March 31, 1996 compared to $60,354,000 on December 31, 1995 primarily due to the share repurchase program. Current ratios were 3.15 to 1.00 at March 31, 1996 and 2.81 to 1.00 at December 31, 1995, respectively. Working capital decreased $965,000 in the first quarter of 1996. Katy has authorized and expects to commit an additional $5,000,000 for capital projects during the remainder of 1996. Funding for these expenditures and for working capital needs is expected to be accomplished substantially through use of available cash and internally generated funds. The Company also continues to search for appropriate acquisition candidates, and may obtain all or a portion of the financing for future acquisitions through the incurrence of additional debt, which the Company believes it can obtain at reasonable terms and pricing. At March 31, 1996, Katy had short and long-term indebtedness for money borrowed of $9,861,000. Total debt was 7.2% of total debt and equity at March 31, 1996. Katy has a secured short-term line of credit with The Northern Trust Company in the amount of $20,000,000 which it expects to use principally for letters of credit. In August 1995, Katy's Board of Directors authorized the Company to repurchase up to 400,000 shares of its common stock over the subsequent twelve months in open market transactions. In January 1996 the board authorized an additional 500,000 shares to be repurchased. In connection therewith, Katy repurchased 316,200 shares in the quarter ended March 31, 1996 at a total cost of $3,797,000, bringing the total shares repurchased under the authorization to 668,400. Subsequent to March 31, 1996 through May 10, 1996 the Company purchased an additional 155,600 shares at a cost of $2,089,000. The Company and certain of its current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the U.S. Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties ("PRP's") at a number of hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund") and equivalent state laws and, as such, may be liable for the cost of cleanup and other remedial activities at these sites. Responsibility for cleanup and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula. The means of determining allocation among PRPs is generally set forth in a written agreement entered into by the PRPs at a particular site. An allocation share assigned to a PRP is often based on the PRP's volumetric contribution of waste to a site. The Company is also involved in remedial response and voluntary environmental clean-up at a number of other sites which are not currently the subject of any legal proceedings under Superfund, including certain of its current and formerly owned manufacturing facilities. Based on its estimate of allocation of liability among PRPs, the probability that other PRPs, many of whom are large, solvent, public companies, will fully pay the costs apportioned to them, currently available information concerning the scope of contamination, estimated remediation costs, estimated legal fees and other factors, the Company believes that it has an adequate accrual for all known liabilities at March 31, 1996. Although management believes that these actions in the aggregate are not likely to have a material adverse effect on Katy's consolidated financial position or results of operations, further costs could be significant and will be recorded as a charge to operations when such costs become probable and reasonably estimable. Katy also has a number of product liability and workers' compensation claims pending against it and its subsidiaries. With respect to the product liability and workers' compensation claims, Katy has provided for its share of expected losses beyond the applicable insurance coverage, including those incurred but not reported. Such accruals are developed using currently available claim information. The incurred but not reported component of the liability was developed using actuarial techniques. In January 1995, the Board of Directors adopted a Stockholder Rights Plan and distributed one right for each outstanding share of the Company's common stock. Each right entitles the shareholder to acquire one share of the Company's common stock at an exercise price of $35, subject to adjustment. The rights are not and will not become exercisable unless certain change of control events occur. None of the rights are exercisable as of March 31, 1996. Management continuously reviews each of its businesses. As a result of these ongoing reviews, management may determine to sell certain companies and may augment its remaining businesses with acquisitions. When sales do occur, management anticipates that funds from these sales will be used for general corporate purposes or to fund acquisitions. Acquisitions may also be funded through cash balances, available lines of credit and future borrowings. KATY INDUSTRIES, INC. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS During the quarter for which this report is filed, there have been no material developments in previously reported legal proceedings, and no other cases or legal proceedings, other than ordinary routine litigation incidental to the Company's business and other non-material proceedings, have been brought against the Company. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Reports on Form 8-K On January 16, 1996, the Company filed a current report on Form 8-K providing information in response to item 2 to Form 8-K with respect to the sale of its wholly owned subsidiary WSC Liquidating Co. to Syratech Corporation and the sale of an additional 509,251 share of Syratech common shares held directly by Katy. Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KATY INDUSTRIES, INC. Registrant DATE: May 15, 1996 By /s/John R. Prann, Jr. John R. Prann, Jr. President, Chief Executive Officer & Chief Operating Officer DATE: May 15, 1996 By /s/Stephen P. Nicholson Stephen P. Nicholson Treasurer & Chief Financial Officer
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5 3-MOS DEC-31-1996 MAR-31-1996 47894 7892 26749 0 38532 139825 76943 33886 215696 44365 0 0 0 9821 117650 127471 42465 42465 28551 40435 (5317) 111 307 7437 2825 2120 0 0 0 4429 .52 .52 Accounts receivable, trade are reported net of allowances for doubtful accounts in the condensed consolidated balance sheets.
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