0000054681-95-000015.txt : 19950815 0000054681-95-000015.hdr.sgml : 19950815 ACCESSION NUMBER: 0000054681-95-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 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: 95563692 BUSINESS ADDRESS: STREET 1: 6300 S SYRACUSE WAY SUITE 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: June 30, 1995 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 June 30, 1995 Common stock, $1 par value 9,076,387 KATY INDUSTRIES, INC. FORM 10-Q JUNE 30, 1995 INDEX Page No. PART I FINANCIAL INFORMATION Condensed Consolidated Balance Sheets June 30, 1995 and December 31, 1994 2 Statements of Condensed Consolidated Operations Three months and six months ended June 30, 1995 and 1994 4 Statements of Condensed Consolidated Cash Flows Six months ended June 30, 1995 and 1994 5 Notes to Condensed Consolidated Financial Information 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II OTHER INFORMATION Item 1 Legal Proceedings 17 Item 6 Exhibits and Reports on Form 8-K 17 Signatures 18 KATY INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1995 AND DECEMBER 31, 1994 June 30, December 31, 1995 1994 (Thousands of Dollars) CURRENT ASSETS: Cash and cash equivalents $ 2,700 $ 8,475 Marketable securities - available for sale 28,062 23,756 Accounts receivable, trade, net of allowance for doubtful accounts of $965 and $3,183 27,832 20,423 Notes and other receivables, net of allowance for doubtful notes of $504 and $854 2,026 2,112 Inventories - Note 1 36,594 31,312 Other current assets 12,468 13,784 Total current assets 109,682 99,862 OTHER ASSETS: Investments, at equity, in unconsolidated subsidiaries - Note 3 47,440 45,310 Investments, at cost - Note 4 424 406 Investments in waste-to-energy facility 11,532 11,759 Notes receivable, net of allowance for doubtful notes of $2,500 1,430 2,283 Miscellaneous (Note 2) 12,045 4,982 Total other assets 72,871 64,740 PROPERTIES, at cost: Land and improvements 4,407 4,868 Buildings and improvements 33,829 25,152 Machinery and equipment 38,876 56,743 77,112 86,763 Accumulated depreciation ( 35,090) ( 48,223) Net properties 42,022 38,540 $224,575 $203,142 See Notes to Condensed Consolidated Financial Statements. KATY INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1995 AND DECEMBER 31, 1994 June 30, December 31, 1995 1994 (Thousands of Dollars) CURRENT LIABILITIES: Notes payable - banks $ 24,353 $ 7,948 Accounts payable 8,218 6,807 Accrued compensation 2,789 6,180 Accrued expenses 26,632 25,060 Accrued interest and taxes 1,408 773 Current maturities, long-term debt 527 2,407 Dividends payable 646 646 Total current liabilities 64,573 49,821 LONG-TERM DEBT, less current maturities 9,763 10,572 OTHER LIABILITIES 34,469 31,759 MINORITY INTEREST 215 212 Total liabilities 109,020 92,364 STOCKHOLDERS' 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 adjustment ( 1,674) 2,676 Unrealized holding gains, net of tax 7,069 4,426 Retained earnings 62,071 55,587 Treasury stock, at cost, 744,942 shares ( 12,843) ( 12,843) Total stockholders' equity 115,555 110,778 $224,575 $203,142 See Notes to Condensed Consolidated Financial Statements. KATY INDUSTRIES, INC. STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Three Months Six Months Ended June 30 Ended June 30 1995 1994 1995 1994 (In Thousands Except Per Share Data) Net sales $ 49,609 $ 42,641 $ 87,967 $ 81,064 Costs and expenses: Cost of goods sold 34,131 36,116 60,587 63,152 Selling, general and administrative 13,253 11,580 24,207 21,443 Depreciation and amortization 2,268 1,514 3,646 3,058 Interest expense 945 502 1,363 1,022 Interest income ( 380)( 1,294)( 656)( 2,519) Other, net ( 1,066) 1,792 ( 829) 1,562 Write off of assets - Notes 4 and 6 - 2,708 - 9,288 Reversal of previously recorded losses - Note 2 ( 4,920) - ( 4,920) - 44,231 52,918 83,398 97,006 Income (loss) from consolidated operations before income tax credit 5,378 ( 10,277) 4,569 ( 15,942) Income tax credit 2,477 1,739 1,849 3,603 Income (loss) from consolidated operations 7,855 ( 8,538) 6,418( 12,339) Equity in income of unconsolidated subsidiaries (net of tax)- Note 3 500 691 1,200 1,304 Net income (loss) 8,355 ( 7,847) 7,618( 11,035) Income (loss) per share $ .92 ($ .87) $ .84 ($ 1.22) Average shares outstanding 9,076 9,017 9,076 9,017 Dividends per common share $ .0625 $14.0000 $ .1250 $14.0625
See Notes to Condensed Consolidated Financial Statements. KATY INDUSTRIES, INC. STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS SIX MONTHS ENDED JUNE 30, 1995 AND 1994 Six Months Ended June 30, 1995 1994 (Thousands of dollars) Cash flows from operating activities: Net income (loss) $ 7,618 ($ 11,035) Write off of assets - 9,288 (Gain) loss on sale of assets ( 18) 76 Disposition of portion of investment in subsidiary( 7,902) - Provisions for inventory valuation reserves - 5,072 Adjustments to reconcile net income to net cash flows from operating activities ( 3,455) ( 124) Net cash flows from operating activities 3,757 3,277 Cash flows from investing activities: Proceeds from sale of assets 94 217 Collections of notes receivable 481 227 Acquisition of businesses, net of cash acquired ( 23,480) - Other investments - ( 2,226) Capital expenditures ( 5,317) ( 1,614) Net cash flows from investing activities ( 28,222) ( 3,396) Cash flows from financing activities: Notes payable activity, net 23,063 ( 171) Principal payments on long-term debt ( 1,662) ( 1,479) Payment of dividends ( 1,135) ( 1,126) Proceeds from issuance of long-term debt 5,938 - Net cash flows from financing activities 26,204 ( 2,776) Net increase (decrease) in cash and cash equivalents ( 5,775) ( 2,895) Cash and cash equivalents beginning of period 8,475 130,289 Cash and cash equivalents end of period $ 2,700 $127,394 See Notes to Condensed Consolidated Financial Statements. (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 Katy has greater than a 50% interest or exercises significant influence or control. The information included herein 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: June 30, December 31, 1995 1994 (Thousands of Dollars) Raw materials $ 14,447 $ 11,304 Work in process 6,442 7,137 Finished goods 15,705 12,871 $ 36,594 $ 31,312 (2) Acquisitions and Divestitures: Effective March 31, 1995, Katy purchased all of the outstanding shares of common stock of GC Thorsen, Inc. (GCT), a leading value-added marketer and distributor of electronic and electrical parts and accessories and nonpowered handtools. The purchase price, including acquisition costs, was approximately $24,000,000, of which $19,500,000 was financed through Katy's bank line of credit. The acquisition has been accounted for under the purchase method. The excess of the purchase price over the fair value of the net assets acquired of approximately $4,200,000 is included in Other Assets - Miscellaneous on the accompanying balance sheet and is being amortized over 20 years. On June 30, 1995, Katy sold one half of its 75% interest (90,000 shares) in Schoen & Cie, AG (Schoen) to Pegasus Beteiligungen AG of Heidelberg, Germany. The sale, which is irrevocable, was made on the basis of a contingent price, whereby Katy will receive two-thirds of the amount ultimately realized by Pegasus in any future sale of such shares, or, under some circumstances, Katy will be entitled to find a purchaser for two-thirds of such shares and receive the proceeds of the sale thereof. Katy continues to hold 90,000 shares, or a 37.5% interest in Schoen. With the reduction in its ownership interest and influence, Katy is reporting its continuing investment in Schoen using the equity method of accounting for this minority owned subsidiary effective June 30, 1995. In connection with the sale, Katy recorded a gain of $4,920,000 reflecting the reversal of previously recorded losses of Schoen and a deferred tax asset of $3,000,000. (2) Acquisitions and Divestitures (Continued) Katy has previously stated its intent to not fund future operations of Schoen and has no legal liability for any of Schoen's liabilities. Katy's investment in Schoen is recorded at zero as of June 30, 1995. The unaudited pro forma consolidated results of operations of Katy for the six months ended June 30, 1995, reflecting the allocation of the purchase and related costs of the GC Thorsen transaction and the sale of 50% of Katy's interest in Schoen, would have been as follows (in thousands except per share amounts), assuming that the Thorsen acquisition and the Schoen sale had taken place at the beginning of the period. Six Months Ended June 30, 1995 Net sales $ 76,979 Net income $ 5,596 Net income per common share $ .62 On July 14, 1995, Katy sold the assets of its B.M. Root operation in York, Pennsylvania to a group headed by the General Manager of the operation. The sale was at net book value (approximately $700,000). (3) Investments in Unconsolidated Subsidiaries, at Equity Katy's investments in unconsolidated subsidiaries are comprised of the following: June 30, December 31, 1995 1994 (Thousands of Dollars) Syratech Corporation $40,214 $38,325 Bee Gee Holding Company, Inc. 7,226 6,985 Schoen & Cie, AG -0- N/A $47,440 $45,310 (3) Investments in Unconsolidated Subsidiaries, at Equity (Continued) The condensed financial information which follows reflects Katy's proportionate share in the financial position and results of operations of all of its unconsolidated subsidiaries: June 30, December 31, 1995 1994 (Thousands of Dollars) Current assets $ 54,826 $ 40,474 Current liabilities ( 27,883) ( 16,196) Working capital 26,943 24,278 Properties, net 30,763 27,590 Other assets 2,113 836 Long-term debt ( 7,860) ( 4,894) Other liabilities ( 4,840) ( 3,086) Stockholders' equity 47,119 44,724 Unamortized excess of cost over net assets acquired 356 586 Investments, at equity, in unconsolidated subsidiaries $ 47,440 $ 45,310 (3) Investments in Unconsolidated Subsidiaries, at Equity (Continued)
Three Months Six Months Ended June 30 Ended June 30 1995 1994 1995 1994 (Thousands of Dollars) Sales $14,687 $20,890 $40,038 $41,784 Cost and expenses ( 14,246)( 20,435) ( 38,334)( 40,010) Net income from continuing operations 441 455 1,704 1,774 Income from discontinued operations - net of tax 680 1,002 680 1,002 Net income 1,121 1,457 1,024 2,776 Amortization of excess of cost over net assets required ( 127)( 198) ( 254)( 402) Provision for income taxes ( 494)( 568) ( 930)( 1,070) Equity in net income of unconsolidated subsidiaries $ 500 $ 691 $ 1,200 $ 1,304
The financial statements of Syratech Corporation included herein are for the six months ended March 31, 1995, which is the latest date available, with results of discontinued operations presented only for the three months ending March 31, 1995 and 1994. On March 28, 1995, Syratech sold its subsidiary, Syroco, Inc., for $140,000,000 resulting in a gain of $30,451,000 which Syratech will report in the quarter ended June 30, 1995. Syroco is shown above as a discontinued operation. Katy will report its share of the gain on sale (approximately $5,000,000 net of tax) in Katy's third quarter ended September 30, 1995. (4) Investments, at Cost In April, 1994 management of Katy met with Katy's oil exploration joint venture partners and, based on current facts and circumstances, Katy has decided not to commit further funds to the oil exploration project and will not participate in any further activities on the site. Accordingly, in March, 1994 Katy wrote off its $6,580,000 investment. (5) Special Dividend On June 29, 1994, Katy's Board of Directors declared a special cash dividend of $14.00 per share on Katy's common stock, payable August 19, 1994 to stockholders of record at the close of business on July 22, 1994. (6) Nonrecurring Items During the second quarter of 1994 Katy provided $6,156,000 of inventory and other adjustments at certain subsidiaries, which were primarily inventory adjustments within the industrial machinery group. Katy management also concluded that the value ($2,708,000) of the Seghers waste-to-energy technology that was acquired in 1987 had been significantly impaired and wrote it off in the second quarter of 1994. LIQUIDITY AND CAPITAL RESOURCES During the six months ended June 30, 1995 working capital decreased $5,134,000 compared to December 31, 1994. Current ratios were 1.69 to 1.00 at June 30, 1995 and 2.00 to 1.00 at December 31, 1994, respectively. The decrease in working capital and in the current ratio results from short-term borrowings in connection with the acquisition of GC Thorsen on March 31, 1995. Katy has authorized and expects to commit an additional $4,000,000 for capital projects during the remainder of 1995. Funding for these expenditures and for working capital needs is expected to be accomplished substantially through use of internally generated funds from operations supplemented by short-term borrowing. Effective March 31, 1995 Katy purchased all of the outstanding shares of common stock of GC Thorsen, Inc. (GCT), a leading value-added marketer and distributor of electronic and electrical parts and accessories and nonpowered handtools. The purchase price, including acquisition costs, was approximately $24,000,000, of which $19,500,000 was financed through Katy's bank line of credit. The acquisition has been accounted for under the purchase method. The excess of the purchase price over the fair value of the net assets acquired of approximately $4,200,000 is being amortized over 20 years. Effective June 30, 1995 Katy sold one-half of its interest in Schoen & Cie, AG to a German investment company in an irrevocable transaction. The purchaser, Pegasus Beteiligungen AG of Heidelberg, Germany, acquired 90,000 shares, representing a 37.5% interest in Schoen. The sale was made on the basis of a contingent purchase price, whereby the amount Pegasus will pay Katy for the shares is dependent on the amount ultimately realized by Pegasus in the future. Katy continues to hold its remaining 90,000 shares, or a 37.5% interest, in Schoen. As a result of the sale, Katy will no longer consolidate the results of Schoen in Katy's financial statements, and will use the equity method of accounting to report Katy's continuing investment in Schoen. As a result of the sale Katy recorded a gain in the second quarter from the reversal of previously recorded losses of Schoen ($4,920,000) and deferred tax benefits from the sale ($3,000,000). 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 LIQUIDITY AND CAPITAL RESOURCES (Continued) 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 has an accrual at June 30, 1995 for indicated environmental liabilities in the aggregate amount of approximately $7,150,000. 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. On January 13, 1995, the Board of Directors adopted a Stockholder Rights Plan in which Common Stock Purchase Rights ("Rights") were distributed as a dividend at the rate of one Right for each share of Common Stock held as of the close of business on January 24, 1995. The Rights were designed to guard against (I) coercive and abusive tactics that might be used in an attempt to gain control of the Company without paying all stockholders a fair price for their shares, or (ii) the accumulation of a substantial block of stock without Board approval. The Rights Plan will not prevent takeovers, but was designed to deter coercive and abusive takeover tactics and to encourage anyone attempting to acquire the Company to first negotiate with the Board. Furthermore, the Rights also permit the Board to have some input with respect to possible future acquisitions of Company stock by the Carroll family and certain investment funds managed by Mario J. Gabelli. As of January 13, 1995 the Carroll family beneficially owned approximately 47% and the Gabelli group beneficially owned approximately 21% of the Company's Common Stock. As of August 14, 1995, the Carroll family beneficially owns approximately 46% and the Gabelli group owns approximately 21.8%. Such Rights only become exercisable, or transferable apart from the Common Stock, ten business days after a person or group (an "Acquiring Person") acquires beneficial ownership of, or commences a tender or exchange offer for, 10% or more of the Company's Common Stock. Any additional acquisition of shares by the Carroll family or the Gabelli group which would increase their beneficial ownership in the Company's Common Stock by more than 1% above their holdings at January 13, 1995, respectively, will also make the Rights exercisable. LIQUIDITY AND CAPITAL RESOURCES (Continued) Once exercisable, each Right not owned by an Acquiring Person, or if the Carroll family or the Gabelli group acquires additional shares, then that family or group, allows the Rightholder to acquire one share of the Company's Common Stock at an exercise price of $35, subject to adjustment. Thereafter, upon the occurrence of certain events (for example, if the Company is the surviving corporation of a merger with an Acquiring Person), the Rights entitle holders other than the Acquiring Person to acquire Common Stock having a value of twice the exercise price of the Right. Alternatively, upon the occurrence of certain other events (for example, if the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation), the Rights would entitle holders other than the Acquiring Person to acquire Common Stock of the Acquiring Person having a value twice the exercise price of the Rights. The Rights may be redeemed by the Company at a redemption price of $.01 per Right at any time until the tenth business day following public announcement that a 10% position has been acquired (or an additional 1% if by the Carroll family or Gabelli group) or ten business days after commencement of a tender or exchange offer. The Rights will expire on January 24, 2005. By its terms, the Rights Plan reserves for the Board of Directors the right to amend the Plan and redeem the Rights. All the terms of the Plan, including but not limited to the exercise price of the Rights and the ownership percentages leading to a triggering event, may be amended by the Board of Directors of the Company at any time prior to the triggering of the Rights Plan's "flip-over" and "flip-in" provisions. At June 30, 1995, Katy had short and long-term indebtedness for money borrowed of $34,643,000 of which $24,000,000 represented short-term borrowings under Katy's domestic bank line of credit, which borrowings were used primarily for the acquisition of GC Thorsen, Inc. Total debt was 23.1% of total debt and equity at June 30, 1995. Katy has a line of credit with The Northern Trust Company in the amount of $40,000,000. The line of credit may be used for letters of credit, working capital and/or acquisitions. 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. RESULTS OF OPERATIONS Six Months Ended June 30, 1995 Following are summaries of sales and operating income for the six months ended June 30, 1995 and 1994 by industry segment:
Sales Increase (Decrease) 1995 1994 Amount Per Cent (Thousands of Dollars) Industrial Machinery $ 29,033 $ 31,368 ( $ 2,335) ( 7.4%) Industrial Components 14,117 16,871 ( 2,754) (16.3 ) Consumer Products 44,817 32,825 11,992 36.5 Total sales $ 87,967 $ 81,064 ($ 6,903) ( 8.5%) Operating Income Percent of Sales 1995 1994 1995 1994 (Thousands of Dollars) Industrial Machinery ($ 1,900) ($ 5,550) ( 6.5%) ( 17.7%) Industrial Components 1,995 270 14.1 1.6 Consumer Products 3,676 3,913 8.2 11.9 Total operating income $ 3,771 $ 1,367 4.3% ( 1.7%)
The decreased sales of the Industrial Machinery segment is attributable to decreased sales of Schoen and its subsidiaries, where operations continue to decline, partially offset by increases of the manufacturers of machinery for the food processing industry and for the wood processing industry. The 1995 operating loss reported for the segment was considerably less than the loss reported in 1994, the result of 1994 adjustments to inventory values at certain locations, primarily foreign operations, which did not recur in 1995. The Industrial Components segment reported decreased sales, primarily due to the sale of the business that refitted machinery for the oil, gas petrochemical industries in the fourth quarter of 1994. Sales increases were reported by the Six Months Ended June 30, 1995 (Continued) manufacturers of electrical equipment, specialty metals and gauging and control systems. Operating income increased primarily as the result of the sales increases, improved margins in 1995 and 1994 adjustments to inventory values of a foreign subsidiary. The Consumer Products segment reported increased sales, primarily due to the acquisition on March 31, 1995 of GC Thorsen, a marketer of electronic parts and handtools. Significant sales increases in the refrigeration and cold storage business and the stain, coating and water repellant business were largely offset by decreases in the filter business. Operating income decreased due to lower sales and margin levels at the filter and abrasives businesses, offset by increased margins in the refrigeration and cold storage business. Selling, general and administrative expenses increased by $2,765,000, primarily the result of the acquisition of GC Thorsen and increased sales expenses due to higher sales in 1995. Income before income taxes increased by $20,511,000 primarily the result of the reversal of previously recorded losses of Schoen of $4,902,000 in 1995 and the write-off of assets of $9,288,000 and reserves against inventories of $6,156,000 in 1994. The effective tax rate for the six months ended June 30, 1995 was a credit of 40.5% compared to 22.6% for 1994. The 1995 credit is due primarily to the deferred tax benefit resulting from the sale of 50% of Katy's investment in Schoen and the reversal of previously recorded losses of Schoen, which does not require a tax provision since no benefit was provided on such losses. The low effective rate in 1994 is due primarily to foreign losses for which no tax benefit was provided. RESULTS OF OPERATIONS Three Months Ended June 30, 1995 Following are summaries of sales and operating income for the three months ended June 30, 1995 and 1994 by industry segment:
Sales Increase (Decrease) 1995 1994 Amount Per Cent (Thousands of Dollars) Industrial Machinery $ 15,296 $ 15,787 ($ 491) ( 3.1%) Industrial Components 7,139 9,238 ( 2,099) ( 22.7 ) Consumer Products 27,174 17,616 9,558 54.3 Total sales $ 49,609 $ 42,641 $ 6,968 16.3%
Three Months Ended June 30, 1995 (Continued) Operating Income Percent of Sales 1995 1994 1995 1994 (Thousands of Dollars) Industrial Machinery ($ 512) ($ 5,352) ( 3.3%) ( 33.9%) Industrial Components 1,080 ( 235) 15.1 ( 2.6 ) Consumer Products 1,656 2,161 6.1 12.3 Total operating income $ 2,224 ($ 3,426) ( 4.5%) ( 8.0%)
In the Industrial Machinery segment, the decrease in sales of Schoen and its subsidiaries was partially offset by increased sales of the manufacturers of machinery for the food processing industry and for the wood processing industry. The 1995 operating loss reported for the segment was considerably less than the loss reported in 1994. The improvement was attributable to 1994 adjustments to inventory values at certain locations, primarily foreign operations which did not recur in 1995. The Industrial Components segment reported decreased sales, substantially due to the sale of the business that refitted machinery for the oil, gas and petrochemical industries in the fourth quarter of 1994. The manufacturer of electrical equipment reported increased sales with higher operating income, the result of higher profit margins in 1995. The manufacturer of gauging and control systems experienced higher sales and higher operating income due to improved margins. The Consumer Products segment reported increased sales due to the acquisition of the marketer of electronic parts and handtools. Increased sales by the refrigeration and cold storage company were offset by lower sales of the filter and stain businesses. Operating income declined due to lower sales and margin levels at the filter and stain businesses. Income before income taxes increased by $15,655,000, primarily the result of the reversal of the previously recorded losses of Schoen of $4,920,000 in 1995 and the write-off of assets of $2,708,000 and reserves against inventories of $6,156,000 along with costs of downsizing certain operations in 1994. The effective tax rate for the three months ended June 30, 1995 was a credit of 46.1% compared to 16.9% for 1994. The 1995 credit is due primarily to the deferred tax benefit resulting from the sale of 50% of Katy's investment in Schoen and the reversal of previously recorded losses of Schoen, which does not require a tax provision since no benefit was provided on such losses. The low effective rate in 1994 is due primarily to foreign losses for which no tax benefit was provided. 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 Katy's business and other non-material proceedings, have been brought against Katy. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibits will be filed in paper copy under "Rule 201" Temporary Hardship Exemption. (b) Reports on Form 8-K On April 20, 1995, the Company filed a current report on Form 8-K (Item 2) stating that the Company purchased for cash all of the outstanding capital stock of GC Thorsen, Inc., on April 5, 1995. On June 15, 1995, the Company filed a current report on Form 8-K/A (Item 7) providing information in response to items 7(a) and 7(b) to Form 8-K with respect to audited financial statements of GC Thorsen, Inc. for the year ended December 31, 1994, unaudited interim financial statements of GC Thorsen, Inc. for the three months ended March 31, 1995 and 1994, and pro forma financial statements of Katy Industries, Inc. for the year ended December 31, 1994 and three months ended March 31, 1995 giving effect to the GC Thorsen, Inc. acquisition as provided therein. 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: August 14, 1995 By /s/John R. Prann, Jr. John R. Prann, Jr. President, Chief Executive Officer & Chief Operating Officer DATE: August 14, 1995 By /s/P. Kurowski P. Kurowski Secretary, Treasurer & Chief Financial Officer EX-27 2 FDS ARTICLE 5
5 6-MOS DEC-31-1995 JUN-30-1995 2700 28062 31327 (1469) 36594 109682 77112 (35090) 224575 64573 9763 9821 0 0 105734 224575 87967 87967 60587 88440 (6405) 0 1363 4569 (1849) 6418 0 0 0 7618 .84 .84