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: September 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 October, 31 1995
Common stock, $1 par value 8,763,087
KATY INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 1995
INDEX
Page No.
PART I FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
2
Statements of Condensed Consolidated Operations
Three months and nine months ended
September 30, 1995 and 1994
4
Statements of Condensed Consolidated Cash Flows
Nine months ended September 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
18
Item 6 Exhibits and Reports on Form 8-K
18
Signatures
19
<TABLE>
<CAPTION>
KATY INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
September 30, December 31,
1995 1994
(Thousands of Dollars)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,096 $ 8,475
Marketable securities - Note 4 16,566 23,756
Accounts receivable, trade, net of allowance
for doubtful accounts of $1,019 and $3,183 25,306 20,423
Notes and other receivables, net of allowance
for doubtful notes of $854 1,701 2,112
Inventories - Note 1 37,562 31,312
Other current assets 12,760 13,784
Total current assets 97,991 99,862
OTHER ASSETS:
Investments, at equity, in
unconsolidated subsidiaries - Note 3 56,171 45,310
Investments in waste-to-energy facility 11,413 11,759
Notes receivable, net of allowance for
doubtful notes of $2,500 1,033 2,283
Miscellaneous - Note 2 16,798 5,388
Total other assets 85,415 64,740
PROPERTIES, at cost:
Land and improvements 4,458 4,868
Buildings and improvements 33,595 25,152
Machinery and equipment 38,302 56,743
76,355 86,763
Accumulated depreciation ( 33,779) ( 48,223)
Net properties 42,576 38,540
$225,982 $203,142
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
KATY INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
September 30, December 31,
1995 1994
(Thousands of Dollars)
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable - banks $ 12,529 $ 7,948
Accounts payable 10,123 6,807
Accrued compensation 2,987 6,180
Accrued expenses 24,909 25,060
Accrued interest and taxes 5,664 773
Current maturities, long-term debt 522 2,407
Dividends payable 632 646
Total current liabilities 57,366 49,821
LONG-TERM DEBT, less current maturities 9,632 10,572
OTHER LIABILITIES 36,806 31,759
MINORITY INTEREST 225 212
Total liabilities 104,029 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 ( 1,534) 2,676
Unrealized holding gains, net of tax 5,336 4,426
Retained earnings 72,206 55,587
Treasury stock, at cost, 971,642 and 744,942
shares - Note 7 ( 14,987) ( 12,843)
Total stockholders' equity 121,953 110,778
$225,982 $203,142
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Three Months Nine Months
Ended September 30 Ended September 30
1995 1994 1995 1994
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Net sales $ 42,336 $ 40,561 $ 130,303 $121,625
Costs and expenses:
Cost of goods sold 27,700 26,195 88,287 89,347
Selling, general and administrative 10,653 11,811 34,860 33,254
Depreciation and amortization 2,306 1,501 5,952 4,559
Interest expense 545 335 1,908 1,357
Interest income ( 150) ( 704) ( 806)( 3,223)
Other, net ( 634) ( 64) ( 1,463) 1,498
Gain on marketable security
transactions - Note 4 ( 6,882) - ( 6,882) -
Write off of assets - Note 6 - - - 9,288
Reversal of previously recorded
losses - Note 2 - - ( 4,920) -
Total costs and expenses 33,538 39,074 116,936 136,080
Income (loss) from consolidated
operations before income tax credit
(provision) 8,798 1,487 13,367 ( 14,455)
Income tax credit (provision) ( 3,386) ( 540) (1,536) 3,063
Income (loss) from
consolidated operations 5,412 947 11,831( 11,392)
Equity in income of unconsolidated
subsidiaries (net of tax)- Note 3:
Income from continuing operations 373 73 894 321
Income from discontinued operations - 1,013 678 2,069
Gain on sale of Syroco, Inc. 4,904 - 4,904 -
Total 5,277 1,086 6,476 2,390
Net Income (Loss) $ 10,689 $ 2,033 $ 18,307 ($ 9,002)
Earnings (loss) per share $ 1.18 $ .22 $ 2.02($ 1.00)
Average shares outstanding 9,012 9,018 9,055 9,018
Dividends per common share - Note 5 $ .0625 $ .0625 $ .1875 $ 14.125
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Nine Months Ended
September 30
1995 1994
(Thousands of dollars)
<S> <C>
Cash flows from operating activities:
Net income (loss) $ 18,307 ($ 9,002)
Write off of assets - 9,288
Gain on sale of assets ( 30) ( 70)
Disposition of portion of investment in subsidiary ( 7,902) -
Provision for inventory valuation reserves - 5,072
Gain on marketable security transactions - net of tax ( 4,315) -
Gain on sale of Syroco, Inc. - net of tax ( 4,904) -
Adjustments to reconcile net income to net cash
flows from operating activities 4,718 1,098
Net cash flows from operating activities 5,874 6,386
Cash flows from investing activities:
Proceeds from sale of assets 661 456
Collections of notes receivable 1,006 640
Proceeds from sale of marketable securities 14,756 -
Acquisition of businesses, net of cash acquired ( 30,416) ( 2,226)
Purchase of Treasury Shares ( 2,143) -
Capital expenditures ( 6,781) ( 2,193)
Net cash flows from investing activities ( 22,917) ( 3,323)
Cash flows from financing activities:
Notes payable activity, net 10,487 2,108
Principal payments on long-term debt ( 2,059) ( 4,024)
Payment of dividends ( 1,702) ( 127,371)
Proceeds from issuance of long-term debt 5,938 4,019
Net cash flows from financing activities 12,664 ( 125,268)
Net decrease in cash and cash
equivalents ( 4,379) (122,205)
Cash and cash equivalents beginning of period 8,475 130,289
Cash and cash equivalents end of period $ 4,096 $ 8,084
</TABLE>
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:
September 30, December 31,
1995 1994
(Thousands of Dollars)
Raw materials $ 15,192 $ 11,304
Work in process 8,042 7,137
Finished goods 14,328 12,871
$ 37,562 $ 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
hand tools. 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.
Effective August 10, 1995, Katy purchased the assets of Gemtex Company
Limited and its United States affiliate, Gemtex Abrasives, Inc. Gemtex is
a manufacturer and distributor of coated abrasives for the automotive,
industrial and retail markets. The purchase price was approximately
$6,900,000 in cash and approximated net book value.
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, in the
quarter ended June 30, 1995, 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.
Katy has previously stated its intent to not fund future operations of
Schoen and has no legal liability for any of Schoen liabilities. Katy's
investment in Schoen is recorded at zero as of September 30, 1995.
On June 14, 1995, Katy sold its B.M. Root operation to a group led by
the former General Manager of the operation. The sale price of approximately
$700,000 represented the approximate net book value.
On August 25, 1995, Katy sold the assets and business of the Laboratory
Equipment Division of its Bach-Simpson Limited operation to a group composed
primarily of former managers of the division. The sale price was
approximately $900,000 in cash and approximated net book value.
The unaudited pro forma consolidated results of operations of Katy for
the nine months ended September 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.
Nine Months Ended
September 30, 1995
Net sales $ 119,315
Net income $ 16,285
Net income per common share $ 1.80
(3) Investments in Unconsolidated Subsidiaries, at Equity
Katy's investments in unconsolidated subsidiaries are comprised of the
following:
September 30, December 31,
1995 1994
(Thousands of Dollars)
Syratech Corporation $48,897 $38,325
Bee Gee Holding Company, Inc. 7,274 6,985
Schoen & Cie, AG -0- N/A
$56,171 $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:
September 30, December 31,
1995 1994
(Thousands of Dollars)
Current assets $ 70,463 $ 40,474
Current liabilities ( 23,959) ( 16,196)
Working capital 46,504 24,278
Properties, net 17,524 27,590
Other assets 1,529 836
Long-term debt ( 5,998) ( 4,894)
Other liabilities ( 3,680) ( 3,086)
Stockholders' equity 55,879 44,724
Unamortized excess of cost
over net assets acquired 292 586
Investments, at equity, in
unconsolidated subsidiaries $ 56,171 $ 45,310
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1995 1994 1995 1994
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Sales $15,387 $14,623 $50,543 $44,013
Cost and expenses ( 14,552)( 14,189) ( 48,450)( 42,533)
Net income from
continuing operations 835 434 2,093 1,480
Amortization of excess
of cost over net
assets acquired ( 127)( 197) ( 381)( 599)
Provision for income
taxes ( 335)( 164) ( 818) ( 560)
Equity in net income
of continuing
unconsolidated
subsidiaries 373 73 894 321
Discontinued operation:
Gain on sale of
Syroco, Inc. -
net of tax 4,904 - 4,904 -
Income from discontinued
operations - net of tax - 1,013 678 2,069
Net income $ 5,277 $ 1,086 $ 6,476 $ 2,390
</TABLE>
The financial statements of Syratech Corporation included herein are
for the nine months ended June 30, 1995, which is the latest date available.
On March 28, 1995, Syratech sold its subsidiary, Syroco, Inc., for
$140,000,000 resulting in a gain of $30,451,000 which Syratech reported in
the quarter ended June 30, 1995. Katy's share of the gain ($4,904,000,
net of tax) is reflected in Equity in income of unconsolidated subsidiaries
as Gain on sale of Syroco. Syroco's results from operations are shown above
and in the Statements of Condensed Consolidated Operations as a discontinued
operation.
(4) Marketable Securities
In the third quarter of 1995, Katy sold 248,566 shares of Union Pacific
Corporation common stock for proceeds of $15,550,000, resulting in a pre-tax
gain of $7,675,000.
(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. In April, 1994
management of Katy met with Katy's oil exploration joint venture partners
and, based on current facts and circumstances, Katy decided to not commit
further funds to the oil exploration project and will not participate in
any further activities on the site. Accordingly, in the first quarter of
1994 Katy wrote off its
$6,580,000 investment.
(7) Stock Repurchase Program
On August 4, 1995 Katy's Board of Directors authorized the company to
repurchase up to 400,000 shares of its common stock over the next twelve
months in open market transactions. In connection therewith, Katy
repurchased 226,700 of its common shares in the quarter ended
September 30, 1995 at a total cost of $2,143,000.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1995 working capital decreased
$9,416,000 compared to December 31, 1994. Current ratios were 1.71 to 1.00
at September 30, 1995 and 2.00 to 1.00 at December 31, 1994, respectively.
The decrease in working capital and in the current ratio results primarily
from short-term borrowings in connection with the acquisition of GC Thorsen on
March 31, 1995. In the nine months ended September 30, 1995, Katy had
capital expenditures of $6,781,000, and expects to incur an additional
$2,000,000 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. During the third quarter of
1995 Katy sold 248,566 shares of Union Pacific Corporation common stock for
proceeds of $15,550,000 and, under a plan authorized by the Board of
Directors on August 4, 1995, repurchased 226,700 shares of Katy common
stock on the open market at a cost of $2,143,000. Net proceeds from these
transactions were used to reduce borrowings on Katy's short-term line of
credit and for general corporate purposes. 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 hand tools. 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).
Effective August 10, 1995, Katy purchased all of the assets of Gemtex
Company Limited and its U.S. affiliate, Gemtex Abrasives, Inc., a
manufacturer and distributor of coated abrasives. The purchase price,
including acquisition costs, was approximately $6,900,000 and was funded
through internally generated funds. The acquisition has been accounted for
under the purchase method. The purchase price represented net book value.
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 has an accrual at September 30, 1995 for
indicated environmental liabilities in the aggregate amount of approximately
$5,450,000.
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 November 10, 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.
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 September 30, 1995, Katy had short and long-term indebtedness for money
borrowed of $22,305,000 of which $12,150,000 represented short-term
borrowings under Katy's domestic bank line of credit. Total debt was 15.5%
of total debt and equity at September 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
Nine Months Ended September 30, 1995
Following are summaries of sales and operating income for the nine months
ended September 30, 1995 and 1994 by industry segment:
<TABLE>
<CAPTION>
Sales
Increase (Decrease)
1995 1994 Amount Per Cent
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Industrial Machinery $ 35,497 $ 46,529 ($11,032) ( 23.7%)
Industrial Components 20,086 24,823 ( 4,737) ( 19.1 )
Consumer Products 74,720 50,273 24,447 48.6
Total sales $ 130,303 $121,625 $ 8,678 7.1%
Operating Income
Percent of Sales
1995 1994 1995 1994
(Thousands of Dollars)
Industrial Machinery ($ 1,187) ($ 4,577) ( 3.3%) ( 9.8%)
Industrial Components 2,936 1,583 14.6 6.4
Consumer Products 5,711 6,169 7.6 12.3
Total operating income $ 7,460 $ 3,175 5.7% 2.6%
</TABLE>
Nine Months Ended September 30, 1995 (Continued)
The decreased sales of the Industrial Machinery segment is attributable to
the sale of one-half of Katy's interest in Schoen and its subsidiaries,
resulting in Schoen being reflected as an unconsolidated subsidiary effective
June 30, 1995. This decrease is 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 in the fourth quarter of 1994 of the business that refitted
machinery for the oil, gas and petrochemical industries. Sales increases
were reported by the manufacturers of 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 which did not recur in 1995.
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 hand tools. Significant sales increases in the refrigeration and cold
storage business were largely offset by decreases in the filter business.
Operating income decreased due to lower sales at the filter business and
lower margin levels at the abrasives businesses, offset by increased
margins in the refrigeration and cold storage business.
Selling, general and administrative expenses increased by $1,606,000,
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 $27,822,000 primarily the result
of the reversal of previously recorded losses of Schoen of $4,920,000 in
1995, the write-off of assets of $9,288,000 and reserves against inventories
of $6,156,000 in 1994 and the gain of marketable securities of $6,882,000 in
1995.
The effective tax rate for the nine months ended September 30, 1995 was 11.5%
compared to 21.2% for 1994. The lower rate in 1995 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 for the tax credit in 1994 is due primarily to
foreign losses for which no tax benefit was provided.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995
Following are summaries of sales and operating income for the three months
ended September 30, 1995 and 1994 by industry segment:
Sales
Increase (Decrease)
1995 1994 Amount Per Cent
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Industrial Machinery $ 6,463 $ 15,161 ($ 8,698) ( 57.4%)
Industrial Components 5,966 7,952 ( 1,986) ( 25.0 )
Consumer Products 29,907 17,448 12,459 71.4
Total sales $ 42,336 $ 40,561 $ 1,775 4.4%
Operating Income
Percent of Sales
1995 1994 1995 1994
(Thousands of Dollars)
Industrial Machinery $ 712 $ 972 11.0% 6.4%
Industrial Components 941 1,313 15.8 16.5
Consumer Products 2,036 2,257 6.8 12.9
Total operating income $ 3,689 $ 4,542 8.7% 11.2%
</TABLE>
In the Industrial Machinery segment, the sale of one-half of Katy's interest
effective June 30, 1995 and the subsequent reflection of Schoen and its
subsidiaries as an unconsolidated subsidiary was the primary factor in the
sales decrease. The decrease in operating income was primarily attributable
to lower sales and margins at the manufacturer of food packaging equipment.
The Industrial Components segment reported decreased sales, substantially due
to the sale in the fourth quarter of 1994 of the business that refitted
machinery for the oil, gas and petrochemical industries. The manufacturer
of specialty metals reported increased sales and higher operating income.
The manufacturer of gauging and control systems experienced higher sales
while the manufacturer of electrical equipment experienced lower sales for
the quarter.
Three Months Ended September 30, 1995 (Continued)
The Consumer Products segment reported increased sales due to the acquisition
of the marketer of electronic parts and hand tools. Increased sales by the
distributor of electronic parts were offset by lower sales of the filter
businesses. Operating income declined due to lower sales and margin levels
at the filter and abrasives businesses.
Selling, general and administrative expenses decreased $1,158,000 during the
quarter, primarily due to reductions in corporate expenses related to legal and
environmental costs.
Income before income taxes increased by $7,311,000, primarily the result of
the gain on marketable security transactions of $6,882,000.
The effective tax rate for the three months ended September 30, 1995 was 38.5%
compared to 36.1% for 1994.
<PAGE>
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
(b) Reports on Form 8-K
On July 17, 1995, the Company filed a current report on Form 8-K providing
information in response to items 2 and 7(b) to Form 8-K with respect to pro
forma financial information of Katy Industries, Inc. for the year ended
December 31, 1994 and three months ended March 31, 1995 giving effect to the
sale of 37.5% of the outstanding stock of Schoen & Cie, AG.
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: November 10, 1995 By /s/John R. Prann, Jr.
John R. Prann, Jr.
President,
Chief Executive Officer &
Chief Operating Officer
DATE: November 10, 1995 By /s/P. Kurowski
P. Kurowski
Secretary, Treasurer &
Chief Financial Officer
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