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, 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 July 30, 1996
Common stock, $1 par value 8,247,562
KATY INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
June 30, December 31,
1996 1995
-------- --------
(Thousands of Dollars)
CURRENT ASSETS:
Cash and cash equivalents $ 39,113 $ 43,701
Marketable securities - available for sale 8,185 16,653
Accounts receivable, trade, net 28,034 22,399
Notes and other receivables, net 2,962 15,645
Inventories - Note 1 38,263 35,902
Other current assets 16,376 15,297
-------- --------
Total current assets 132,933 149,597
-------- --------
OTHER ASSETS:
Investments, at equity, in
unconsolidated subsidiaries 6,875 7,328
Investments in waste-to-energy facility 11,209 11,360
Notes receivable, net 1,457 1,566
Cost in excess of net assets of
businesses acquired, net 6,990 7,249
Miscellaneous 6,080 5,664
-------- --------
Total other assets 32,611 33,167
-------- --------
PROPERTIES, at cost:
Land and improvements 3,759 4,308
Buildings and improvements 32,219 32,464
Machinery and equipment 40,962 38,723
-------- --------
76,940 75,495
Accumulated depreciation (34,478) (32,847)
-------- --------
Net properties 42,462 42,648
-------- --------
$208,006 $225,412
======== ========
See Notes to Condensed Consolidated Financial Information.
KATY INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
June 30, December 31,
1996 1995
-------- --------
(Thousands of Dollars)
CURRENT LIABILITIES:
Notes payable - banks $ - $ 14,193
Accounts payable 9,623 8,361
Accrued compensation 2,922 3,792
Accrued expenses 24,230 23,947
Accrued interest and taxes 285 1,342
Current maturities, long-term debt 703 913
Dividends payable 675 624
-------- --------
Total current liabilities 38,438 53,172
-------- --------
LONG-TERM DEBT, less current maturities 8,878 9,346
DEFERRED INCOME TAXES 25,310 24,598
OTHER LIABILITIES 8,085 7,966
-------- --------
Total liabilities 80,711 95,082
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, authorized
25,000,000 shares, issued 9,822,204 and
9,821,329 shares 9,822 9,821
Additional paid-in capital 51,117 51,111
Foreign currency translation adjustment (1,644) (1,640)
Unrealized holding gains, net of tax 2,669 5,297
Retained earnings 87,414 81,925
Treasury stock, 1,569,712 and 1,097,142 shares (22,083) (16,184)
-------- --------
Total shareholders' equity 127,295 130,330
-------- --------
$208,006 $225,412
======== ========
See Notes to Condensed Consolidated Financial Information.
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
------- ------- ------- -------
(Thousands of Dollars Except Per Share Data)
Net sales $44,857 $49,609 $87,322 $87,967
Cost of goods sold 30,272 35,717 58,823 63,091
------- ------- ------- -------
Gross profit 14,585 13,892 28,499 24,876
Selling, general and administrative 11,642 13,929 23,436 25,342
------- ------- ------- -------
Income (loss) from operations 2,943 (37) 5,063 (466)
Interest expense (290) (945) (597) (1,363)
Interest income 557 380 1,258 656
Other, net 432 1,060 5,355 822
Reversal of previously recorded losses - 4,920 - 4,920
------- ------- ------- -------
Income from consolidated operations
before provision for income taxes 3,642 5,378 11,079 4,569
(Provision) benefit for income taxes (1,250) 2,477 (4,075) 1,849
------- ------- ------- -------
Income from consolidated operations 2,392 7,855 7,004 6,418
Equity in income (loss) of unconsolidated
subsidiaries (net of tax) (93) 500 (276) 1,200
------- ------- ------- -------
Net income 2,299 8,355 6,728 7,618
======= ======= ======= =======
Earnings per share $ .28 $ .92 $ .80 $ .84
======= ======= ======= =======
Average shares outstanding (in thousands) 8,298 9,076 8,443 9,076
======= ======= ======= =======
Dividends paid per share - Common Stock $ .0750 $ .0625 $ .1375 $ .1250
======= ======= ======= =======
See Notes to Condensed Consolidated Financial Information.
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Six Months Ended
June 30,
1996 1995
------- -------
(Thousands of Dollars)
Cash flows from operating activities:
Net income $ 6,728 $ 7,618
Depreciation and amortization 2,945 3,646
Disposition of portion of investment in subsidiary - (7,902)
Gain on marketable security transactions (4,914) -
Adjustments to reconcile net income to net cash
flows from operating activities (7,936) (7,119)
------- -------
Net cash flows from operating activities (3,177) (3,757)
------- -------
Cash flows from investing activities:
Proceeds from sale of assets 1,170 94
Collections of notes receivable 13,509 481
Acquisition of business, net of cash acquired - (23,480)
Time deposits and marketable securities, net 9,191 -
Capital expenditures (3,299) (5,317)
------- -------
Net cash flows from investing activities 20,571 (28,222)
------- -------
Cash flows from financing activities:
Notes payable activity, net (14,193) 23,063
Principal payments on long-term debt (678) (1,662)
Payment of dividends (1,212) (1,135)
Purchase of treasury shares (5,899) -
Proceeds from issuance of long-term debt - 5,938
------- -------
Net cash flows from financing activities (21,982) 26,204
------- -------
Net decrease in cash and cash equivalents (4,588) (5,775)
Cash and cash equivalents beginning of period 43,701 8,475
------- -------
Cash and cash equivalents end of period $39,113 $ 2,700
======= =======
See Notes to Condensed Consolidated Financial Information.
KATY INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JUNE 30, 1996
(1) Significant Accounting Policies
Consolidation Policy
- --------------------
The condensed financial statements include, on a consolidated basis, the
accounts of Katy Industries, Inc. and subsidiaries (Katy) in which it has a
greater than 50% interest. The condensed consolidated financial statements
at June 30, 1996 and for the three and six month periods then ended are
unaudited and reflect all 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. The condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
Inventories
- -----------
The components of inventories are as follows:
June 30, December 31,
1996 1995
------- -------
(Thousands of Dollars)
Raw materials $16,265 $14,471
Work in process 8,296 7,132
Finished goods 13,702 14,299
------- -------
$38,263 $35,902
======= =======
Earnings Per Share
- ------------------
Earnings per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents, in the form of stock
options, have been included in the calculation of weighted average shares
outstanding under the treasury stock method.
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) Nonrecurring Items
Included in Other, net during the first half of 1996 was a gain of
$4,914,000 resulting from the sale of Union Pacific Corporation common stock
during the first quarter of 1996.
On June 30, 1995 the Company sold one-half of its interest in Schon &
Cie, AG (Schon), reducing its interest to 37.5%. In connection with the sale,
the Company recorded a gain of $4,920,000, reflecting the reversal of
previously recorded losses of Schon, and a tax benefit of $3,000,000 associated
with the transaction. Losses from the operations of Schon recorded in the first
and second quarters of 1995 were $2,124,000 and $1,658,000, respectively.
During the second quarter, 1996, Schon acquired J. Sandt AG, a major
competitor in the same geographical area. The transaction reduced Katy's
interest in Schon to 27.6%. The transaction had no effect on Katy's results
for the period.
KATY INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996
- --------------------------------
Following are summaries of sales and operating income for Katy's operating
segments for the three months ended June 30, 1996 and 1995:
Sales
----------------------------------------
Increase (Decrease)
1996 1995 Amount Percent
------- ------- ------- -------
(Thousands of Dollars)
Distribution and Service $21,671 $19,471 $ 2,200 11.3%
Industrial and
Consumer Manufacturing 14,029 11,830 2,199 18.6
Machinery Manufacturing 9,157 18,308 (9,151) (50.0)
Operating Income
----------------------------------------
Percent of Sales
1996 1995 1996 1995
------ ------ ----- -----
(Thousands of Dollars)
Distribution and Service $2,168 $ 961 10.0% 4.9%
Industrial and
Consumer Manufacturing 1,283 1,241 9.1 10.5
Machinery Manufacturing 729 34 8.0 0.2
The Distribution and Service Group's sales increase was due to increases in
the electronic components and rerolled metals areas. The increase in the
Group's operating income was a result of this increased volume and margin
improvements.
The increased sales of the Industrial and Consumer Manufacturing Group was
due primarily to the acquisition of Gemtex in August 1995, partially offset by
the sale of Moldan in December 1995. Sales from existing operations increased
due to increases in sales of sanitary maintenance supplies. Lower margins
resulting from a change in product mix accounted for the lower increase in
operating income.
The Machinery Manufacturing Group's sales decrease results primarily from
the absence of sales of Schon and B.M. Root in 1996. The improvement in
operating income in 1996 was primarily due to the absence of losses from Schon.
The decrease in selling, general and administrative expenses is primarily
due to the absence of Schon.
Interest expense declined due to lower debt levels, while interest income
increased due to higher cash levels resulting from the sale of Syratech stock
and Union Pacific stock.
Reversal of previously recorded losses represents the reversal of losses of
Schon, the investment in which was fully written-off in the second quarter of
1995.
The tax benefit in 1995 results from the restoration of losses from Schon
not requiring tax effect and the related tax benefit of $3,000,000.
Equity in income of unconsolidated subsidiaries in the 1995 period includes
income from Katy's interest in Syratech which was sold in December 1995.
Six Months Ended June 30, 1996
- ------------------------------
Following are summaries of sales and operating income for the six months
ended June 30, 1996 and 1995 by industry segment:
Sales
---------------------------------------
Increase (Decrease)
1996 1995 Amount Percent
------- ------- ------- -------
(Thousands of Dollars)
Distribution and Service $41,875 $28,563 $13,312 46.6%
Industrial and
Consumer Manufacturing 28,566 24,399 4,167 17.1
Machinery Manufacturing 16,881 35,005 (18,124) (51.8)
Operating Income
--------------------------------------
Percent of Sales
1996 1995 1996 1995
------ ------ ----- -----
(Thousands of Dollars)
Distribution and Service $3,967 $1,859 9.5% 6.5%
Industrial and
Consumer Manufacturing 2,942 2,702 10.3 11.1
Machinery Manufacturing 1,488 (779) 8.8 (2.2)
The increase in the Distribution and Service Group's sales was due to
increases in sales of electronic components and rerolled metals and to the
addition of GC Thorsen at the end of the first quarter of 1995.
The increased sales of the Industrial and Consumer Manufacturing Group was
due primarily to the acquisition of Gemtex in August 1995, partially offset by
the sale of Moldan in December 1995. Sales from existing operations increased
due to increases in sales of sanitary maintenance supplies. Lower margins
resulting from a change in product mix accounted for the lower increase in
operating income.
The Machinery Manufacturing Group's sales decrease results primarily from
the absence of sales of Schon and B.M. Root in 1996. The improvement in
operating income in 1996 was primarily due to the exclusion of losses from
Schon.
The decrease in selling, general and administrative expenses is primarily
due to the absence of Schon, offset by the addition of GC Thorsen in the second
quarter of 1995.
Interest expense decreased due to lower debt levels, while interest income
increased due to higher cash levels resulting from the sale of Syratech stock
and Union Pacific stock.
Reversal of previously recorded losses represents the reversal of losses of
Schon, the investment in which was fully written-off in the second quarter of
1995.
Other, net in 1996 includes a $4,914,000 gain on the sale of Union Pacific
stock.
The tax benefit in 1995 results from the restoration of losses from Schon
not requiring tax effect and the related tax benefit of $3,000,000.
Equity in income of unconsolidated subsidiaries in the 1995 period includes
income from Katy's interest in Syratech which was sold in December 1995.
LIQUIDITY AND CAPITAL RESOURCES
Combined cash, cash equivalents and marketable securities decreased to
$47,298,000 on June 30, 1996 compared to $60,354,000 on December 31, 1995
primarily due to the repurchase of Katy common stock and to increases in
working capital needs caused by higher sales and seasonal factors.
Katy expects to commit an additional $3,000,000 for capital projects during
the remainder of 1996. Funding for these expenditures and for working capital
needs is expected to be accomplished 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 June 30, 1996, Katy had short and long-term indebtedness for money
borrowed of $9,581,000. Total debt was 7% of total debt plus equity at June
30, 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 155,600 shares in the quarter ended June 30, 1996 at a total cost
of $2,089,000. Subsequent to June 30, 1996 through August 13, 1996 the Company
purchased an additional 22,700 shares at a cost of $290,900, bringing the total
shares repurchased under the authorization to 846,700. The company will
finalize this program by year-end 1996.
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 June 30, 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.
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.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
is filed.
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, 1996 By /s/John R. Prann, Jr.
John R. Prann, Jr.
President,
Chief Executive Officer &
Chief Operating Officer
DATE: August 14, 1996 By /s/Stephen P. Nicholson
Stephen P. Nicholson
Vice President, Finance &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 39,113
<SECURITIES> 8,185
<RECEIVABLES> 28,034<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 38,263
<CURRENT-ASSETS> 132,933
<PP&E> 76,940
<DEPRECIATION> 34,478
<TOTAL-ASSETS> 208,006
<CURRENT-LIABILITIES> 38,438
<BONDS> 8,878
0
0
<COMMON> 9,822
<OTHER-SE> 117,473
<TOTAL-LIABILITY-AND-EQUITY> 208,006
<SALES> 87,322
<TOTAL-REVENUES> 87,322
<CGS> 58,823
<TOTAL-COSTS> 82,259
<OTHER-EXPENSES> (6,016)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 597
<INCOME-PRETAX> 11,079
<INCOME-TAX> 4,075
<INCOME-CONTINUING> 6,278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,728
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
<FN>
<F1>Accounts Receivable, trade is reported net of Allowance for Doubtful
Accounts in the Condensed Consolidated Balance Sheets.
</FN>
</TABLE>
