United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended: December 31, 1999 Commission file number 1-5558
Katy Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1277589
(State of Incorporation) (IRS Employer Identification Number)
6300 S. Syracuse #300, Englewood, Colorado 80111
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (303) 290-9300
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class) (Name of each exchange on which registered)
Common Stock, $1.00 par value New York Stock Exchange
Common Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 17, 2000, was $50,177,282. On that date 8,410,658
shares of Common Stock, $1.00 par value, were outstanding, the only class of
the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement of Katy Industries, Inc.
(The "2000 Proxy Statement") with respect to the 2000 annual meeting of
stockholders are incorporated by reference into Part III of this Form 10-K.
Exhibit index appears on page 54. Report consists of 56 pages.
PART I
Item 1. BUSINESS
Katy Industries, Inc. ("Katy" or the "Company") was organized as a Delaware
corporation in 1967. In accordance with Katy's Divestiture and Reorganization
Plan (the "Plan") announced during 1997, Katy carries on business through two
principal operating groups: Electrical/Electronics and Maintenance Products.
Under the Plan, Katy has disposed of its entire previously reported Machinery
Manufacturing Group and accordingly, that group has been reported as
"Discontinued Operations" for all periods presented. The other businesses
being disposed of comprise only a portion of Katy's previously reported
Distribution and Service Group and one of Katy's equity investments. The
operations of these businesses have been reported as "Equity in income (loss)
of operations to be disposed of" in the Consolidated Statements of Operations.
See Note 3 to Consolidated Financial Statements for further discussion. Each
Katy company operates within a framework of broad policies and corporate goals
established by Katy's corporate management, which is responsible for overall
planning, financial management, acquisitions, dispositions, and other related
administrative and corporate matters.
On January 8, 1999, the Company purchased all of the common membership interest
in Contico International, L.L.C., a Delaware limited liability company
("Contico") and the successor to the business of Contico International Inc.
Contico, based in St. Louis, Missouri, manufactures and distributes consumer
storage, home and automotive products, as well as janitorial and food service
equipment and supplies, with annual sales of approximately $215,000,000.
See Note 2 to Consolidated Financial Statements.
Management continuously reviews each of the Katy businesses. As a result of
these ongoing reviews, management may determine to sell certain companies and
may augment certain businesses with acquisitions. Under current financial
conditions, any acquisitions would be funded through current cash balances,
available lines of credit and/or new borrowings.
Selected restated operating data for each operating group is incorporated
herein by reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Part II, Item 7. Information
regarding foreign and domestic operations and export sales is incorporated
herein by reference to Note 14 to Consolidated Financial Statements of Katy
included in Part II, Item 8. Set forth below is information about Katy's
operating groups and investments and about Katy's business in general:
Electrical/Electronics Group
- ----------------------------
The group's principal business is the manufacture, distribution, packaging and
sale of consumer electric corded products, electrical and electronic
accessories, electronic components and nonpowered hand tools and specialty
metals. The group accounted for 36% of the Company's consolidated sales in
1999. Woods Industries, Inc. ("Woods") and Woods Industries (Canada), Inc.
("Woods Canada") experience seasonal sales trends. The five business units
comprising this group are described below:
GC/Waldom Electronics, Inc. ("GC/Waldom") GC/Waldom is headquartered in
Rockford, Illinois. GC/Waldom is a leading value-added distributor of high
quality, brand name electrical and electronic parts, components and
accessories. In addition, the company produces a full line of home
entertainment component parts and service technician products. GC/Waldom
distributes primarily to the electronic, automotive and communication
industries. A significant portion of GC/Waldom's products is sourced from
Asia.
Thorsen Tools, Inc. ("Thorsen") Thorsen is headquartered in Carmel, Indiana.
Thorsen is a leading value-added distributor of nonpowered hand tools. Thorsen
Tool's products are sourced from Asia.
Hamilton Precision Metals, Inc. ("Hamilton") Hamilton, located in Lancaster,
Pennsylvania, rerolls a wide range of precision metal strip and foil for the
medical, electronics, aerospace and computer industries. The company's products
are used in a wide range of high-tech applications.
Woods Industries (Canada), Inc. Woods Canada is headquartered in Toronto,
Ontario, Canada. Woods Canada designs, manufactures and markets a wide variety
of consumer corded products including low voltage garden lighting, extension
cords, multiple outlet and surge strips, specialty corded products, automotive
products and electronic timers.
Woods Industries, Inc. Woods is headquartered in Carmel, Indiana and has
additional warehousing, distribution and manufacturing facilities in
Bloomington, Jasonville, Loogootee, Mooresville and Worthington, Indiana, and
Toronto, Ontario, Canada. Woods manufactures and distributes consumer
electric corded products, supplies and electrical/electronics accessories.
These products are sold to retailers principally located in the United States
and Canada. A significant portion of Woods' products is sourced from Asia.
Maintenance Products Group
- --------------------------
The group's principal business is the manufacture, distribution, packaging and
sale of sanitary maintenance supplies, professional cleaning products, consumer
products, abrasives and stains. The group accounted for 64% of the Company's
consolidated sales in 1999. Duckback Products, Inc. ("Duckback") is the only
business in this group that experiences significant seasonal sales trends.
The seven business units comprising this group are described below:
Contico International, L.L.C. Contico, based in St. Louis, Missouri,
manufactures and distributes consumer storage, home and automotive products,
as well as janitorial and food service equipment and supplies. Products are
sold primarily to the consumer storage, home and automotive, food service and
sanitary maintenance markets.
Glit/Disco, Inc. ("Disco") Disco is located in McDonough, Georgia. Disco is a
manufacturer and distributor of cleaning and specialty products sold to the
restaurant/food service industry.
Duckback Products, Inc. Duckback, located in Chico, California, is a
manufacturer of high quality exterior transparent stains, coatings and water
repellents. These products are sold under the trade names Superdeck,
Supershade and Fightback. Duckback's revenues and operating income experience
seasonal trends, with low sales levels in the fourth quarter.
Glit/Microtron Abrasives ("Glit/Microtron") Glit/Microtron is headquartered in
Wrens, Georgia, and has additional manufacturing and sales facilities in
Pineville, North Carolina, and Mississauga, Ontario, Canada. Glit/Microtron
manufactures nonwoven floor maintenance pads, scouring pads and specialty
abrasive products for cleaning and finishing. Products are sold primarily to
the sanitary maintenance, restaurant supply and consumer markets. In addition,
Glit/Microtron manufactures a line of wood sanding products which are sold
through retail stores across the United States and Canada. Consumer products
are marketed under various brand names, including Kleenfast, through
supermarkets and drug and variety stores.
Glit/Gemtex Abrasives ("Gemtex") Gemtex is headquartered in Etobicoke,
Ontario, Canada and has an additional distribution plant in Buffalo, New York.
Gemtex is a manufacturer and distributor of fiber disks and coated abrasives
for the automotive, industrial and consumer markets.
Loren Products ("Loren") Loren is headquartered in Lawrence, Massachusetts.
Loren is a manufacturer and distributor of cleaning and abrasive products for
the industrial markets and building products for the consumer markets. Loren
markets its institutional products under the brand names of Brillo and Boraxo
and manufactures certain products under private labels.
Wilen Products, Inc. ("Wilen") Wilen is headquartered in Atlanta, Georgia.
Wilen is a manufacturer and distributor of a wide variety of professional
cleaning products, including mops, brooms and plastic cleaning accessories for
both the industrial and consumer markets.
Operations to be Disposed Of
- ----------------------------
The companies in this group include a shrimp harvesting and farming operation,
and a waste-to-energy facility operation. The gross sales of these operations
are excluded from the Consolidated Statements of Operations, see Note 3 to
Consolidated Financial Statements for further discussion. The companies in this
group do not experience seasonal sales trends. Bee Gee Holding Company, Inc.
("Bee Gee") has a number of competitors, some of which are larger and have
greater financial resources. The two businesses comprising the Operations to
be Disposed Of are described below:
Bee Gee Holding Company, Inc. Bee Gee harvests shrimp off the coast of South
and Central America and owns shrimp farming operations in Nicaragua. Katy's
interest in this company is an equity investment. See Note 5 to Consolidated
Financial Statements.
Savannah Energy Systems Company ("SESCO"). SESCO owns and operates a
waste-to-energy facility in Savannah, Georgia. See Note 10 to Consolidated
Financial Statements. SESCO's profitability is seasonal in that its fourth
quarter results tend to be higher as a result of the contractual nature of its
business with a local municipality.
Customers
- ---------
During 1999, Katy had several large customers in the mass
merchant/discount/home improvement retail markets. While no single customer
accounted for 10% of Katy's consolidated sales, several approached this
threshold, and a significant loss of business at any of these retail outlets
would have an adverse impact on the Company's results. Katy had one major
customer in its Electrical/Electronics segment that accounted for
approximately 14% of the Company's consolidated 1998 annual sales. On
November 4, 1998, the Company announced that this major customer withdrew its
commitment to purchase extension corded products from Woods.
Backlog
- -------
Electrical/Electronics:
The Company's aggregate backlog position for this segment was $16,600,000 and
$14,300,000 as of December 31, 1999 and 1998, respectively. The 1999 orders
are firm and are expected to be shipped during 2000.
Maintenance Products:
The Company's aggregate backlog position for this segment was $13,600,000 and
$5,000,000 as of December 31, 1999 and 1998, respectively. The 1999 orders are
firm and are expected to be shipped during 2000.
Markets and Competition
- -----------------------
Electrical/Electronics:
The Company markets branded electrical and electronics products primarily in
North America through a combination of direct salesman, manufacturers' sales
representatives and wholesale distributors. The Company's primary customer
base is made up of major national retail chains that service the home
improvement, hardware, mass merchant, discount and automotive markets, smaller
regional concerns serving a similar customer base and a variety of electrical
and electronic distributors.
Electrical and electronic products sold by the Company are generally used by
consumers and include such items as extension cords, work lights, surge
suppressors, power taps and strips, computer connectivity devices, telephone
accessories, outdoor lights and timers and a variety of electronic connectors
and switches. The Company has entered into license agreements pursuant to
which it markets certain of its products using certain other companies'
proprietary brand names. Overall demand for the Company's products is highly
correlated with consumer demand, the performance of the general economy and to
a lesser extent home construction and resale activity.
The markets for the Company's electrical and electronic products are highly
competitive. Competition is based primarily on price and the ability to
provide superior customer service in the form of complete on-time product
delivery. Other competitive factors include brand recognition, product design,
quality and performance. Foreign competitors, especially from Asia, provide
an increasing level of competition. In the retail extension cord market, there
are two major competitors who collectively, with the Company, account for the
major share of the United States market.
The markets in the Company's remaining product lines are significantly more
fragmented and typically 5-8 primary competitors are competing for market
share. The basis for competition in these product categories is similar to the
extension cord market with brand identification representing a much greater
factor. In general, the Company believes it is competitive with respect to
each of the factors affecting each of the respective markets in which it
competes.
Maintenance Products:
The Company markets branded consumer storage, sanitary maintenance supplies,
professional cleaning products, abrasives and stains primarily in North America
and Europe through a combination of direct salesman, manufacturers sales
representatives and wholesale distributors. The Company's Maintenance Products
Group services the home improvement, hardware, sanitary maintenance,
industrial, food service and automotive markets.
Maintenance products sold by the Company include such items as plastic storage
containers, floor maintenance pads, scouring pads, sponges, specialty abrasive
products for cleaning and finishing; brooms, mops, buckets and other plastic
cleaning products; high quality exterior transparent stains, coating and water
repellents; and cleaning and specialty products for the restaurant/food service
industry.
The markets for the Company's maintenance products are highly competitive.
Competition is based primarily on price and the ability to provide superior
customer service in the form of complete on-time product delivery. Other
competitive factors include brand recognition and product design, quality and
performance.
The Company competes for market share with several competitors in this
industry. The Company believes that it has established long standing
relationships with its major customers based on high quality products and
service, while continuing its position of being a low cost provider in this
industry.
Raw Materials
- -------------
Katy's operations have not experienced significant difficulty in obtaining raw
materials, fuels, parts or supplies for their activities during the most recent
fiscal year, but no prediction can be made as to possible future supply
problems or production disruptions resulting from possible shortages. The
Company, particularly its Contico subsidiary, uses polyethylene, polypropylene
and other thermoplastic resins as raw material in a substantial portion of its
products. Resin prices have increased steadily, beginning in mid-year 1999.
At this time, the portion of these cost increases recoverable, if any, through
product price increases cannot be accurately estimated. The Company's future
earnings may be negatively impacted to the extent that these increased costs
cannot be recovered.
Employees
- ---------
As of March 17, 2000, Katy employed 3,834 people, of which 3,792 related to the
Company's continuing businesses. Approximately 947 employees of the Company
were members of various unions. Katy's labor relations are generally
satisfactory and there have been no strikes in recent years that have
materially affected its operations.
Regulatory and Environmental Matters
- ------------------------------------
Katy does not anticipate that federal, state or local environmental laws or
regulations will have a material adverse effect on its consolidated operations
or financial position. Katy anticipates making additional expenditures for
environmental control facilities during 2000, in accordance with terms agreed
upon with the United States Environmental Protection Agency and various state
environmental agencies. (See Part II, Item 7 - Environmental and Other
Contingencies)
Licenses, Patents and Trademarks
- --------------------------------
The success of Katy's products historically has not depended on patent,
trademark and license protection, but rather on the quality of Katy's products,
proprietary technology, contract performance, customer service and the
technical competence and creative ability of Katy's personnel to develop and
introduce saleable products. While this remains true with a majority of Katy's
businesses, certain recent acquisitions are more reliant on patent protection
and licensing agreements in the successful marketing of their products.
Examples include licensed branding programs involving Woods, Woods Canada and
Loren, and the development of patented products and technology at Contico and
Wilen.
Item 2. PROPERTIES
As of December 31, 1999, Katy's total building floor area owned or leased was
5,403,000 square feet, of which 1,276,000 square feet were owned and 4,127,000
square feet were leased. The following table shows by industry segment a
summary of the size (in square feet) and character of the various facilities
included in the above totals together with the location of the principal
facilities.
Industry Segment Owned Leased Total
(In thousands of square feet)
Electrical/Electronics - primarily plant and
office facilities with principal facilities
located in Chicago and Rockford, Illinois;
Hong Kong; Taipei, Taiwan; Carmel, Bloomington
Jasonville, Loogootee, Mooresville, and
Worthington, Indiana; Lancaster,
Pennsylvania; and Toronto, Ontario, Canada 564 649 1,213
Maintenance Products - primarily
plant and office facilities with principal
facilities located in Chico, Norwalk and
Sante Fe Springs, California; Wrens, Thomson,
McDonough, and Atlanta, Georgia; Phoenix,
Arizona; Bridgeton, Creve Coeur, Earth
City, Hazelwood and St. Louis, Missouri;
Pineville, North Carolina; Buffalo, New York;
Lawrence, Massachusetts; Winters, Texas;
Etobicoke and Mississauga, Ontario, Canada;
and Redruth, Cornwall, England 588 3,465 4,053
Other Operations to be Disposed Of - primarily
plant and office facilities with principal
facilities located in Savannah, Georgia 63 0 63
Corporate - office facilities in Englewood,
Colorado; and Chicago, Illinois 61 13 74
All properties used in operations are owned or leased and are suitable and
adequate for Katy's operations. It is estimated that approximately 95% of
these properties are being utilized.
Item 3. LEGAL PROCEEDINGS
Except as set forth below, no cases or legal proceedings are pending against
Katy, other than ordinary routine litigation incidental to Katy and its
businesses and other non-material cases and proceedings.
1. Environmental Claims
(a) Administrative Order on Consent - W.J. Smith Wood Preserving Company
("WJ Smith") and Katy Industries, Inc., U.S. EPA Docket No.
RCRA-VI-7003-93-02 and Texas Water Commission Administrative Enforcement
Action.
(b) Notice of Claim - Medford, Oregon.
The W. J. Smith case, matter (a) above, originated in the 1980's when the
United States and the State of Texas, through the Texas Water Commission
("TWC"), initiated environmental enforcement actions against W.J. Smith
alleging that certain conditions on the W.J. Smith property (the "Property")
violated environmental laws. Following such enforcement actions, W.J. Smith
engaged in a series of cleanup activities on the W.J. Smith property and
implemented a groundwater monitoring program.
In 1993, TWC referred the entire matter to the United States Environmental
Protection Agency ("USEPA"), which initiated a Unilateral Administrative
Order Proceeding under Section 7003 of the Resource Conservation and Recovery
Act ("RCRA") against W.J. Smith and Katy. The proceeding requires certain
actions at the site and certain off-site areas, as well as development and
implementation of additional cleanup activities to mitigate off-site releases.
In December 1995, W.J. Smith, Katy and USEPA agreed to resolve the proceeding
through an Administrative Order on Consent under Section 7003 of RCRA.
Pursuant to the Order, W.J. Smith is currently implementing a cleanup to
mitigate off-site releases.
Since 1990, the Company has spent in excess of $6,000,000 in undertaking
cleanup and compliance activities in connection with this matter and has
established a reserve, in excess of $3,000,000 before taxes, for future such
activities. The Company believes that the amount reserved will be adequate;
however, total cleanup and compliance costs cannot be determined at this time.
Concerning matter (b) above, by letter dated August 20, 1993, a claim was
asserted by Balteau Standard, Inc. ("Balteau") against Katy concerning PCB
contamination at the Medford, Oregon facility of the former Standard
Transformer division of American Gage and Machine Company. Balteau demanded
that Katy accept financial responsibility for investigation and cleanup costs
incurred as a result of the PCB contamination. Katy and Balteau agreed to
share such costs. Pursuant to such agreement, Katy paid 65% of the first
$2,000,000 of such costs and agreed to pay 50% of such costs to the extent
that they exceed $2,450,000. Since it executed the cost sharing agreement,
Katy has paid approximately $1,500,000 in cleanup costs. Katy believes the
cleanup plan has been successful and has requested that the Oregon Department
of Environmental Quality inspect and approve the remediation work. Katy has
received such approval with respect to a portion of the cleanup plan. Further
monitoring of groundwater and testing and cleanup of adjacent property may be
required before approval can be obtained with respect to the remainder of the
plan. Pending such approval, the liability of Katy and its subsidiary cannot
be determined at this time.
In addition to the claims specifically identified above, the Company and
certain of its current and former direct and indirect corporate predecessors,
subsidiaries and divisions have been identified by USEPA, state environmental
agencies and private parties as potentially responsible parties at a number of
waste disposal sites under CERCLA or equivalent state laws, and, as such, may
be liable for the costs of cleanup and other remedial activities at these
sites. The costs involved in these matters are, by nature, difficult to
estimate and subject to substantial change as litigation or negotiations with
the United States, states and other parties proceed. While ultimate liability
with respect to these matters is not easily determinable, the Company has
recorded and accrued amounts that it deems reasonable for such prospective
liabilities and the Company believes that any additional liability with respect
to such matters will not be material.
2. Banco del Atlantico, S.A. v. Woods Industries, Inc., et al., Civil Action
No. L-96-139 (U.S. District Court, Southern District of Texas).
In December 1996, Banco del Atlantico, a bank located in Mexico, filed a
lawsuit against Woods, a subsidiary of the Company, and against certain past
and then present officers and directors and former owners of Woods, alleging
that the defendants participated in a violation of the Racketeer Influenced and
Corrupt Organizations Act involving allegedly fraudulently obtained loans from
Mexican banks, including the plaintiff, and "money laundering" of the proceeds
of the illegal enterprise. All of the foregoing is alleged to have occurred
prior to the Company's purchase of Woods. The plaintiff also alleges that it
made loans to an entity controlled by certain officers and directors based upon
fraudulent representations. The plaintiff seeks to hold Woods liable for its
alleged damage under principles of respondeat superior and successor liability.
The plaintiff is claiming damages in excess of $24,000,000 and is requesting
treble damages under the statutes. The defendants have filed a motion, which
has not been ruled on, to dismiss this action on jurisdictional grounds.
Because the litigation is in preliminary stages, it is not possible at this
time for the Company to determine an outcome or reasonably estimate the range
of potential exposure. The Company may have recourse against the former owner
of Woods and others for, among other things, violations of covenants,
representations and warranties under the purchase agreement through which the
Company acquired Woods, and under state, federal and common law. In addition,
the purchase price under the purchase agreement may be subject to adjustment
as a result of the claims made by Banco del Atlantico. The extent or limit of
any such recourse cannot be predicted at this time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Katy's common stock is traded on the New York Stock Exchange ("NYSE"). The
following table sets forth high and low sales prices for the common stock in
composite transactions as reported on the NYSE composite tape for the prior
two years and dividends declared during such periods.
Cash
Dividends
Period High Low Declared
1999
First Quarter $17 5/16 $12 3/4 $.075
Second Quarter 17 5/8 12 3/4 .075
Third Quarter 12 15/16 10 7/8 .075
Fourth Quarter 12 1/16 8 .075
1998
First Quarter $20 1/4 $17 5/8 $.075
Second Quarter 19 15/16 17 7/8 .075
Third Quarter 18 13/16 13 7/8 .075
Fourth Quarter 21 15 1/16 .075
Dividends are paid at the discretion of the Board of Directors and are
reviewed on a quarterly basis.
As of March 17, 2000, there were 2,231 record holders of the Common Stock and
there were 8,410,658 shares of Common Stock outstanding.
Item 6. SELECTED FINANCIAL DATA
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Thousands of dollars, except per share data and ratios)
Net sales $565,941 $342,315 $286,023 $156,024 $136,093
Net income
Continuing segments -
businesses to be retained $ 10,441 $ 11,007 $ 9,435 $ 5,803 $ 6,046
Unusual Items [a] 1,848 - 387 6,685 22,520
Operations to be disposed of (134) 2,075 (179) 275 (2,139)
------ ------ ------ ------ ------
Continuing operations 12,155 13,082 9,643 12,763 26,427
Discontinued operations [b] (1,700) - 1,959 953 2,144
------ ------ ------ ------ ------
Net income $ 10,455 $ 13,082 $ 11,602 $ 13,716 $ 28,571
====== ====== ====== ====== ======
Earnings per share - Basic
Continuing segments $ 1.25 $ 1.33 $ 1.14 $ .70 $ .67
Unusual Items [a] .22 - .05 .80 2.51
Operations to be disposed of (.02) .25 (.03) .03 (.24)
---- ---- ---- ---- ----
Continuing operations 1.45 1.58 1.16 1.53 2.94
Discontinued operations [b] (.20) - .24 .11 .24
---- ---- ---- ---- ----
Earnings per common share $ 1.25 $ 1.58 $ 1.40 $ 1.64 $ 3.18
==== ==== ==== ==== ====
Earnings per share - Diluted
Continuing segments $ 1.21 $ 1.30 $ 1.12 $ .70 $ .67
Unusual Items [a] .18 - .05 .80 2.51
Operations to be disposed of (.01) .25 (.02) .03 (.24)
---- ---- ---- ---- ----
Continuing operations 1.38 1.55 1.15 1.53 2.94
Discontinued operations [b] (.17) - .23 .11 .24
---- ---- ---- ---- ----
Earnings per common share $ 1.21 $ 1.55 $ 1.38 $ 1.64 $ 3.18
==== ==== ==== ==== ====
Total assets [c] $491,836 $293,175 $237,160 $235,377 $225,412
Total liabilities and
preferred interest 331,525 143,859 97,989 105,331 95,082
Stockholders' equity 160,311 149,316 139,171 130,046 130,330
Long-term debt, excluding
current portion [c] 150,835 39,908 9,948 8,582 9,346
Depreciation and
amortization [c] 20,172 7,162 4,568 5,505 5,949
Capital expenditures 21,066 15,921 10,699 5,319 9,163
Working capital [c] 120,893 100,971 103,252 107,571 96,425
Ratio of debt to capitalization 48.5% 21.1% 7.1% 6.6% 15.8%
Stockholders' equity
per share $ 19.05 $ 17.91 $ 16.81 $ 15.78 $ 14.94
Return on average
stockholders' equity 7.9% 9.1% 8.6% 10.5% 23.7%
Weighted average common
shares outstanding - Basic 8,366,178 8,289,915 8,272,836 8,339,189 8,984,513
Stockholders of record 2,230 2,170 2,220 2,670 2,730
Number of employees 3,834 2,472 1,907 2,049 1,109
Cash dividends declared per
common share $.30 $.30 $.30 $.30 $.25
[a] Includes the following after-tax items for 1999: collections on
previously reserved notes of $520,000, increase to LIFO inventory reserve of
($669,000), costs related to potential sale of Electrical/Electronics and other
restructuring of ($753,000) and a reversal of income tax liabilities of
$2,750,000; 1997: gain on sale of property of $387,000; 1996: gain on sale of
investments of $6,685,000; 1995: gain on sale of investments of $20,095,000 and
gain on insurance proceeds of $2,425,000.
[b] Loss from operations for Discontinued Operations has been recorded in the
line item "Income (loss) from operations from discontinued businesses (net of
tax)" on the 1999 Consolidated Statement of Operations. See Note 3 to
Consolidated Financial Statements.
[c] Total assets include $16,635 of net assets from Discontinued Operations
and Operations to be Disposed Of for 1999, $31,962 of net assets from
Discontinued Operations and Operations to be Disposed Of for 1998, and $42,095
of net assets from Discontinued Operations and Operations to be Disposed Of for
1997. Long-term debt includes $9,948 from Operations to be Disposed Of for
1997. Depreciation and amortization includes $459, $1,640 and $2,230 from
Discontinued Operations and Operations to be Disposed Of for 1999, 1998 and
1997 respectively. Working capital includes $737, $12,162 and $12,593 of net
current assets from Discontinued Operations and Operations to be Disposed Of
for 1999, 1998 and 1997 respectively. See Note 3 to the Consolidated Financial
Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
For purposes of this discussion and analysis section, reference is made to the
table below and the Company's Consolidated Financial Statements (included in
Part II, Item 8). Katy has two principal operating groups:
Electrical/Electronics and Maintenance Products. Under the Plan, Katy has
disposed of its entire previously reported Machinery Manufacturing Group and,
accordingly that group has been reported as "Discontinued Operations" in the
Consolidated Financial Statements. The other businesses being disposed of
comprise only a portion of Katy's previously reported Distribution and Service
Group and one of Katy's equity investments. The operations of these businesses
have been reported as "Equity in income (loss) of operations to be disposed of"
in the Consolidated Statement of Operations. For purposes of discussion and
analysis, information for the Discontinued Operations and the Operations to be
Disposed Of is presented below.
The table below and the narrative that follows, summarize the key factors in
the year-to-year changes in operating results.
Years Ended December 31,
1999 1998 1997
---- ---- ----
(Thousands of dollars)
Electrical/Electronics Group
- ----------------------------
Net external sales $204,180 $230,927 $218,237
Net intercompany sales 59,992 32,103 175
Income from operations [a] 8,303 14,839 13,191
Operating margin 4.1% 6.4% 6.0%
Identifiable assets 133,890 126,362 112,156
Depreciation and amortization 2,557 1,652 398
Capital expenditures 3,434 7,348 5,138
Maintenance Products Group
- --------------------------
Net external sales $361,761 $111,388 $ 67,786
Net intercompany sales 11,141 6,389 4,306
Income from operations [a] 29,458 8,401 6,328
Operating margin 8.1% 7.5% 9.3%
Identifiable assets 318,906 110,317 46,333
Depreciation and amortization 17,065 3,779 1,854
Capital expenditures 16,936 2,725 1,234
Operations to be Disposed Of
- ----------------------------
Net external sales $ 3,900 $ 6,297 $ 9,568
Net intercompany sales - - -
Income (loss) from operations (190) (3,262) 122
Operating margin (deficit) (4.9%) (7.3%) 1.3%
Identifiable assets 17,903 17,680 31,599
Equity Investments 6,988 7,034 6,500
Depreciation and amortization 5 1,009 1,549
Capital expenditures 429 5,126 3,034
Discontinued Operations
- -----------------------
Net external sales $ 10,025 $ 23,349 $ 31,537
Net intercompany sales - 146 -
Income (loss) from operations (191) 1,663 3,046
Operating margin (deficit) (1.9%) 7.1% 9.7%
Identifiable assets - 16,975 18,486
Depreciation and amortization 454 631 681
Capital expenditures 80 547 1,252
Corporate
- ---------
Corporate expenses [a] $ 9,990 $ 7,965 $ 6,496
Identifiable assets 22,405 24,535 43,818
Depreciation and amortization 91 91 86
Capital expenditures 187 175 41
Company
- -------
Net external sales [b] $579,866 $371,961 $327,128
Net intercompany sales 71,133 38,638 4,481
Income from operations [b] 27,390 13,676 16,191
Operating margin [b] 4.7% 4.4% 4.9%
Identifiable assets [b] 493,104 295,869 252,392
Depreciation and amortization [b] 20,172 7,162 4,568
Capital expenditures 21,066 15,921 10,699
[a] Salaries and related costs for certain executive officers were included in
Maintenance Products and Electrical/Electronics in 1998 and 1997, but have been
included in Corporate Expense in 1999. These amounts were approximately
$1,500,000 in 1999, $1,400,000 in 1998 and $900,000 in 1997.
[b] Company balances include amounts from both "Discontinued Operations" and
"Operations to be Disposed Of" in the Consolidated Financial Statements for
1999, 1998 and 1997. The "Income (loss) from operations" for "Discontinued
Operations" has been recorded in the line item "Income (loss) from operations
of discontinued businesses (net of tax)" on the 1999 Consolidated Statement of
Operations. See Note 3 to the Consolidated Financial Statements.
1999 Compared to 1998
- ---------------------
The Electrical/Electronics Group's sales decreased $26,747,000 or 12% primarily
due to decreased volumes in the consumer electric corded products and
electrical and electronic parts and accessories businesses, offset by increased
volumes associated with the Company's Woods Canada acquisition in May of 1998.
Excluding this acquisition, the Group's sales decreased $39,291,000. These
lower volumes were primarily a result of the loss of consumer electric corded
products business announced on November 4, 1998. As of that date, Katy's
largest single customer withdrew its commitment to purchase electric corded
products from Woods, resulting in a loss of sales of approximately $31,000,000.
Another significant customer, Hechinger Company, filed for Chapter 11
bankruptcy in mid-1999. Sales to this customer were lower by $7,600,000 in
1999 compared to 1998.
The Group's operating income decreased $6,536,000 or 44% mainly as a result of
decreased volumes and higher selling, general and administrative costs as a
percentage of sales, offset slightly by the increased operating income
associated with the Woods Canada acquisition in May of 1998. Excluding the
acquisition, operating income decreased $8,278,000. A pre-tax restructuring
charge of $600,000 relating primarily to severance costs for the elimination
of 22 positions in the Electrical/Electronics businesses, and competitive
market pressures in the electrical and electronic components business
contributed to the decrease. Results are also negatively impacted by costs
and operational considerations related to the consolidation of GC Electronics
and Waldom Electronics during the later half of the year.
Identifiable assets for the Group increased slightly during the year mainly
as a result of higher working capital levels at Woods and Woods
Canada.
Sales from the Maintenance Products Group increased $250,373,000 or 225%
primarily as a result of the Contico acquisition in January of 1999, the Disco
acquisition in May of 1998 and the Wilen acquisition in August of 1998.
Excluding these acquisitions, the Group's sales increased $5,663,000 or 7%
primarily due to increased volumes in the Group's coated abrasive and stain
businesses.
The Group's operating income increased $21,057,000 or 251%. Excluding the
acquisitions mentioned above, operating income increased $2,645,000. The
increase was primarily a result of the increased volumes and the slightly
higher margins in the stain and coated abrasives businesses. The higher
margins resulted from the introduction of new products and a favorable product
mix.
Identifiable assets for the Group increased during the year mainly as a result
of the previously announced acquisition of Contico in January of 1999.
Sales from Operations to be Disposed Of decreased $2,397,000 or 38%, mainly
as a result of decreased volumes associated with the disposal of the
refrigeration and cold storage facilities business in June of 1998. Excluding
the disposition, sales remained relatively stable compared to the prior year.
The Group's operating income increased $3,072,000 or 94% primarily as a result
of an impairment recorded at the waste-to-energy facility during the fourth
quarter of 1998.
Identifiable assets for the Group remained relatively stable from the prior
year.
Sales from Discontinued Operations decreased $13,324,000 or 57% primarily as a
result of the disposition of Bach Simpson, Ltd., in January of 1999, Diehl
Machines, Inc., in May of 1999, and Peters Machinery, Inc., in September of
1999. All of the companies included in Discontinued Operations had been
disposed of as of December 31, 1999. See Note 3 to the Consolidated Financial
Statements.
The Group's operating loss decreased $1,854,000 or 112% primarily as a result
of the dispositions described above.
Corporate expenses increased $2,025,000 or 25%. This increase was primarily a
result of allocating certain employees salaries and related costs to the
corporate segment for the year ended December 31, 1999. Corporate expenses
also included $303,000 of costs associated with the potential sale of the
Electrical/Electronics segment.
Identifiable assets at Corporate decreased primarily as a result of lower cash
levels at year end.
Although the results of these operating groups can be significantly affected
by the strength of the general economy, the Company believes that it has
positioned itself well in segments that can be expanded both externally through
acquisitions and internally through new products, operational improvements and
increased market penetrations.
Following is a discussion concerning other factors that affected the Company's
net income.
Gross profit from continuing operations increased $75,995,000 or 77% as gross
margin percentages increased to 31% from 29% in 1998. The increase in gross
profit is primarily a result of the Contico acquisition in January of 1999.
Gross margins in 1999 were negatively impacted by $1,029,000 as a result of
the adoption of LIFO inventory accounting for its Contico subsidiary acquired
in January of 1999. The LIFO method is not used by any other subsidiary and
was not used by Katy in 1998 or 1997. The increased expense due to LIFO
accounting resulted from price increases for the thermoplastic resins, a
significant raw material in the Contico production process. Selling, general
and administrative expenses increased $63,499,000 or 76% in 1999 compared to
the prior year. Selling, general and administrative expenses increased as a
percentage of sales to 26% in 1999 from 24% for the same period in 1998. The
increase was primarily a result of the increased amortization of goodwill and
other intangibles associated with the acquisitions during 1998 and the first
part of 1999 combined with the restructuring charge, costs related to the
potential sale of the Electrical/Electronics Group and costs to restructure
Contico's outside sales force.
Interest expense increased substantially for 1999 compared to 1998, as a result
of increased interest expense associated with bank borrowings to fund the
Company's acquisitions. Interest income decreased slightly due to the Company
maintaining lower average cash and cash equivalent balances during 1999
compared to 1998. Other, net in 1999 was income of $1,620,000 versus income of
$1,523,000 in 1998. The amounts in both years resulted from the Company
receiving past due balances on previously written-off notes and investments.
Income before provision for income taxes decreased to $17,050,000 in 1999 from
$19,821,000 in 1998. In addition to the factors mentioned previously, other
items affecting income in 1998 were the gain on sale of the Company's cold
storage facility of $6,122,000, which was partially offset by the impairment
loss resulting from the reduction in the fair value of the waste-to-energy
facility of $2,800,000 being recorded in "Equity in income (loss) of
operations to be disposed of" on the Consolidated Statement of Operations.
Excluding these items, the income from continuing operations before income
taxes increased $551,000, primarily as a result of increased operating income
from the Maintenance Products Group, offset partially by decreased operating
income in the Electrical/Electronics Group.
Provision for income taxes in 1999 was $3,217,000 or an effective tax rate of
19% and $6,739,000 or an effective tax rate of 34% in 1998. The decrease in
the 1999 effective tax rate resulted from the reversal of income tax reserves
as a result of the expiration of the relevant statute of limitations with
respect to certain income tax returns, or the resolution of specific income
tax matters with the relevant tax authorities.
1998 Compared to 1997
- ---------------------
The Electrical/Electronics Group external sales increased $12,690,000 or 6%.
The increased sales were primarily a result of the Woods Canada acquisition in
May of 1998. Excluding the Woods Canada acquisition, sales decreased
$10,223,000 or 5% due to lower volumes in the electric corded products and the
distribution of electronic and electrical components, parts and accessories.
These decreases were a result of unfavorable line reviews from major customers
pertaining to our electric corded products business and additional program
pricing pressures in the Electrical/Electronics segment.
Operating income for the Group increased $1,648,000 or 12%. Excluding the
increased volumes associated with the Woods Canada acquisition, operating
income increased 5%. This increase was attributable to increased margins in
the specialty metal business resulting from favorable product mix. These
increases were partially offset by lower volumes associated with the line
reviews discussed above and higher selling, general and administrative costs
as a percentage of sales in the electric corded products and electrical
components, parts and accessories businesses. Consolidation and intense
pricing pressures by national distributors had a negative impact on both
revenues and margins in the electrical components, parts and accessories
businesses.
Identifiable assets for the Group increased during the year mainly as a result
of the Woods Canada acquisition in May of 1998.
Sales for the Maintenance Products Group increased $43,602,000 or 64%. The
increase in sales was primarily due to the Disco acquisition in May of 1998,
the Wilen acquisition in August of 1998, and a full year of sales from Loren,
acquired in August of 1997. Excluding these acquisitions, sales increased
approximately $3,600,000 due to general volume increases in the previously
owned sanitary maintenance and stain businesses.
Operating income for the Group increased $2,073,000 or 33%. Excluding the
Maintenance Products Group acquisitions discussed above, operating income
increased $911,000 or 14% primarily as a result of the above mentioned volume
improvements offset partially by slightly lower margins in the stain and
sanitary maintenance businesses.
Identifiable assets for the Group increased during the year mainly as a result
of the previously announced acquisitions of Disco and Wilen in 1998.
Sales for Operations to be Disposed Of decreased $3,271,000 or 34%. The
decrease was a result of lower volumes associated with the disposition of the
cold storage facility business in June of 1998. Excluding the disposition,
sales remained relatively stable in 1998 compared to 1997.
Operating income for Operations to be Disposed Of decreased $3,384,000.
The decrease was primarily a result of an impairment related to the
waste-to-energy business combined with the disposition of the cold storage
facility in June of 1998. Excluding the impairment and disposition, operating
income decreased slightly due to lower margins in the waste-to-energy business.
Identifiable assets for Operations to be Disposed Of decreased during the year
mainly as a result of the previously announced disposition of the Company's
cold storage facility in June of 1998.
Sales for Discontinued Operations decreased $8,188,000 or 26%. The decrease
in sales was primarily a result of the disposition of Beehive effective July
1997, combined with lower volumes in the cookie sandwich machinery, wood
processing machinery and gauging and control systems businesses.
Operating income for Discontinued Operations decreased $1,383,000 or 45%.
The decrease in operating income was primarily a result of lower volumes
combined with diminished margins in the wood processing machinery and cookie
sandwich machinery businesses.
Corporate expenses increased $1,469,000 or 23%. This increase was mainly a
result of banking fees, increased outside service fees and salary and
compensation increases for 1998 as compared to 1997.
Identifiable assets at Corporate decreased primarily as a result of lower
cash levels at year end.
Although the results of these operating groups can be significantly affected
by the strength of the general economy, the Company believes that it has
positioned itself well in segments that can be expanded both externally
through acquisitions particularly in the electrical/electronics and
maintenance products areas, and internally through new products, operational
improvements and increased market penetrations.
Following is a discussion concerning other factors that affected the
Company's net income.
Gross profit from continuing operations increased $19,541,000 or 25% as gross
margins increased slightly to 29% from 28% in 1997 while selling, general and
administrative expenses increased $17,289,000 or 26% in 1998 compared to the
prior year. The increase in gross profit and selling, general and
administrative expenses is attributable to both the increased volumes and the
acquisition activity previously mentioned.
Interest expense increased $978,000 from 1997 primarily as a result of the
borrowings associated with the acquisition of Wilen in August of 1998.
Interest income decreased slightly due to the Company maintaining lower
average cash and cash equivalent balances during 1998 compared to 1997.
Other, net in 1998 was income of $1,523,000 versus income of $920,000 in 1997.
The increase was a result of the Company receiving past due balances on
previously written-off investments.
Income before provision for income taxes increased to $19,821,000 in 1998 from
$14,565,000 in 1997. The increase resulted primarily from the gain on sale of
the Company's cold storage facility of $6,122,000, which was partially offset
by the impairment loss resulting from the reduction in the fair value of the
waste-to-energy facility of $2,800,000 being recorded in "Equity in income
(loss) of operations to be disposed of" on the Consolidated Statement of
Operations. Excluding these items, the income from continuing operations
before income taxes increased $1,934,000 primarily as a result of increased
operating income from both the Electrical/Electronics and the Maintenance
Products Groups.
Provision for income taxes in 1998 was $6,739,000 or an effective tax rate of
34% and $4,922,000 or an effective tax rate of 34% in 1997.
Liquidity and Capital Resources
- -------------------------------
Combined cash and cash equivalents decreased 23% to $9,988,000 on December 31,
1999, from $12,898,000 on December 31, 1998, mostly due to maintaining a lower
cash balance due to better application of cash against long-term debt at
year end. Excluding the current year acquisitions, cash flow from operations
was substantial enough to cover liquidity and capital resource requirements.
Current ratios were 2.03 to 1.00 and 2.52 to 1.00 at December 31, 1999 and
1998, respectively. Working capital increased 20% to $120,893,000 on December
31, 1999, from $100,971,000 on December 31, 1998. This increase is
attributable to the Contico acquisition in January of 1999. Excluding this
acquisition, working capital decreased approximately 17%.
At December 31, 1999, Katy had short and long-term indebtedness of
$150,902,000, substantially all of which was outstanding under an unsecured
revolving credit agreement. Total debt was 48.5% of total capitalization at
December 31, 1999. The Company had $159,000,000 outstanding under this
agreement as of March 17, 2000. See Note 6 to Consolidated Financial
Statements for further discussion. Interest accrues at a rate equal to LIBOR
plus 2% and ranged from (6.73 - 8.13%) in 1999. The principal outstanding
under the agreement at December 31, 1999 is currently due at the current
expiration date of the facility on December 11, 2001.
Katy has authorized and expects to commit approximately $24,000,000 for capital
projects in 2000, exclusive of acquisitions, if any. Also, on February 26,
2000, the Company's Board of Directors authorized management to spend up to
$5,000,000 over a twelve month period for the repurchase of Katy common stock
in the open market. The Company expects to meet these cash requirements
through the use of available cash and internally generated funds. The
revolving credit agreement has certain covenants which limit the Company's
borrowing capacity.
In addition to constantly striving for improved earnings results, the Company
is focusing on further improving its management of working capital to ensure
optimal utilization of its assets. The Company's financial plans for 2000
focus on efforts in both of these areas.
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. See
Notes 2 and 3 to Consolidated Financial Statements for further discussion.
Restructuring and Evaluation of Alternatives for Electrical/Electronics Segment
- -------------------------------------------------------------------------------
In June 1999, the Company announced a restructuring plan for its
Electrical/Electronics businesses as a result of weaker than expected sales
performance and lower margins. The restructuring plan included (i) making
substantial cost reductions in these operations, (ii) intensifying the
marketing and product development efforts initiated earlier in the year; and,
(iii) accelerating the consolidation of operations within the segment begun
earlier in the second quarter.
The cost of this restructuring, which includes severance costs related to the
elimination of 22 management employees, resulted in a pre-tax charge to
earnings in the second quarter of approximately $600,000. Additionally, plant
personnel levels were reduced in excess of 100 persons and 24 unfilled
administrative positions were eliminated.
Concurrently, the Company announced that it retained Donaldson, Lufkin &
Jenrette Securities Corporation to assist in exploring strategic alternatives
relating to the Electrical/Electronics businesses, including the possible sale
thereof. Prior to year end, the Company announced that after reviewing various
alternatives, it had decided to retain the Electrical/Electronic businesses.
The Company believes that with the consolidation of GC Electronics and Waldom
Electronics, and the restructuring and branding initiatives at Woods,
substantially more value exists in these businesses than could be translated
into a fair offer at the time alternatives were being evaluated.
New Accounting Pronouncements
- -----------------------------
In September 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position and requires that those assets and liabilities be measured at fair
value. The accounting for changes in the fair value of a derivative depends
on the intended use of the derivative and its resulting designation. In
September 1999, the FASB issued statement No. 137, which delays the required
implementation of Statement No. 133 to years beginning after September 15,
2000. While the Company is still evaluating the potential effect of this
statement, its adoption is not expected to have a significant impact on the
Company's financial position or results of operations.
Environmental and Other Contingencies
- -------------------------------------
In December 1996, Banco del Atlantico, a bank located in Mexico, filed a
lawsuit against Woods, a subsidiary of the Company, and against certain past
and then present officers and directors and former owners of Woods, alleging
that the defendants participated in a violation of the Racketeer Influenced
and Corrupt Organizations Act involving allegedly fraudulently obtained loans
from Mexican banks, including the plaintiff, and "money laundering" of the
proceeds of the illegal enterprise. All of the foregoing is alleged to have
occurred prior to the Company's purchase of Woods. The plaintiff also alleges
that it made loans to an entity controlled by certain officers and directors
based upon fraudulent representations. The plaintiff seeks to hold Woods
liable for its alleged damage under principles of respondeat superior and
successor liability. The plaintiff is claiming damages in excess of
$24,000,000 and is requesting treble damages under the statutes. The
defendants have filed a motion, which has not been ruled on, to dismiss this
action on jurisdictional grounds. Because the litigation is in preliminary
stages, it is not possible at this time for the Company to determine an
outcome or reasonably estimate the range of potential exposure. The Company
may have recourse against the former owner of Woods and others for, among other
things, violations of covenants, representations and warranties under the
purchase agreement through which the Company acquired Woods, and under state,
federal and common law. In addition, the purchase price under the purchase
agreement may be subject to adjustment as a result of the claims made by Banco
del Atlantico. The extent or limit of any such recourse cannot be predicted at
this time.
Katy also has a number of product liability and workers' compensation claims
pending against it and its subsidiaries. Many of these claims are proceeding
through the litigation process and the final outcome will not be known until a
settlement is reached with the claimant or the case is adjudicated. It can
take up to 10 years from the date of the injury to reach a final outcome for
such claims. 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, which
are developed using actuarial techniques. Such accruals are developed using
currently available claim information, and represent management's best
estimates. The ultimate cost of any individual claim can vary based upon, among
other factors, the nature of the injury, the duration of the disability period,
the length of the claim period, the jurisdiction of the claim and the nature of
the final outcome.
The Company and certain of its current and former direct and indirect corporate
predecessors, subsidiaries and divisions have been identified by the United
States Environmental Protection Agency, state environmental agencies and
private parties as potentially responsible parties ("PRPs") at a number of
hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") or 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.
Under the federal Superfund statute, parties could be held jointly and
severally liable, thus subjecting them to potential individual liability for
the entire cost of cleanup at the site. 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 recorded and accrued for indicated environmental liabilities in the
aggregate amount of approximately $4,100,000 at December 31, 1999. The
ultimate cost will depend on a number of factors and the amount currently
accrued represents management's best current estimate of the total cost to be
incurred. The Company expects this amount to be substantially paid over the
next one to four years.
The most significant environmental matters in which the Company is currently
involved are as follows:
1. In 1993, the United States Environmental Protection Agency ("USEPA")
initiated a Unilateral Administrative Order Proceeding under Section 7003 of
the Resource Conservation and Recovery Act ("RCRA") against W.J. Smith and
Katy. The proceeding requires certain actions at the W.J. Smith site and
certain off-site areas, as well as development and implementation of
additional cleanup activities to mitigate off-site releases. In December
1995, W.J. Smith, Katy and USEPA agreed to resolve the proceeding through an
Administrative Order on Consent under Section 7003 of RCRA. Pursuant to the
Order, W.J. Smith is currently implementing a cleanup to mitigate off-site
releases.
2. During 1995, the Company reached agreement with the Oregon Department of
Environmental Quality ("ODEQ") as to a cleanup plan for PCB contamination at
the Medford, Oregon facility of the former Standard Transformer division of
American Gage. The agreement required the Company to pay $1,300,000 of the
first $2,000,000 in cleanup costs. Those funds were expended in 1998.
Another former occupant of the site, Balteau Standard, Inc. was responsible
for the remaining $700,000 of the first $2,000,000 and the next $450,000 in
cleanup costs above the $2,000,000. The parties are now sharing equally in
cleanup costs. Katy believes the cleanup plan has been successful and has
requested that the ODEQ inspect and approve the remediation work. Katy has
received such approval with respect to a portion of the cleanup plan.
Further monitoring of groundwater and testing and cleanup of adjacent
property may be required before approval can be obtained with respect to the
remainder of the plan. Pending such approval, the liability of Katy and its
subsidiary cannot be determined at this time.
Although management believes that these actions individually and in the
aggregate are not likely to have a material adverse effect on the Company,
further costs could be significant and will be recorded as a charge to
operations when such costs become probable and reasonably estimable.
Year 2000
- ---------
The year 2000 issue was a problem that has a potentially material adverse
impact on the Company as well as governments, businesses, and individuals
throughout the world. The year 2000 issue related to computer programs and
microchips that may not have been able to properly recognize the first two
digits of a year, beginning after December 31, 1999. The problem was thought
to have the potential to disrupt the operation of products and services that
rely on these computer programs or microchips.
Based on assessment activities conducted by the Company beginning in 1997
regarding the year 2000 problem, the Company determined that the modification
or replacement of a moderate number of computer programs and microchips was
required. The changes required were necessary for a wide variety of assets
which included, but were not limited to, computer hardware and software,
production machinery and phone systems. The Company believes that it
identified the major sources of potential internal year 2000 issues and
implemented a Company-wide year 2000 remediation program (the "Y2K Program")
during 1998 which included the performance of due diligence procedures for all
acquisitions made by the Company. The Company had completed the Y2K Program
as of December 31, 1999. The Company believes that the Y2K Program mitigated
all known significant potential internal year 2000 problems. The Company will
continue to investigate additional year 2000 risks as they come to the
attention of the Company.
While the Company has not been informed of, nor experienced any problems with,
any material risks associated with its critical suppliers, financial
institutions, public utilities and other entities, there is no guarantee of the
year 2000 readiness of those entities or the potential material adverse effect
on the Company.
The Company has expensed approximately $850,000 of costs incurred to date
related to the Y2K Program and does not expect material costs in the future.
Outlook for 2000
- ----------------
Net sales are expected to increase in 2000 over 1999, due to the introduction
of new products and core growth in the Maintenance Products Group and the
resurgence of business in the Electrical/Electronics Group after 1999's
results, which were significantly impacted by the loss of business announced in
November of 1998.
Cost of goods sold are expected to be negatively impacted in 2000 by higher
costs for polyethlylene, polypropylene, and other thermoplastic resins (based
on price levels in early 2000) that are used in the Company's production
processes, especially at Contico. Prices for copper, a significant raw
material in the Electrical/Electronics Group, may also increase in 2000. The
Company anticipates mitigating these costs by creating efficiencies in and
improvements to its production processes.
Selling, general and administrative costs are expected to remain stable from
1999 levels.
Interest expense is also expected to be relatively stable in 2000, with lower
debt levels offset by expected higher interest rates.
The effective tax rate for 2000 is not expected to differ significantly from
the federal statutory rate.
The above factors indicate that full year results from continuing segments for
2000 will be comparable to 1999. While many factors will impact the eventual
results, an important component will certainly be the impact of plastic resin
costs. Improved results for 2000 will depend on either softening resin prices
or the Company achieving price increases on resin-based and other products.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
This report contains "forward-looking statements" within the meaning of the
federal securities laws. The forward-looking statements include, among
others, statements concerning the Company's outlook for 2000, cost reduction
strategies and their results, the Company's expectations for funding its 2000
capital expenditures and operations and other statements of expectations,
beliefs, future plans and strategies, anticipated events or trends, and
similar expressions concerning matters that are not historical facts. These
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ dramatically from those expressed in or implied
by the statements.
To improve its financial performance, the Company must reduce its cost
structure and improve its production efficiency, improve its management of
working capital, and grow its existing base of retail and distribution
customers. The most important factors that could influence the achievement of
these goals, and cause actual results to differ materially from those
expressed in the forward-looking statements, include, but are not limited to
the following:
* Increases in the cost of plastic resins, copper, paper board packaging and
other raw materials.
* The Company's inability to reduce manufacturing costs.
* The inability of the Company to achieve product price increases, especially
as they relate to potentially higher raw material costs.
* The potential impact of losing lines of business at large retail outlets in
the discount and do-it-yourself markets.
* Competition from foreign competitors.
* The potential impact of new distribution channels, such as e-commerce,
negatively impacting the Company and its existing channels.
* The potential impact of rising interest rates on the Company's LIBOR-based
credit facility.
* Labor issues, including union activities that require an increase in
production costs or lead to a strike, thus impairing production and
decreasing sales.
* Changes in significant laws and government regulations affecting
environmental compliance and income taxes.
These and other risks and uncertainties affecting the Company are discussed in
greater detail in this report and in the Company's other filings with the
Securities and Exchange Commission.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk associated with changes in interest rates
relates primarily to its debt obligations and temporary cash investments. The
Company currently does not use derivative financial instruments relating to
either of these exposures. The Company's debt obligations are generally
indexed from short-term LIBOR rates, and its temporary cash investments earn
rates of interest available on securities with maturities of three months or
less. The holder of the preferred interest has a put option which allows, at
certain times beginning on January 8, 2001, or upon the occurrence of certain
events, the preferred interest to be exchangeable for Katy common stock.
(In Thousands) Expected Maturity Dates
ASSETS
- ------ There- Fair
2000 2001 2002 2003 2004 after Total Value
Temporary cash
investments
Fixed rate $5,400 $ - $ - $ - $ - $ - $ 5,400 $ 5,400
Average interest
rate 4.5% - - - - - 4.5%
LONG-TERM DEBT
- --------------
Fixed rate debt $ 67 $ 67 $ 67 $ 701 $ - $ - $ 902 $ 902
Average interest
rate 7.14% 7.14% 7.14% 7.14% - - 7.14%
Variable rate debt $ - $150,000 $ - $ - $ - $ - $150,000 $150,000
Average interest
rate 6.86% 6.86% 6.86% 6.86% - - 6.86%
PREFERRED INTEREST OF SUBSIDIARY
- --------------------------------
Fixed rate
obligation $ - $ - $ - $ - $ - $32,900 $ 32,900 $ 32,900
Average interest
rate 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT REPORT
Katy Industries, Inc. management is responsible for the fair presentation and
consistency of all financial data included in this Annual Report in accordance
with generally accepted accounting principles. Where necessary, the data
reflect management's best estimates and judgements.
Management also is responsible for maintaining an internal control structure
with the objective of providing reasonable assurance that Katy's assets are
safeguarded against material loss from unauthorized use or disposition and that
authorized transactions are properly recorded to permit the preparation of
accurate financial data. Cost-benefit judgements are an important
consideration in this regard. The effectiveness of internal controls is
maintained by: (1) personnel selection and training; (2) division of
responsibilities; (3) establishment and communication of policies; and
(4) ongoing internal review programs and audits. Management believes that
Katy's system of internal controls is effective and adequate to accomplish the
above described objectives.
/S/John R. Prann, Jr.
- ---------------------
John R. Prann, Jr.
President and Chief Executive Officer
/S/Stephen P. Nicholson
- -----------------------
Stephen P. Nicholson
Vice President, Finance and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO KATY INDUSTRIES, INC.:
We have audited the accompanying consolidated balance sheets of KATY
INDUSTRIES, INC., (a Delaware corporation) and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Katy Industries,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado
January 26, 2000
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Katy Industries, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Katy Industries, Inc. and subsidiaries
(the "Company") for the year ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Katy Industries,
Inc. and subsidiaries for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 27, 1998
KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(Thousands of Dollars)
ASSETS
1999 1998
CURRENT ASSETS: ---- ----
Cash and cash equivalents - Note 1 $ 9,988 $ 12,898
Accounts receivable, trade, net of allowance
for doubtful accounts of $1,424 and $963 95,153 53,449
Notes and other receivables, net of allowance
for doubtful notes of $0 and $198 1,896 3,246
Inventories - Note 1 117,400 69,394
Deferred income taxes - Note 11 8,497 13,268
Other current assets 4,121 3,158
Net current assets of operations to be disposed of -
Note 3 737 1,203
Net current assets of discontinued operations - Note 3 - 10,959
------- -------
Total current assets 237,792 167,575
------- -------
OTHER ASSETS:
Notes receivable, net of allowance for
doubtful notes of $1,000 and $2,452 2,062 953
Cost in excess of net assets acquired, net of accumulated
amortization of $6,734 and $4,794 - Notes 1 and 2 40,037 33,576
Other intangibles, net of accumulated amortization -
Note 2 52,491 23,621
Miscellaneous - Note 7 4,769 2,551
Net noncurrent assets of operations to be
disposed of - Note 3 15,898 15,521
Net noncurrent assets of discontinued
operations - Note 3 - 4,279
------- -------
Total other assets 115,257 80,501
------- -------
PROPERTIES - Note 1:
Land and improvements 1,771 1,435
Buildings and improvements 26,884 10,677
Machinery and equipment 142,627 60,340
------- -------
171,282 72,452
Accumulated depreciation (32,495) (27,353)
------- -------
Net properties 138,787 45,099
------- -------
$491,836 $293,175
======= =======
See Notes to Consolidated Financial Statements.
KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(Thousands of Dollars, except Share and Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
CURRENT LIABILITIES: ---- ----
Accounts payable $56,874 $28,017
Accrued compensation 3,902 5,354
Accrued expenses - Note 1 52,538 31,626
Accrued interest and taxes 2,887 910
Current maturities, long-term debt - Note 6 67 72
Dividends payable 631 625
------- -------
Total current liabilities 116,899 66,604
------- -------
LONG-TERM DEBT, less current maturities - Note 6 150,835 39,908
OTHER LIABILITIES - Note 7 7,359 9,310
EXCESS OF ACQUIRED NET
ASSETS OVER COST, net of accumulated amortization of
$5,022 and $3,319 - Notes 1 and 2 3,495 5,198
DEFERRED INCOME TAXES - Note 11 20,037 22,839
COMMITMENTS AND CONTINGENCIES - Notes 6, 12 and 15
PREFERRED INTEREST OF SUBSIDIARY - Note 8 32,900 -
STOCKHOLDERS' EQUITY - Note 9:
Common stock, $1 par value; authorized
25,000,000 shares; issued 9,822,204 shares 9,822 9,822
Additional paid-in capital 51,127 51,243
Accumulated other comprehensive income (434) (2,309)
Other adjustments (1,010) (1,302)
Retained earnings 120,689 112,784
Treasury stock, at cost, 1,408,346
and 1,483,890 shares, respectively (19,883) (20,922)
------- -------
Total stockholders' equity 160,311 149,316
------- -------
$491,836 $293,175
======= =======
See Notes to Consolidated Financial Statements.
KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(Thousands of Dollars, Except Per Share Amounts)
1999 1998 1997
---- ---- ----
Net sales $565,941 $342,315 $286,023
Cost of goods sold 391,382 243,751 207,000
------- ------- -------
Gross profit 174,559 98,564 79,023
Selling, general and administrative expenses (146,788) (83,289) (66,000)
------- ------- -------
Operating income 27,771 15,275 13,023
Equity in income (loss) of operations to be
disposed of - Notes 2, 3 and 5 (206) 3,144 (325)
Interest expense (12,950) (1,214) (236)
Interest income 815 1,093 1,183
Other, net 1,620 1,523 920
------- ------- -------
Income before provision for income taxes
and distributions on preferred interest
of subsidiary 17,050 19,821 14,565
Provision for income taxes - Note 11 (3,217) (6,739) (4,922)
------- ------- -------
Income from operations before distributions
on preferred interest 13,833 13,082 9,643
Distributions on preferred interest of
subsidiary (net of tax) - Note 8 (1,678) - -
------- ------- -------
Income from continuing operations 12,155 13,082 9,643
Discontinued operations - Note 3:
Income (loss) from operations of discontinued
businesses (net of tax) (1,700) - 1,959
------- ------- -------
Net income $ 10,455 $ 13,082 $ 11,602
======= ======= =======
Earnings per share of common stock -
Basic (Note 4):
Income from continuing operations $ 1.45 $ 1.58 $ 1.16
Discontinued operations (.20) - .24
---- ---- ----
Net income $ 1.25 $ 1.58 $ 1.40
==== ==== ====
Earnings per share of common stock -
Diluted (Note 4):
Income from continuing operations $ 1.38 $ 1.55 $ 1.15
Discontinued operations (.17) - .23
---- ---- ----
Net income $ 1.21 $ 1.55 $ 1.38
==== ==== ====
See Notes to Consolidated Financial Statements.
<TABLE>
KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Other Accumulated
Number Par Paid-in Comprehensive Other Retained Treasury Comprehensive
of Shares Value Capital Income(Loss) Adjustments Earnings Stock Income(Loss)
--------- ----- ------- ------------ ----------- -------- ----- ------------
(Thousands of Dollars)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 9,822,204 $9,822 $51,117 $(1,288) $(490) $ 93,099 $(22,214)
Net income - - - - - 11,602 - $11,602
Foreign currency translation
adjustments - - - (174) - - - (174)
------
Comprehensive income $11,428
Common stock dividends - - - - - (2,481) - ======
Issuance of shares under Stock
Purchase Plan - Note 9 - - (31) - - (26) 295
Other issuance of shares -
Note 9 - - 41 - (324) - 876
Purchase of Treasury Shares -
Note 9 - - - - - - (653)
--------- ----- ------ ------ ---- ------- -------
Balance, December 31,
1997 9,822,204 9,822 51,127 (1,462) (814) 102,194 (21,696)
Net income - - - - - 13,082 - $13,082
Foreign currency translation
adjustments - - - (847) - - - (847)
------
Comprehensive income $12,235
Common stock dividends - - - - - (2,492) - ======
Issuance of shares under Stock
Option Plan - Note 9 - - (54) - - - 274
Other issuance of shares -
Note 9 - - 170 - (488) - 717
Purchase of Treasury Shares -
Note 9 - - - - - - (217)
--------- ----- ------ ------ ----- ------- -------
Balance, December 31,
1998 9,822,204 9,822 51,243 (2,309) (1,302) 112,784 (20,922)
Net income - - - - - 10,455 - $10,455
Foreign currency translation
adjustments - - - 1,875 - - - 1,875
------
Comprehensive income $12,330
Common stock dividends - - - - - (2,514) - ======
Issuance of shares under Stock
Option Plan - Note 9 - - (37) - - - 289
Other issuance of shares -
Note 9 - - (79) - 292 (36) 988
Purchase of Treasury Shares -
Note 9 - - - - - - (238)
--------- ----- ------ ----- ------ ------- -------
Balance, December 31,
1999 9,822,204 $9,822 $51,127 $ (434) $(1,010) $120,689 $(19,883)
========= ===== ====== ===== ====== ======= =======
<FN>
<F1> See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(Thousands of Dollars)
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income $ 10,455 $13,082 $11,602
Depreciation and amortization 20,172 7,162 4,568
(Gain) loss on sale of assets 1,754 (2,864) (653)
Equity in (income) loss of unconsolidated
affiliates 46 (534) -
Deferred income taxes 2,118 1,117 1,287
Changes in assets and liabilities,
net of acquisition/disposition of
subsidiaries:
Receivables (8,201) 7,890 (5,528)
Inventories (9,978) 463 2,996
Other current assets 1,268 (636) (553)
Accounts payable 13,467 (1,828) 3,881
Accrued liabilities 9,362 (223) (3,199)
Other, net (2,583) (1,096) 21
------- ------ ------
Net cash flows provided by operating activities 37,880 22,533 14,422
------- ------ ------
Cash flows from investing activities:
Proceeds from sale of assets 210 482 1,487
Collections of notes receivable and
receivable from sale of business 684 710 451
Proceeds from sale of subsidiary 10,501 12,237 5,493
Payments for purchase of subsidiaries,
net of cash acquired (140,088) (71,091) (12,788)
Capital expenditures (21,066) (11,314) (8,654)
------- ------ ------
Net cash flows used in investing activities (149,759) (68,976) (14,011)
------- ------ ------
Cash flows from financing activities:
Proceeds from issuance of long-term debt,
net of repayments 110,855 38,735 (657)
Payments of dividends (2,508) (2,492) (2,481)
Purchase of treasury shares (238) (217) (653)
Other 530 - 359
------- ------ ------
Net cash flows provided by (used in)
financing activities 108,639 36,026 (3,432)
------- ------ ------
Net decrease in cash and cash equivalents (3,240) (10,417) (3,021)
Cash and cash equivalents at beginning of year 13,883 24,300 27,321
------- ------ ------
Cash and cash equivalents at end of year 10,643 13,883 24,300
Cash of discontinued operations and operations
to be disposed of 655 985 1,949
------- ------ ------
Cash and cash equivalents of continuing
operations $ 9,988 $12,898 $22,351
======= ====== ======
See Notes to Consolidated Financial Statements.
KATY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy - The consolidated financial statements include the
accounts of Katy Industries, Inc. and subsidiaries in which it has a greater
than a 50% interest, collectively "Katy" or the "Company". All significant
intercompany accounts, profits and transactions have been eliminated in
consolidation. Investments in affiliates that are not majority-owned and
where the Company does exercise significant influence are reported using the
equity method.
As part of the continuous evaluation of its operations, Katy has acquired and
disposed of a number of its operating units in recent years. Those which
affected the Consolidated Financial Statements for the years ended December 31,
1999, 1998, and 1997 (see Note 2).
There are no restrictions on the payment of dividends by consolidated
subsidiaries to Katy. Katy's consolidated retained earnings as of December 31,
1999 include $6,210,000 of undistributed earnings of 50% or less owned
investments accounted for by the equity method. No dividends have been paid by
any of these unconsolidated affiliates to Katy.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - Cash equivalents consist of highly liquid
investments with original maturities of three months or less and total
$5,400,000 and $3,600,000, as of December 31, 1999 and 1998, respectively,
which approximates their fair value. The Company places its temporary cash
investments in quality financial institutions. As such, the Company believes
no significant concentration of credit risk exists with respect to these
investments.
Supplemental Cash Flow Information - Noncash investing and financing activities
are disclosed in Notes 1, 3, 6 and 10. Cash paid during the year for interest
and income taxes is as follows:
1999 1998 1997
---- ---- ----
(Thousands of dollars)
Interest $10,121 $1,064 $1,076
Income taxes $ 111 $6,910 $3,694
Research and Development Costs - Research and development costs are expensed
as incurred.
Advertising Costs - Advertising costs are expensed as incurred. Advertising
costs expensed in 1999, 1998 and 1997 were $9,500,000, $5,700,000 and
$5,000,000 respectively.
Inventories - Inventories are stated at the lower of cost or market. At
December 31, 1999, approximately 36% of Katy's inventories were accounted for
using the last-in, first-out (LIFO) method, while the remaining inventories
were accounted for using the first-in, first-out (FIFO) method. All
inventories were accounted for using the FIFO method at December 31, 1998.
Current cost, as determined using the FIFO method, exceeded LIFO cost by
$1,029,000 at December 31, 1999. The components of inventories are:
December 31,
------------
1999 1998
---- ----
(Thousands of dollars)
Raw materials $ 37,878 $26,155
Work in process 5,911 6,073
Finished goods 73,611 37,166
------- ------
$117,400 $69,394
======= ======
Cost in Excess of Net Assets Acquired - In connection with certain
acquisitions, the Company recorded an intangible asset for the cost of the
acquisition in excess of the fair value of the net assets acquired. This
intangible asset is being amortized using the straight-line method over periods
ranging from 10 to 20 years.
Excess of Acquired Net Assets Over Cost - In connection with the acquisition of
Woods Industries, Inc., ("Woods") the Company recorded negative goodwill for
the excess of the fair value of the net assets acquired over the cost of the
acquisition. Negative goodwill is being amortized using the straight-line
method over a period of five years.
Properties - Properties are stated at cost and depreciated over their estimated
useful lives: buildings (10-40 years) generally using the straight-line method;
machinery and equipment (3-20 years) and leased machines (lease period) using
straight-line, accelerated or composite methods; and leasehold improvements
using the straight-line method over the remaining lease period. During 1998,
the Company incurred additional debt of $1,018,000 relating to capital
equipment. The Company also incurred $3,589,000 of debt for capital equipment
relating to C.E.G.F. (USA), Inc., ("CEGF"), which the Company disposed of
during 1998. During 1997, the Company incurred additional debt of $2,045,000
relating to capital equipment. These are considered non-cash investing and
financing activities for purposes of the Consolidated Statements of Cash Flows.
Impairment of Assets - Long-lived assets are reviewed for impairment if events
or circumstances indicate the carrying amount of these assets may not be
recoverable. If this review indicates that the carrying value of these assets
will not be recoverable, based on future net cash flows from the use or
disposition of the asset, the carrying value is reduced to fair value
(see Note 10).
Accrued Expenses - The components of accrued expenses are:
December 31,
------------
1999 1998
---- ----
(Thousands of Dollars)
Accrued insurance $ 6,010 $ 6,509
Accrued environmental costs 4,150 4,931
Other accrued expenses 41,378 20,186
------ ------
$51,538 $31,626
====== ======
Foreign Currency Translation - The results of the Company's self-sustaining
foreign subsidiaries are translated to U.S. Dollars using the current-rate
method. Assets and liabilities are translated at the year end spot exchange
rate, revenue and expenses at average exchange rates and equity transactions
at historical exchange rates. Exchange differences arising on translation are
recorded as a separate component of stockholders' equity.
Fair Value of Financial Instruments - Where the fair values of Katy's financial
instrument assets and liabilities differ from their carrying value or Katy is
unable to establish the fair value without incurring excessive costs,
appropriate disclosures have been given in the Notes to Consolidated Financial
Statements. All other financial instrument assets and liabilities not
specifically addressed are believed to be carried at their fair value in the
accompanying Consolidated Balance Sheets.
New Accounting Pronouncements - In September 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This
statement requires that all derivatives be recognized as either assets or
liabilities in the statement of financial position and requires that those
assets and liabilities be measured at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and its resulting designation. In September 1999, the FASB issued statement
No. 137, which delays the required implementation of Statement No. 133 to years
beginning after September 15, 2000. While the Company is still evaluating the
potential effect of this statement, its adoption is not expected to have a
significant impact on the Company's financial position or results of
operations.
Revenue Recognition - Sales are recognized upon shipment of products to
customers or when services are performed.
Reclassifications - Certain amounts from prior years have been reclassified
to conform to the 1999 financial statement presentation.
Note 2. ACQUISITIONS AND DISPOSITIONS
Acquisitions
- ------------
On January 8, 1999, the Company purchased all of the common membership interest
(the "Common Interest") in Contico International, L.L.C., ("Contico"), the
successor to the janitorial, consumer products and industrial packaging
businesses of Contico International, Inc., now known as Newcastle Industries,
Inc., ("Newcastle"). Newcastle had previously contributed substantially all
its assets and certain liabilities to Contico and entered into leases with
Contico for certain real property used in the business and retained by
Newcastle. The purchase price for the Common Interest was approximately
$132,100,000. The payment of the purchase price was financed by the Company's
unsecured revolving credit agreement agented by Bank of America. Newcastle has
retained a preferred membership interest in Contico (the "Preferred Interest"),
having a stated value of $32,900,000, which yields an 8% annual return on its
stated value while outstanding (see Note 8). Contico, based in St. Louis,
Missouri, manufactures and distributes janitorial equipment and supplies,
consumer storage, home and automotive products, as well as food service
equipment and supplies. The acquisition has been accounted for under the
purchase method and, accordingly, the purchase price is preliminary and
adjustments may be recorded through January 2000. The accounts of this
acquisition have been included in the Company's Consolidated Financial
Statements from the acquisition date. The estimated cost in excess of net
assets acquired of approximately $7,000,000, subject to additional purchase
accounting adjustments, has been recorded as "Cost in excess of net assets
acquired" in the Consolidated Balance Sheets and is being amortized on a
straight line basis over 20 years. In addition, Katy has recorded intangible
assets of approximately $28,000,000, consisting of customer lists, trademarks
and tradenames. These intangible assets are being amortized over periods of 20
years. The following unaudited pro forma information reflects the pro forma
results of operations for the Company giving effect to the Contico acquisition
as if the Contico acquisition occurred on January 1, 1998. The unaudited pro
forma results include the unaudited historical operating results of Newcastle
for the one-week ended January 8, 1999 and the twelve months ended December 31,
1998. The Company's historical information presented below excludes net loss of
$(1,834,000) or $(0.18) per share (diluted) from Discontinued Operations and
Operations to be Disposed Of for December 31, 1999. The Company's historical
information presented below excludes net income of $2,075,000 or $0.25 per
share (diluted) from Discontinued Operations and Operations to be
Disposed Of for December 31, 1998. Pro forma results may not be indicative of
future results.
Year Ended Year Ended
December 31, 1999 December 31 ,1998
----------------- -----------------
(Thousands of Dollars, Except Per Share Data)
Katy Pro Katy Pro
Historical Forma Historical Forma
Net Sales $565,941 $569,981 $342,315 $567,990
Income from Operations $ 27,771 $ 28,159 $ 15,275 $ 35,486
Net Income $ 12,289 $ 12,381 $ 11,007 $ 15,768
Earnings per share - Basic $ 1.47 $ 1.48 $ 1.33 $ 1.90
Earnings per share - Diluted $ 1.39 $ 1.40 $ 1.30 $ 1.74
On December 31, 1998, the Company acquired the assets of the Bay State
Gritcloth division of Tyrolit North America, Inc. ("Baystate"). Baystate
manufactures an industrial product line of specialty abrasives and has annual
sales of approximately $4,000,000. The acquisition has been accounted for under
the purchase method. The accounts of this acquisition have been included in
the Company's Consolidated Financial Statements from the acquisition date.
The estimated aggregate purchase price for this division was approximately
$4,000,000. The estimated cost in excess of net assets acquired of
approximately $1,950,000, has been recorded as "Cost in excess of net assets
acquired" in the Consolidated Balance Sheets and is being amortized on a
straight line basis over 20 years.
On August 11, 1998, the Company purchased substantially all of the assets of
The Wilen Companies, Inc. The Company operates the business through its Wilen
Products, Inc. subsidiary ("Wilen"). Wilen is a manufacturer and distributor
of a wide variety of professional cleaning products including mops, brooms and
plastic cleaning products. The acquisition has been accounted for under the
purchase method. The accounts of this acquisition have been included in the
Company's Consolidated Financial Statements from the acquisition date. The
estimated aggregate purchase price for the Wilen business was approximately
$50,000,000. The estimated cost in excess of net assets acquired of
approximately $24,000,000, has been recorded as "Cost in excess of net assets
acquired" in the Consolidated Balance Sheets and is being amortized on a
straight line basis over 20 years. In addition, Katy has recorded
intangible assets of approximately $14,900,000, consisting of customer lists,
trademarks and tradenames, and accumulated work force. These intangible
assets are being amortized over periods ranging from 7 1/2 to 20 years.
On May 21, 1998, the Company purchased substantially all of the assets of the
Consumer Electrical Division of Noma Industries, Limited. The Company
operates the business through its Woods Industries (Canada), Inc. subsidiary
("Woods Canada"). Woods Canada is a North American leader in the design,
manufacturing and marketing of a wide variety of consumer corded products
including low voltage garden lighting, extension cords, multiple outlet and
surge strips, specialty cord products, automotive products and electronic
timers. On May 11, 1998, the Company purchased substantially all of the assets
of Disco, Inc. The Company operates the business through its Glit/Disco, Inc.
subsidiary ("Disco"). Disco is a manufacturer and distributor of cleaning and
specialty products sold to the restaurant/food service industry. Both
acquisitions have been accounted for under the purchase method. The accounts
of these acquisitions have been included in the Company's Consolidated
Financial Statements from the acquisition date.
The estimated aggregate purchase price for the Woods Canada and Disco
businesses was approximately $17,100,000. The estimated costs in excess of the
net assets acquired of approximately $700,000 has been recorded as "Cost in
excess of net assets acquired" in the Consolidated Balance Sheets and is being
amortized on a straight line basis over 20 years.
On August 6, 1997, the Company purchased Loren Products ("Loren"). Loren is a
manufacturer and distributor of cleaning and abrasive products for the
industrial markets and building products for the consumer markets. The
estimated purchase price was $12,788,000. The acquisition has been accounted
for under the purchase method, and accordingly, the estimated cost in excess of
the net assets acquired" of approximately $2,650,000 has been recorded as "Cost
in excess of net assets of business acquired in the Consolidated Balance Sheets
and is being amortized over 20 years. In addition, Katy has recorded
intangible assets of approximately $4,790,000, consisting of customer lists,
trademarks and tradenames, and accumulated work force. These intangible assets
are being amortized over periods ranging from 7 1/2 to 20 years. The accounts
of Loren have been included in the Company's Consolidated Financial Statements
from the acquisition date.
Dispositions
- ------------
During 1999, Katy completed the sales of the businesses classified as
Discontinued Operations. As all of these businesses have been divested and the
gains and losses from the sale of these companies, combined with deferred
income, can now be determined with certainty, Katy has recorded a "Loss from
Discontinued Operations" on the 1999 Consolidated Statement of Operations
(see Note 3). The sales are summarized below:
On December 27, 1999, the Airtronics division of American Gage & Machine
Company ("Airtronics") was sold for $2,300,000, including a note for $500,000,
due in six years, and $900,000 in deferred payments based upon the Airtronics
business' future sales. On September 24, 1999, the assets of Peters Machinery
Inc., ("Peters") were sold for approximately $5,400,000, including a mortgage
note of $1,030,000, due in five years, and an estimated $1,500,000 in deferred
payments based on the future sales of the Peters business. On May 7, 1999, the
Company completed the divestiture of Diehl Machines, Inc. ("Diehl") for
approximately $3,700,000. On January 25, 1999, the Company sold the operating
assets of Bach Simpson, Ltd. for approximately $550,000. The Company retained
ownership of Bach Simpson, Ltd.'s building and leases it to the buyer. On July
14, 1997, the Company completed its divestiture of the Beehive division of
Hamilton Precision Metals, Inc., ("Beehive") for net proceeds of approximately
$5,493,000. With respect to all of the foregoing divestitures, the purchaser
assumed certain liabilities of the seller.
On June 11, 1998, the Company completed its divestiture of CEGF for
approximately $12,237,000. The net pre-tax book gain of $6,122,000 had been
recorded and included as "Equity in income (loss) of operations to be disposed
of" on the accompanying Consolidated Statement of Operations for the year
ended December 31, 1998 (see Note 3).
Note 3. DISCONTINUED OPERATIONS AND OPERATIONS TO BE DISPOSED OF
On December 31, 1997, the Board of Directors approved a plan to dispose of the
Company's previously reported Machinery Manufacturing segment. The businesses
included as "Discontinued Operations" are Airtronics, Beehive, Bach-Simpson,
Ltd., Diehl, and Peters. The divestiture of Beehive was completed in July of
1997, the sale of Bach Simpson, Ltd. closed on January 25, 1999, Diehl was sold
on May 7, 1999, Peters was sold on September 24, 1999 and Airtronics was sold
on December 27, 1999 (see Note 2).
The historical operating results have been segregated as "Discontinued
Operations" on the accompanying Consolidated Statements of Operations for all
periods presented. The related assets and liabilities have been separately
identified on the 1998 Consolidated Balance Sheet as "Net current assets or Net
noncurrent assets of discontinued operations". Discontinued Operations have
not been segregated on the Consolidated Statements of Cash Flows. As all of
these businesses have been divested and the gains and losses from the sale of
these companies combined with the deferred income can now be determined with
certainty, Katy has recorded a "Loss from Discontinued Operations" on the 1999
Consolidated Statement of Operations. Selected financial data for the
Discontinued Operations is summarized as follows:
For the Year Ended December 31,
1999 1998 1997
---- ---- ----
(Thousands of Dollars, Except Per Share Data)
Net sales $10,025 $23,349 $31,537
Income (loss) before
income taxes $(1,722) $ - $ 3,110
Income tax expense (benefit) (22) - 1,151
------ ------ ------
Net income (loss) $(1,700) $ - $ 1,959
====== ====== ======
Net income (loss) per share -
Basic $ (.20) $ - $ .24
====== ====== ======
Net income (loss) per share -
Diluted $ (.17) $ - $ .23
====== ====== ======
In connection with the previously mentioned divestiture plan, the Board of
Directors also approved the disposal of a portion of the Company's previously
reported Distribution and Service segment and one of the Company's equity
investments. These businesses are reported as "Operations to be Disposed Of"
and include CEGF, Savannah Energy Systems Company ("SESCO") and the Company's
equity investment in Bee Gee Holding Company, Inc. ("Bee Gee"). The sale of
CEGF was closed on June 11, 1998. The Company believes that Bee Gee and SESCO
will be fully divested during the year ending December 31, 2000.
The historical operating results of "Operations to be Disposed Of" have been
segregated as "Equity in income (loss) of operations to be disposed of" on the
accompanying Consolidated Statements of Operations for all periods presented.
The related assets and liabilities have been separately identified on the
Consolidated Balance Sheets as "Net current assets or Net noncurrent assets of
operations to be disposed of". The operating financial data for the year ended
December 31, 1998 includes a net pre-tax gain of $6,122,000 offset partially by
a pre-tax impairment of $2,800,000 relating to the reduction in the book value
of SESCO (see Note 10).
Selected financial data for Operations to be Disposed Of, is summarized as
follows:
For the Year Ended December 31,
1999 1998 1997
---- ---- ----
(Thousands of Dollars, Except Per Share Data)
Net sales $ 3,900 $ 6,297 $ 9,568
Income (loss) before
income taxes $ (206) $ 3,144 $ (325)
Income taxes (benefit) (72) 1,069 (146)
------- ------- -------
Net income (loss) $ (134) $ 2,075 $ (179)
======= ======= =======
Net income (loss) per share -
Basic $ (.02) $ .25 $ (.03)
======= ======= =======
Net income (loss) per share -
Diluted $ (.01) $ .25 $ (.02)
======= ======= =======
Net assets held for sale for "Discontinued Operations" as of December 31, 1998
were carried at cost, which exceeded estimated net realizable value, as
follows:
December 31, 1998
-----------------
(Thousands of Dollars)
Current assets $13,431
Current liabilities (2,472)
------
Net current assets of discontinued operations $10,959
======
Noncurrent assets $ 4,288
Noncurrent liabilities (9)
------
Net noncurrent assets of discontinued operations $ 4,279
======
Net assets held for sale for "Operations to be Disposed Of" are valued in
accordance with SFAS No. 121, lower of cost or estimated proceeds less cost to
sell, as follows:
December 31,
1999 1998
---- ----
(Thousands of Dollars)
Current assets $ 2,005 $ 1,414
Current liabilities (1,268) (211)
------- -------
Net current assets of operations
to be disposed of $ 737 $ 1,203
======= =======
Noncurrent assets $ 15,898 $ 15,521
Noncurrent liabilities - -
------- -------
Net noncurrent assets of
operations to be disposed of $ 15,898 $ 15,521
======= =======
Note 4. EARNINGS PER SHARE
The Company's diluted earnings per share were calculated using the Treasury
Stock method in accordance with the SFAS No. 128. The basic and diluted
earnings per share calculations are as follows:
For the Year Ended December 31,
1999 1998 1997
---- ---- ----
(In Thousands, Except Per Share Data)
Basic EPS:
Income from continuing operations $12,155 $13,082 $ 9,643
Income (loss) from discontinued
operations (1,700) - 1,959
------ ------ ------
Net income $10,455 $13,082 $11,602
====== ====== ======
Shares - Basic 8,366 8,290 8,273
Per-share amount - Basic:
Continuing operations $ 1.45 $ 1.58 $ 1.16
Discontinued operations (0.20) - .24
------ ------ ------
Total - Basic $ 1.25 $ 1.58 $ 1.40
====== ====== ======
Effect of potentially dilutive securities:
Options 82 152 132
Preferred interest 1,567 - -
Diluted EPS:
Income from continuing operations $12,155 $13,082 $ 9,643
Preferred interest, net of tax 1,678 - -
Income (loss) from discontinued
operations (1,700) - 1,959
------ ------ ------
Net income $12,133 $13,082 $11,602
====== ====== ======
Shares - Diluted 10,015 8,442 8,405
Per-share amount - Diluted:
Continuing operations $ 1.38 $ 1.55 $ 1.15
Discontinued operations (0.17) - .23
------ ------ ------
Total - Diluted $ 1.21 $ 1.55 $ 1.38
====== ====== ======
Rights to purchase one common share of stock for $35 for each common share of
stock held were not included in the computation of diluted EPS because the
rights' exercise price was greater than the average price of the common shares
(see Note 9).
Note 5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company's investments in unconsolidated affiliates are comprised of the
following:
1999 1998
---- ----
(Thousands of dollars)
Bee Gee Holding Company, Inc. $6,988 $7,034
Less amounts classified with net noncurrent
assets of operations to be disposed of (6,988) (7,034)
----- -----
$ - $ -
===== =====
Bee Gee Holding Company, Inc.
- -----------------------------
At December 31, 1999, the Company owns 30,000 shares of common stock, a 43%
interest, of Bee Gee, which consists of several subsidiaries engaged in the
business of harvesting shrimp off the coast of South and Central America and
shrimp farming in Nicaragua. In January 1997, Bee Gee sold its processing
operations to a major competitor in the same geographical area. Goodwill
related to the Bee Gee investment was amortized over ten years and was
completed in 1997.
Financial Information
- ---------------------
The condensed financial information that follows reflects the Company's
proportionate share in the financial position and results of operations of
Bee Gee:
1999 1998
---- ----
(Thousands of dollars)
Current assets $ 2,871 $ 3,619
Current liabilities (2,042) (2,063)
----- -----
Working capital 829 1,556
Properties, net 9,839 9,034
Other assets 238 417
Long-term debt (2,045) (2,444)
Other liabilities (1,873) (1,529)
----- -----
Stockholders' equity $ 6,988 $ 7,034
===== =====
Investments, at equity, in unconsolidated
affiliates $ 6,988 $ 7,034
===== =====
1999 1998 1997
---- ---- ----
(Thousands of dollars)
Sales $ 8,524 $ 7,597 $ 11,648
Costs and expenses (8,122) (7,063) (11,129)
------- ------- -------
Net income from continuing
operations 402 534 519
Amortization of excess of cost
over net assets acquired - - 401
Income taxes 157 208 46
------- ------- -------
Equity in net income of
unconsolidated affiliates $ 245 $ 326 $ 72
======= ======= =======
Note 6. INDEBTEDNESS
On December 11, 1998, the Company amended and restated its unsecured revolving
credit agreement (the "Credit Agreement") agented by Bank of America, with
LaSalle National Bank acting as the managing agent. The Credit Agreement
provided for borrowings of up to $215,000,000. On March 22, 2000, the
Company amended this agreement and lowered the borrowing level to $185,000,000.
The Company had $150,000,000 outstanding under the Credit Agreement as of
December 31, 1999. Interest accrues on these obligations at LIBOR rates
plus 2%.
Under the Credit Agreement, the Company must meet certain net worth and other
financial covenants, which limit the Company's borrowing capacity. At
December 31, 1999, the Company is in compliance with all such covenants.
Letters of credit totaling $5,425,000 were outstanding at December 31, 1999.
Long-term debt at December 31 includes:
1999 1998
---- ----
(Thousands of Dollars)
Revolving loans payable, interest at various
LIBOR Rates (6.73% - 8.13%), due through
2001, unsecured $150,000 $39,000
Real estate and chattel mortgages, with
interest at fixed rates (7.14%), due
through 2013 902 980
Less current maturities (67) (72)
------- ------
$150,835 $39,908
======= ======
Aggregate scheduled maturities of long-term debt are as follows:
(Thousands of Dollars)
2000 $ 67
2001 150,067
2002 67
2003 & beyond 701
-------
Total $150,902
=======
Long-term debt increased in 1999 primarily as a result of the financing of the
Contico acquisition in January 1999.
All of the long-term debt was re-priced to current rates in January 2000.
Therefore, its fair value approximated its carrying value at December 31, 1999.
Note 7. RETIREMENT BENEFIT PLANS
Pension and Other Postretirement Plans
- --------------------------------------
Several domestic subsidiaries have pension plans covering substantially all of
their employees. These plans are noncontributory, defined benefit pension
plans. The benefits to be paid under these plans are generally based on
employees' retirement age and years of service. The companies' funding
policies, subject to the minimum funding requirements of the applicable U.S.
or foreign employee benefit and tax laws, are to contribute such amounts as are
determined on an actuarial basis to provide the plans with assets sufficient to
meet the benefit obligations. Plan assets consist primarily of fixed income
investments, corporate equities and government securities. The Company also
provides certain health care and life insurance benefits for some of its
retired employees.
Pension Benefits Other Benefits
1999 1998 1999 1998
---- ---- ---- ----
(Thousands of dollars)
Change in benefit obligation:
Benefit obligation at beginning of
year $3,530 $3,614 $2,064 $2,105
Service cost 157 232 16 20
Interest cost 105 257 97 139
Actuarial (gain)/loss 74 (35) (676) -
Effect of sale (1,737) - (14) -
Benefits paid (268) (538) (67) (200)
----- ----- ----- -----
Benefit obligation at end of year 1,861 3,530 1,420 2,064
Change in plan assets:
Fair value of plan assets at
beginning of year 4,049 4,111 - -
Actuarial return on plan assets 296 303 - -
Employer contribution 135 173 67 200
Effect of sale (2,067) - - -
Benefits paid (268) (538) (67) (200)
----- ----- ----- -----
Fair value of plan asset at end of
year 2,145 4,049 - -
Reconciliation of prepaid(accrued)
benefit cost:
Funded status 284 519 (1,420) (2,064)
Unrecognized net actuarial (gain)/loss 436 328 (1,047) (493)
Unrecognized prior service cost - 70 24 29
Unrecognized net transition
asset/(obligation) 52 (328) - -
----- ----- ----- -----
Prepaid/(Accrued) benefit cost 772 589 (2,443) (2,528)
Components of net periodic benefit cost:
Service cost 157 232 16 20
Interest cost 105 257 97 139
Expected return on plan assets (102) (313) - -
Amortization of net transition asset (6) (38) - -
Amortization of prior service cost - (6) 5 5
Amortization of net gain/(loss) 23 29 (91) (45)
Curtailment/settlement recognition (343) - - -
----- ----- ----- -----
Net periodic benefit cost $ (166) $ 161 $ 27 $ 119
Assumptions as of December 31:
Discount rates 7-7.5% 7-7.5% 7% 7%
Expected return on plan assets 7-7.5% 7.5-8% 0% 0%
Assumed rates of compensation increases 0-5% 0-5%
Impact of one-percent increase in health
care trend rate:
Increase in accumulated postretirement
benefit obligation $ 176 $ 213
Increase in service cost and interest cost $ 5 $ 4
Impact of one-percent decrease in health
care trend rate:
Decrease in accumulated postretirement
benefit obligation $ 143 $ 171
Decrease in service cost and interest cost $ 4 $ 3
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1999 was 6% decreasing
linearly each successive year until it reaches 4.5% in 2001, after which it
remains constant.
In addition to the plans described above, in 1993 the Company's Board of
Directors approved a retirement compensation program for certain officers and
employees of the Company and a retirement compensation arrangement for the
Company's then Chairman and Chief Executive Officer. The Board approved a
total of $3,500,000 to fund such plans. This amount represented the best
estimate of the obligation that vested immediately upon Board approval and is
to be paid for services rendered to date. The Company had $2,200,000 accrued
at December 31, 1999 for this obligation.
401(k) Plans
- ------------
The Company offers its employees the opportunity to voluntarily participate
in one of six 401(k) plans administered by the Company or one of its
subsidiaries. The Company makes matching and other contributions in accordance
with the provisions of the plans and, under certain provisions, at the
discretion of the Company. The Company made annual matching and other
contributions of $769,000, $632,000 and $623,000 in 1999, 1998 and 1997,
respectively.
Note 8. PREFERRED INTEREST OF SUBSIDIARY
Upon the Company's purchase of the Common Interest of Contico on January 8,
1999, Newcastle retained a Preferred Interest in Contico, represented by 329
preferred units, each with a stated value of $100,000, for an aggregate stated
value of $32,900,000. The Preferred Interest yields an 8% cumulative annual
return on its stated value while outstanding, payable in cash. The holder of
the Preferred Interest has a put option which allows, at certain times
beginning on January 8, 2001, or upon the occurrence of certain events, each
preferred unit to be exchangeable for 4,762 shares of Katy common stock. Upon
the exercise of the put, Katy has the option to settle in cash, in lieu of
delivering Katy common stock, in an amount equal to the then market value of
Katy common stock multiplied by the number of shares implied by the exchange.
Conversely, at any time on or after January 2, 2012, Katy may exercise a call
option, requiring holders of the Preferred Interest to sell their units to Katy
at the stated value.
The fair value of the Preferred Interest is impacted by two factors: the rate
of interest paid on the stated amount, and the market price of Katy's common
stock. During 1999, market rates for similar instruments increased, which
would have the effect of reducing the fair value of the Preferred Interest.
Also during 1999, the value of Katy's common stock fell, which would also
cause the fair value of the Preferred Interest to decrease. Upon exercise of
the put option, the holder would receive 1,566,698 shares of Katy common stock,
implying a value when divided into the stated value of $21.00 per share.
Katy's stock closed at $17.00 on January 8, 1999, the date of the Contico
acquisition, and closed at $8.69 at December 31, 1999. While the combination
of those factors contribute to a reduced fair value, it is impractical to
provide an exact amount given the unique nature of the instrument.
Note 9. STOCKHOLDERS' EQUITY
Share Repurchase
- ----------------
On February 26, 2000, the Company's Board of Directors authorized management to
spend up to $5,000,000 over a twelve month period for the repurchase of Katy
common stock in the open market.
On May 19, 1998, Katy's Board of Directors authorized the Company to repurchase
an additional 250,000 common shares, bringing the total authorized shares to
1,150,000 since 1995. Katy repurchased 15,200, 12,000 and 38,000 of its common
shares during the years ended December 31, 1999, 1998 and 1997, at a total cost
of $238,000, $217,000 and $566,000, respectively. As of December 31, 1999, the
repurchase program had been completed.
During 1997, the Company initiated an "Odd Lot Buyback" program to repurchase
common shares held by stockholders owning fewer than 100 shares. During the
year ended December 31, 1997, Katy repurchased 4,695 of its common shares at a
cost of $87,000.
Stockholder Rights Plan
- -----------------------
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 stockholder 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. As of December 31, 1999, there are 8,413,858 rights outstanding,
of which none are exercisable.
Stock Purchase Plan for Key Employees and Directors
- ---------------------------------------------------
In 1994, the Board of Directors approved the Stock Purchase Plan for Key
Employees and Directors ("Stock Purchase Plan"). Under the Stock Purchase
Plan, shares of the Company's common stock, held in the treasury, were reserved
for issuance at a purchase price equal to 65% (50% in certain cases) of the
market value of the shares as determined based upon the offering period
established by the Compensation Committee of the Board of Directors. As of
December 31, 1999, 83,000 common shares have been issued at prices ranging from
$6.17 to $8.02 per share. There has been no activity in this plan since 1996,
and the Plan has been terminated. The issuance of shares in 1996 for total
notes receivable of $141,000, was a noncash financing transaction.
Proceeds from the sale of these shares consisted of cash or notes receivable
due on demand but no later than sixty months from date of purchase with an
interest rate equal to the Federal Short-Term Funds Rate. The Company is
holding the shares as collateral for all notes receivable. Further, these
shares cannot be sold until 24 months from the date of purchase
provided the notes have been repaid. Notes receivable from plan
participants are included in the Consolidated Balance Sheets under the
caption "Other adjustments". The excess of the cost of the treasury shares
over the market value of the shares at the date of purchase of $43,000 was
charged to retained earnings in 1996. The excess of the market value of the
shares over the purchase price of $113,000 was charged to compensation
expense in 1996.
Restricted Stock Grant
- ----------------------
During 1999, 1998 and 1997, the Company issued restricted stock grants in the
amount of 45,100, 37,800 and 44,250 shares, respectively, to certain key
employees of the Company. These stock grants vest over a three-year period,
of which 25% vested immediately upon distribution. As a result of this
transaction, the Company has recognized compensation expense for 1999, 1998 and
1997 in the amount of $539,000, $162,000 and $324,000, respectively.
Director Stock Grant
- --------------------
During 1999, 1998 and 1997, the Company granted all non employee Directors 500
shares of Company common stock as part of their compensation. The total grant
to the Directors for the years ended December 31, 1999, 1998 and 1997 was
4,500, 4,000 and 4,500 shares, respectively.
Stock Options and Stock Appreciation Rights
- -------------------------------------------
At the 1998 Annual Meeting, the Company's stockholders approved a Long-Term
Incentive Plan (the "Incentive Plan"), authorizing the issuance of up to
875,000 shares of Company common stock pursuant to the grant or exercise of
stock options, including incentive stock options, nonqualified stock options,
stock appreciation rights ("SARs"), restricted stock, performance units or
shares and other incentive awards. The Board of Directors administers the
Incentive Plan and determines to whom awards may be granted, the type of award
as well as the number of shares of Company common stock to be covered by each
award, and the terms and conditions of such awards. The exercise price of
stock options granted under the Incentive Plan cannot be less than 100 percent
of the fair market of such stock on the date of grant. The restricted stock
grants in 1999 and 1998 referred to above were made under the Incentive Plan.
Related to the Incentive Plan, the Company granted SARs as described below.
SARs (204,473) become exercisable at any time after the earliest that (a) up
to and including July 22, 2001, the Company's average closing stock price over
a 45 calendar day period has equaled or exceeded $39.125 per share; or (b) up
to and including January 22, 2005, the Company's average closing stock price
over a 45 calendar day period has equaled or exceeded $53.80 per share. In
addition, in the event that goal (a) above is met, only 50% of the SARs thus
vested will be immediately exercisable, with, 25% exercisable upon the first
anniversary of the performance vesting date, and 25% exercisable upon the
second anniversary of the performance vesting date. In addition, SARs
(163,579) become exercisable at such time up to and including January 22,
2005, the Company's average closing stock price over a 45-calendar day period
has equaled or exceeded $53.80 per share. All SARs which have met the
performance goals above, as the case may be, will expire December 9, 2007.
As a result of the underlying stock price, no compensation expense was
recorded in 1999 or 1998 related to these SARs.
The Incentive Plan also provides that in the event of the Change in Control of
the Company, as defined below, (i) any SARs and stock options outstanding as
of the date of the Change in Control which are neither exercisable or vested
will become fully exercisable and vested (The payment received upon the
exercise of the SARs shall be equal to the excess of the fair market value of
a share of the Company's Common Stock on the date of exercise over the grant
date price multiplied by the number of SARs exercised); (ii) the restrictions
applicable to restricted stock will lapse and such restricted stock will
become free of all restrictions and fully vested; and (iii) all performance
units or shares will be considered to be fully earned and any other
restrictions will lapse, and such performance units or shares will be settled
in cash or stock, as applicable, within 30 days following the effective date
of the Change in Control. For purposes of subsection (iii), the payout of
awards subject to performance goals will be a pro rata portion of all
targeted award opportunities associated with such awards based on the number
of complete and partial calendar months with the performance period which had
elapsed as of the effective date of the Change in Control. The Committee will
also have the authority, subject to the limitations set forth in the Incentive
Plan, to make any modifications to awards as determined by the Committee to be
appropriate before the effective date of the Change in Control.
For purposes of the Incentive Plan, "Change in Control" of the Company means,
and shall be deemed to have occurred upon, any of the following events: (a) any
person (other than those persons in control of the Company as of the effective
date of the Incentive Plan, a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned directly
or indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company) becomes the beneficial
owner, directly or indirectly, of securities of the Company representing 30
percent or more of the combined voting power of the Company's then outstanding
securities; or (b) during any period of two (2) consecutive years (not
including any period prior to the effective date), the individuals who at the
beginning of such period constitute the Board of Directors (and any new
director, whose election by the Company's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was so approved), cease for any reason to constitute a majority
thereof; or (c) the stockholders of the Company approve: (i) a plan of complete
liquidation of the Company; or (ii) an agreement for the sale or disposition of
all or substantially all the Company's assets; or (iii) a merger,
consolidation, or reorganization of the Company with or involving any other
corporation, other than a merger, consolidation, or reorganization that would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent at least 50 percent of the combined voting
power of the voting securities of the Company (or such surviving entity)
outstanding immediately after such merger, consolidation, or reorganization.
During 1995, the Company established stock option plans providing for the
grant of options to purchase common shares to outside directors, executives
and certain key employees. The Compensation Committee of the Board of
Directors administers the plans and approves stock option grants. Stock
options granted under the plans are exercisable at a price equal to the market
value of the stock at the date of grant. The options, in the case of
nonemployee directors, are immediately exercisable, and in the case of
executives and key employees, become exercisable from one to four years from
the date of grant, and generally expire 10 years from the date of grant. The
following table summarizes option activity:
Weighted
Average Weighted
Remaining Average
Contractual Exercise
Options Exercise Price Life Price
------- -------------- ---- -----
Outstanding at December
31, 1996 489,750 $ 8.50 - 13.57 9.5 years $11.60
Granted 33,000 $16.13 - 19.56 $17.87
Exercised (21,850) $ 8.50 - 13.19 $11.25
Canceled (17,500) $ 8.50 - 9.25 $12.69
-------
Outstanding at December
31, 1997 483,400 $ 8.50 - 19.56 8.5 years $11.99
Granted 16,000 $18.13 $18.13
Exercised (19,436) $ 8.50 - 13.19 $11.31
Canceled (8,864) $ 8.50 - 19.56 $12.74
-------
Outstanding at December
31, 1998 471,100 $ 8.50 - 19.56 7.6 years $12.21
Granted 222,100 $ 9.88 - 17.00 $13.65
Exercised (20,650) $ 8.50 - 13.19 $12.22
Canceled (16,700) $13.19 - 19.56 $14.40
-------
Outstanding at December
31, 1999 655,850 $ 8.50 - 19.56 7.6 years $12.64
=======
Vested and exercisable at
December 31, 1999 400,656 $12.13
=======
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Range Number Remaining Average Number Average
of Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/99 Life Price at 12/31/99 Price
- -------------------------------------------------------------------------------
$8.50 - 9.88 263,900 7.5 $ 9.32 159,500 $ 8.96
$12.69 - 13.57 230,950 6.9 13.21 182,606 13.21
$16.13 - 17.00 130,500 8.9 16.89 34,800 16.60
$18.13 - 19.56 30,500 8.2 18.81 23,750 18.60
--------------------------------------------------------------
655,850 7.6 $12.64 400,656 $12.13
==============================================================
The Company applies Accounting Principles Bulletin Opinion No. 25, "Accounting
for Stock Issued to Employees" and related Interpretations in accounting for
stock options. Accordingly, no compensation cost has been recognized. SFAS
No. 123, "Accounting for Stock-Based Compensation" was issued and, if fully
adopted by the Company, would change the method for recognition of cost. Under
SFAS No. 123, cost is based upon the fair value of each option at the date of
grant using an option-pricing model that takes into account as of the grant
date the exercise price and expected life of the option, the current price of
the underlying stock and its expected volatility, expected dividends on the
stock and the risk-free interest rate for the expected term of the option. Had
compensation cost been determined based on the fair value method of SFAS
No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below. The weighted average fair
values of options granted in 1999, 1998 and 1997 were $7.19, $5.67 and $7.02,
respectively.
The fair value of each option grant is estimated on the date of grant using the
binomial option-pricing model with the following assumptions used for grants on
June 8, 1995, December 29, 1995, May 20, 1996, July 30, 1996, December 9, 1996,
May 19, 1997, December 9, 1997, May 19, 1998, January 8, 1999, May 19, 1999, and
December 10, 1999 respectively: dividend yield of 2.25%, 1.65% and 1.82% for the
periods 1999, 1998 and 1997, respectively; expected volatility ranging from
17.8% to 43.2% for all grants, risk free interest rates ranging from of 4.66%
to 6.92% for all grants; and expected lives of five years for all grants.
1999 1998 1997
---- ---- ----
(In Thousands, Except Per Share Data)
Net income as reported $10,455 $13,082 $11,602
====== ====== ======
Net income - pro forma $ 9,993 $12,762 $11,334
====== ====== ======
Earnings per share as reported -
Basic $ 1.25 $ 1.58 $ 1.40
====== ====== ======
Earnings per share - pro forma -
Basic $ 1.19 $ 1.54 $ 1.37
====== ====== ======
Earnings per share as reported -
Diluted $ 1.21 $ 1.55 $ 1.38
====== ====== ======
Earnings per share - pro forma -
Diluted $ 1.17 $ 1.52 $ 1.35
====== ====== ======
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
Note 10. WASTE-TO-ENERGY FACILITY
The Company owns a waste-to-energy facility, SESCO, in Savannah, Georgia.
SESCO is under contract with the Resource Recovery Development Authority
("the Authority") of the City of Savannah ("the City") to receive and dispose
of the City's solid waste through 2007. The contract provides for minimum
levels of SESCO's disposal fee income to be used to retire the $50,700,000 of
industrial revenue bonds issued by the Authority of the City to finance
construction of the plant.
In substance, the City desired a solid waste disposal and resource recovery
facility, issued bonds to finance construction of the facility, and contracted
SESCO to construct, operate and maintain the facility. In return for its
services, it was intended that the Company would receive a reasonable profit
and the facility upon the termination of the various agreements. SESCO is
obligated to perform under the various agreements. SESCO is therefore merely
the operator of the facility and has not recorded the cost of the facility or
the obligations related to its construction in its Consolidated Financial
Statements.
Under terms of the contract, SESCO made contributions to the Authority totaling
$9,200,000. In consideration for these contributions, the waste-to-energy
facility will revert to the Company, subject to collateral agreements under the
bond indentures, when the service agreement expires. The Company is not
required to make any additional payments to the Authority. SESCO has made
capital expenditures to improve the operating facility which have been
accounted for as deferred expenses. Deferred expenses, net of impairment, are
being amortized through 2007 (see Note 3).
During 1998, Katy evaluated the carrying value of SESCO. Continued operating
and cash flow losses combined with the efforts to dispose of SESCO led to the
Company's determination to conduct such review. Accordingly, during the fourth
quarter of 1998, Katy adjusted the carrying value of SESCO's long-lived assets
to their estimated fair value, resulting in a pre-tax impairment of $2,800,000.
The estimated fair value was based upon comparable asset values and anticipated
future cash flows discounted at a rate commensurate with the risk involved.
SESCO is one of the "Operations to be Disposed Of" included in the previously
reported Divestiture and Reorganization Plan. SESCO's historical operating
results have been segregated as "Equity in income (loss) of operations to be
disposed of" on the accompanying Consolidated Statements of Operations for the
years ended December 31, 1999, 1998 and 1997.
Note 11. INCOME TAXES
The domestic and foreign components of income (loss) before income taxes,
exclusive of distribution on preferred interest in subsidiary, are:
1999 1998 1997
---- ---- ----
(Thousands of Dollars)
Domestic
Continuing $14,075 $19,179 $14,148
Discontinued 2,087 - 3,159
------ ------ ------
Total domestic $16,162 $19,179 $17,307
------ ------ ------
Foreign
Continuing $ 2,975 $ 642 $ 417
Discontinued (3,809) - (49)
------ ------ ------
Total foreign $ (834) $ 642 $ 368
------ ------ ------
Total worldwide $15,328 $19,821 $17,675
====== ====== ======
The components of the net provision (benefit) for income taxes are:
1999 1998 1997
---- ---- ----
Continuing operations: (Thousands of Dollars)
Current:
Federal $(2,108) $ 4,240 $ 2,786
State 228 590 340
Foreign 1,761 285 47
------ ------ ------
Total (119) 5,115 3,173
------ ------ ------
Deferred:
Federal 1,369 1,585 1,315
State 758 171 269
Foreign 306 (132) 165
------ ------ ------
Total 2,433 1,624 1,749
------ ------ ------
Total continuing operations $ 2,314 $ 6,739 $ 4,922
------ ------ ------
Discontinued operations:
Federal $ 730 $ - $ 1,065
State 33 - 104
Foreign (785) - (18)
------ ------ ------
Total $ (22) $ - $ 1,151
------ ------ ------
Net provision for income taxes $ 2,292 $ 6,739 $ 6,073
====== ====== ======
The total income tax provision for continuing operations differed from the
amount computed by applying the statutory federal income tax rate to pre-tax
income from continuing operations. The computed amount and the differences for
the years ended December 31, 1999, 1998 and 1997 were as follows:
1999 1998 1997
---- ---- ----
(Thousands of Dollars)
Provision for income taxes at statutory rate $ 5,968 $ 6,937 $ 5,098
Revision of prior years' tax estimates (2,750) - -
State income taxes, net of federal benefit 906 476 492
Foreign tax rate differential (40) 10 20
Amortization of negative goodwill (596) (596) (596)
Benefit of net operating loss carryforwards - (66) (49)
Other, net (271) (22) (43)
------ ------ ------
Provision for income taxes from continuing
consolidated operations 3,217 6,739 4,922
Distribution on preferred interest of subsidiary (903) - -
------ ------ ------
Net provision for income taxes from continuing
operations $ 2,314 $ 6,739 $ 4,922
====== ====== ======
The tax effects of significant items comprising the Company's net deferred tax
liability as of December 31, 1999 and 1998 are as follows:
1999 1998
---- ----
(Thousands of Dollars)
Deferred tax liabilities:
Difference between book and tax basis of property $ 5,605 $ 449
Waste-to-energy facility 17,598 18,763
Inventory costs 1,070 -
Undistributed earnings of equity investees 1,538 10,372
------ ------
25,811 29,584
------ ------
Deferred tax assets:
Allowance for doubtful receivables 1,501 2,156
Inventory costs - 3,470
Accrued expenses and other items 11,285 11,708
Operating loss carryforwards - domestic 2,499 2,574
Operating loss carryforwards - foreign 1,503 555
Tax credit carryforwards 686 -
------ ------
17,474 20,463
Less valuation allowance (3,203) (450)
------ ------
14,271 20,013
------ ------
Net deferred income tax liability $11,540 $ 9,571
====== ======
The caption entitled "Revision of prior years' tax estimates," as shown in the
table above, includes amounts for the reversal of reserves which the Company no
longer believes are necessary, other changes in prior year tax estimates and
changes in valuation allowances with respect to deferred income tax assets.
Generally, the reversal of reserves relate to the expiration of the relevant
statute of limitations with respect to certain income tax returns, or the
resolution of specific income tax matters with the relevant tax authorities.
The domestic and foreign net operating loss carryforwards primarily relate to
SESCO and the Company's Canadian operations, respectively, and can only be used
to offset income from these operations. The Company's Canadian subsidiaries
have Canadian net operating loss carryforwards of approximately $4,174,000 at
December 31, 1999 that expire in the years 2002 through 2006. SESCO has state
net operating loss carryforwards of $49,974,000 at December 31, 1999 that
expire in the years 2003 through 2019. The tax credit carryforwards relate to
certain foreign tax credit carryovers that expire in 2004.
The valuation allowance primarily relates to domestic state and foreign net
operating loss carryforwards of SESCO and the Company's Canadian operations,
respectively, the tax benefits from which may not be realized. The valuation
allowance increased $2,753,000 during the year ended December 31, 1999, due to
past losses from these operations and uncertainties as to their ability to
generate future taxable income.
Note 12. LEASE OBLIGATIONS:
The Company has entered into noncancelable leases for manufacturing and data
processing equipment and real property with lease terms of up to ten years.
Future minimum lease payments as of December 31, 1999 are as follows:
(Thousands of Dollars)
2000 $ 12,847
2001 12,124
2002 10,935
2003 10,258
2004 9,454
Later years 27,222
--------
Total minimum payments $ 82,840
========
Rental expense for 1999, 1998 and 1997 for operating leases was $13,247,000,
$5,138,000 and $3,928,000, respectively.
Note 13. RELATED PARTY TRANSACTIONS:
In connection with the Contico acquisition on January 8, 1999, Katy entered
into building leases with Newcastle. Newcastle is majority-owned by Lester
I. Miller, who was appointed to Katy's Board of Directors on January 8, 1999.
Also, several additional properties utilized by Contico are leased directly
from Lester I. Miller. Aggregate rental expense of approximately $5,500,000
was recorded in 1999 relating to these leases. Rental expense for these
properties approximates market rates. In October of 1999, certain of the above
properties were sold by Newcastle to an unrelated third party. Related party
rental expense for the year ended December 31, 2000 is expected to approximate
$1,500,000.
The Company paid Newcastle $2,581,000 of preferred dividends for the year
ended December 31, 1999 (see Note 8).
Note 14. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION:
The Company is a manufacturer and distributor of a variety of industrial and
consumer products, including sanitary maintenance supplies, coated abrasives,
stains, electrical and electronic components, and nonpowered hand tools.
Principal markets are in the United States, Canada, and Europe and include the
sanitary maintenance, restaurant supply, retail, electronic, automotive, and
computer markets. These activities are grouped into two industry segments:
Electrical/Electronics and Maintenance Products. During 1999, Katy had several
large customers in the mass merchant/discount/home improvement retail markets.
While no single customer accounted for 10% of Katy's consolidated sales,
several approached this threshold, and a significant loss of business at any of
these retail outlets would have an adverse impact on the Company's results.
Katy had one major customer in its Electrical/Electronics segment that
accounted for approximately $46,796,000 or 14% of the Company's consolidated
1998 annual sales. On November 4, 1998, the Company announced that this major
customer withdrew its commitment to purchase electric corded products from
Woods at or about year end 1998.
The table below and the narrative that follows, summarize the key factors in
the year-to-year changes in operating results.
Years Ended December 31,
1999 1998 1997
---- ---- ----
(Thousands of Dollars)
Electrical/Electronics Group
- ----------------------------
Net external sales $204,180 $230,927 $218,237
Net intercompany sales 59,992 32,103 175
Income from operations [a] 8,303 14,839 13,191
Operating margin 4.1% 6.4% 6.0%
Identifiable assets 133,890 126,362 112,156
Depreciation and amortization 2,557 1,652 398
Capital expenditures 3,434 7,348 5,138
Maintenance Products Group
- --------------------------
Net external sales $361,761 $111,388 $ 67,786
Net intercompany sales 11,141 6,389 4,306
Income from operations [a] 29,458 8,401 6,328
Operating margin 8.1% 7.5% 9.3%
Identifiable assets 318,906 110,317 46,333
Depreciation and amortization 17,065 3,779 1,854
Capital expenditures 16,936 2,725 1,234
Operations to be Disposed Of
- ----------------------------
Net external sales $ 3,900 $ 6,297 $ 9,568
Net intercompany sales - - -
Income (loss) from operations (190) (3,262) 122
Operating margin (4.9%) (7.3%) 1.3%
Identifiable assets 17,903 17,680 31,599
Equity Investments 6,988 7,034 6,500
Depreciation and amortization 5 1,009 1,549
Capital expenditures 429 5,126 3,034
Discontinued Operations
- -----------------------
Net external sales $ 10,025 $ 23,349 $ 31,537
Net intercompany sales - 146 -
Income (loss) from operations (191) 1,663 3,046
Operating margin (1.9%) 7.1% 9.7%
Identifiable assets - 16,975 18,486
Depreciation and amortization 454 631 681
Capital expenditures 80 547 1,252
Corporate
- ---------
Corporate expenses [a] $ 9,990 $ 7,965 $ 6,496
Identifiable assets 22,405 24,535 43,818
Depreciation and amortization 91 91 86
Capital expenditures 187 175 41
Company
- -------
Net external sales [b] $579,866 $371,961 $327,128
Net intercompany sales 71,133 38,638 4,481
Income from operations [b] 27,390 13,676 16,191
Operating margin [b] 4.7% 4.4% 4.9%
Identifiable assets [b] 493,104 295,869 252,392
Depreciation and amortization [b] 20,172 7,162 4,568
Capital expenditures 21,066 15,921 10,699
[a] Salaries and related costs for certain executive officers were included in
Maintenance Products and Electrical/Electronics in 1998 and 1997, but have been
included in Corporate Expense in 1999. These amounts were approximately
$1,500,000 in 1999, $1,400,000 in 1998 and $900,000 in 1997.
[b] Company balances include amounts separately classified as "Discontinued
Operations" and "Operations to be Disposed Of" in the consolidated financial
statements for 1999, 1998 and 1997. The "Income (loss) from operations" for
"Discontinued Operations" has been recorded in the line item "Income (loss)
from operations of discontinued operations (net of tax)" on the 1999
Consolidated Statement of Operations (see Note 3).
The Company follows generally accepted accounting principles in preparing its
segment information. The following tables reconcile the Company's total
revenues, operating income and assets to the Company's Consolidated Statements
of Operations and Consolidated Balance Sheets.
1999 1998 1997
---- ---- ----
(Thousands of Dollars)
Revenues
Total revenues for reportable
segments $650,999 $410,599 $331,609
Elimination of inter-company
revenues (71,133) (38,638) (4,481)
Revenues included in Equity
in loss of operations to
be disposed of (3,900) (6,297) (9,568)
Revenues included in
discontinued operations (10,025) (23,349) (31,537)
------- ------- -------
Total consolidated revenues $565,941 $342,315 $286,023
======= ======= =======
Operating Income
Total operating income for
reportable segments $ 27,390 $ 13,676 $ 16,191
Operating income included
in Equity in (income) loss
of operations to be
disposed of 190 462 (122)
Loss from impairment of assets - 2,800 -
Operating (income) loss included
in discontinued operations 191 (1,663) (3,046)
------ ------ ------
Total consolidated operating
income $ 27,771 $ 15,275 $ 13,023
====== ====== ======
Total Assets
Total assets for reportable
segments $493,104 $295,869
Liabilities included in Net
current and Net noncurrent
assets of operations to be
disposed of (1,268) (956)
Liabilities included in Net
current and Net noncurrent
assets of discontinued
operations - (1,738)
------- -------
Total consolidated assets $491,836 $293,175
======= =======
Export sales of products, primarily to Canada, Mexico, Europe, and the Far
East, were $17,862,000, $19,641,000, and $15,197,000 in 1999, 1998 and
1997, respectively.
The Company operates businesses in the United States and foreign countries.
The operations for 1999, 1998 and 1997 of businesses within major geographic
areas are summarized as follows:
United Canada/ Far East
States Mexico Europe & Other Consolidated
------ ------ ------ ------- ------------
(Thousands of Dollars)
1999:
Sales to unaffiliated
customers $478,105 $52,957 $31,002 $ 3,877 $565,941
Operating income $ 20,670 $ 3,881 $ 2,834 $ 386 $ 27,771
Identifiable assets $441,054 $29,055 $21,727 $ - $491,836
1998:
Sales to unaffiliated
customers $298,572 $35,876 $ 5,246 $ 2,621 $342,315
Operating income $ 12,539 $ 1,852 $ 626 $ 258 $ 15,275
Identifiable assets $261,309 $31,866 $ - $ - $293,175
1997:
Sales to unaffiliated
customers $266,403 $13,526 $ 3,541 $ 2,553 $286,023
Operating income $ 11,551 $ 958 $ 299 $ 215 $ 13,023
Identifiable assets $222,300 $14,860 $ - $ - $237,160
Net sales for each geographic area include sales of products produced in that
area and sold to unaffiliated customers, as reported in the Consolidated
Statements of Operations.
Note 15. CONTINGENT LIABILITIES
In December 1996, Banco del Atlantico, a bank located in Mexico, filed a
lawsuit against Woods, and certain past and then present officers and
directors and former owners of Woods, alleging that the defendants
participated in a violation of the Racketeer Influenced and Corrupt
Organizations Act involving allegedly fraudulently obtained loans from
Mexican banks, including the plaintiff, and "money laundering" of the
proceeds of the illegal enterprise. All of the foregoing is alleged to have
occurred prior to the Company's purchase of Woods. The plaintiff also
alleges that it made loans to an entity controlled by certain officers and
directors based upon fraudulent representations. The plaintiff seeks to hold
Woods liable for its alleged damage under principles of respondeat superior
and successor liability. The plaintiff is claiming damages in excess of
$24,000,000 and is requesting treble damages under the statutes. The
defendants have filed a motion, which has not been ruled on, to dismiss this
action on jurisdictional grounds. Because the litigation is in preliminary
stages, it is not possible at this time for the Company to determine an outcome
or reasonably estimate the range of potential exposure. The Company may have
recourse against the former owner of Woods and others for, among other things,
violations of covenants, representations and warranties under the purchase
agreement through which the Company acquired Woods, and under state, federal
and common law. In addition, the purchase price under the purchase agreement
may be subject to adjustment as a result of the claims made by Banco del
Atlantico. The extent or limit of any such recourse cannot be predicted at
this time.
Katy also has a number of product liability and workers' compensation claims
pending against it and its subsidiaries. Many of these claims are proceeding
through the litigation process and the final outcome will not be known until a
settlement is reached with the claimant or the case is adjudicated. It can
take up to 10 years from the date of the injury to reach a final outcome for
such claims. 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, which
are developed using actuarial techniques. Such accruals are developed using
currently available claim information, and represent management's best
estimates. The ultimate cost of any individual claim can vary based upon, among
other factors, the nature of the injury, the duration of the disability period,
the length of the claim period, the jurisdiction of the claim and the nature of
the final outcome.
The Company and certain of its current and former direct and indirect corporate
predecessors, subsidiaries and divisions have been identified by the United
States Environmental Protection Agency, state environmental agencies and
private parties as potentially responsible parties ("PRPs") at a number of
hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") or 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.
Under the federal Superfund statute, parties could be held jointly and
severally liable, thus subjecting them to potential individual liability for
the entire cost of cleanup at the site. 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 recorded and accrued for indicated environmental liabilities in
the aggregate amount of approximately $4,100,000 at December 31, 1999. The
ultimate cost will depend on a number of factors and the amount currently
accrued represents management's best current estimate of the total cost to be
incurred. The Company expects this amount to be substantially paid over the
next one to four years.
The most significant environmental matters in which the Company is currently
involved are as follows:
1. In 1993, the United States Environmental Protection Agency ("USEPA")
initiated a Unilateral Administrative Order Proceeding under Section 7003 of
the Resource Conservation and Recovery Act ("RCRA") against W.J. Smith and
Katy. The proceeding requires certain actions at the W.J. Smith site and
certain off-site areas, as well as development and implementation of
additional cleanup activities to mitigate off-site releases. In December
1995, W.J. Smith, Katy and USEPA agreed to resolve the proceeding through an
Administrative Order on Consent under Section 7003 of RCRA. Pursuant to the
Order, W.J. Smith is currently implementing a cleanup to mitigate off-site
releases.
2. During 1995, the Company reached agreement with the Oregon Department of
Environmental Quality ("ODEQ") as to a cleanup plan for PCB contamination at
the Medford, Oregon facility of the former Standard Transformer division of
American Gage. The agreement required the Company to pay $1,300,000 of the
first $2,000,000 in cleanup costs. Those funds were expended in 1998.
Another former occupant of the site, Balteau Standard, Inc. was responsible
for the remaining $700,000 of the first $2,000,000 and the next $450,000 in
cleanup costs above the $2,000,000. The parties are now sharing equally in
cleanup costs. Katy believes the cleanup plan has been successful and has
requested that the ODEQ inspect and approve the remediation work. Katy has
received such approval with respect to a portion of the cleanup plan.
Further monitoring of groundwater and testing and cleanup of adjacent
property may be required before approval can be obtained with respect to
the remainder of the plan. Pending such approval, the liability of Katy and
its subsidiary cannot be determined at this time.
Although management believes that these actions individually and in the
aggregate are not likely to have a material adverse effect on the Company,
further costs could be significant and will be recorded as a charge to
operations when such costs become probable and reasonably estimable.
Note 16: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Quarterly results of operations have been affected by unusual or infrequently
occurring items as discussed below.
1999 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ---- ------- ------- ------- -------
(Thousands of Dollars, Except Per Share Data)
Net sales $126,429 $129,394 $145,548 $164,570
======= ======= ======= =======
Gross profit $ 40,144 $ 41,300 $ 46,570 $ 46,545
======= ======= ======= =======
Income from continuing operations $ 1,490 $ 198 $ 4,308 $ 6,159
Discontinued operations - - - (1,700)
------- ------- ------- -------
Net income $ 1,490 $ 198 $ 4,308 $ 4,459
======= ======= ======= =======
Earnings per share - Basic
Continuing operations $ .18 $ .02 $ .52 $ .73
Discontinued operations - - - (.20)
------- ------- ------- -------
Net income $ .18 $ .02 $ .52 $ .53
======= ======= ======= =======
Earnings per share - Diluted
Continuing operations $ .18 $ .02 $ .48 $ .66
Discontinued operations - - - (.17)
------- ------- ------- -------
Net income $ .18 $ .02 $ .48 $ .49
======= ======= ======= =======
1998 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ---- ------- ------- ------- -------
Net sales $ 68,856 $ 71,626 $ 94,814 $107,019
======= ======= ======= =======
Gross profit $ 19,171 $ 22,344 $ 28,182 $ 28,867
======= ======= ======= =======
Income from continuing operations $ 1,873 $ 2,785 $ 3,800 $ 4,624
Discontinued operations - - - -
------- ------- ------- -------
Net income $ 1,873 $ 2,785 $ 3,800 $ 4,624
======= ======= ======= =======
Earnings per share - Basic
Continuing operations $ .23 $ .34 $ .46 $ .56
Discontinued operations - - - -
------- ------- ------- -------
Net income $ .23 $ .34 $ .46 $ .56
======= ======= ======= =======
Earnings per share - Diluted
Continuing operations $ .22 $ .33 $ .45 $ .55
Discontinued operations - - - -
------- ------- ------- -------
Net income $ .22 $ .33 $ .45 $ .55
======= ======= ======= =======
During the fourth quarter of 1999, the Company recorded a pre-tax gain of
$800,000 from the collection of previously reserved notes, a pre-tax charge of
$1,029,000 to increase the LIFO inventory reserve (see Note 1) and a pre-tax
charge of $559,000 relating to the potential sale of Electrical/Electronics
segment and other restructuring. During the second quarter, a $600,000
restructuring charge was recorded relating to the elimination of 22 management
positions in the Electrical / Electronics Segment (see Note 17). In addition,
the Company reversed $2,750,000 of income tax liabilities in the fourth quarter
of 1999 as a result of the closure for audit purposes of certain tax years
(see Note 11).
During 1998, the Company recorded a pre-tax gain of $6,122,000 from the sale of
CEGF. In addition, Katy recorded a pre-tax impairment loss of $2,800,000
reducing SESCO's book value.
Note 17: RESTRUCTURING CHARGE
During the second quarter of 1999, the Company undertook a restructuring of the
Electrical/Electronics businesses, which included severance and related costs
for certain employees. Approximately 22 employees accepted severance packages.
Total severance and related costs were $600,000, which are included in Selling,
general and administrative costs on the Consolidated Statement of Operations.
Substantially all of these costs were paid during the third quarter of 1999.
Item 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On March 30, 1998, the Company dismissed Deloitte & Touche LLP as Independent
Public Accountants. The decision was approved by the Audit Committee of the
Company's Board of Directors.
Deloitte & Touche LLP's reports on the consolidated financial statements for
the Company's fiscal year ended December 31, 1997 did not contain an adverse
opinion or a disclaimer of opinion, and were not modified as to uncertainty,
audit scope or accounting principles.
Deloitte & Touche LLP has advised the Company that a disagreement occurred
between the Company's management and Deloitte & Touche LLP in connection with
the 1997 audit. The disagreement concerned the accounting for an presentation
of the results of operations for those subsidiaries and divisions of Katy that
are a part of the reorganization plan that was approved by the Company's Board
of Directors on December 31, 1997 and announced on January 5, 1998. The
disagreement was resolved to the satisfaction of Deloitte & Touche LLP during
the December 31, 1997 audit of the consolidated financial statements. The
Audit Committee of the Board of Directors discussed the disagreement and the
subject matter of the disagreement with Deloitte & Touche LLP. The Company has
authorized Deloitte & Touche LLP to respond fully to any inquiries concerning
the disagreement and the subject matter of the disagreement by the successor
public accountant.
On May 19, 1998, Arthur Andersen LLP was engaged as the Company's Independent
Public Accountants.
Part III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of Katy is incorporated herein by reference
to the information set forth under the section entitled "Election of Directors"
in the 2000 Proxy Statement.
Information regarding executive officers of the Company is incorporated herein
by reference to the information set forth under the section "Information
Concerning Directors and Executive Officers" in the 2000 Proxy Statement.
Item 11. EXECUTIVE COMPENSATION
Information regarding compensation of executive officers is incorporated by
reference to the materials under the caption "Executive Compensation" in the
2000 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding beneficial ownership of stock by certain beneficial
owners and by management of Katy is incorporated herein by reference to the
information set forth under the section "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the 2000 Proxy
Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions with
management is incorporated herein by reference to the information set forth
under the section "Certain Relationships and Related Transactions" in the 2000
Proxy Statement.
Part IV
-------
Item 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statement Schedules
----------------------------------
The financial statement schedule filed with this report is listed on the
"Index to Financial Statement Schedules."
2. Exhibits
------------
The exhibits filed with this report are listed on the "Exhibit Index."
(b) Reports on Form 8-K
-------------------
On January 15, 1999, the Company filed a current report on Form 8-K
providing information in response to Item 2 of Form 8-K with respect to
the acquisition of Contico International, LLC.
On March 22, 1999, the Company filed a current report on Form 8-K/A
providing information in response to Item 7 of Form 8-K/A with respect to
the pro forma financial statements related to the acquisition of Contico
International, LLC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 22, 2000 KATY INDUSTRIES, INC.
Registrant
/S/ John R. Prann, Jr.
----------------------
John R. Prann, Jr.
President and Chief Executive Officer
POWER OF ATTORNEY
Each person signing below appoints John R. Prann, Jr. and Stephen P. Nicholson,
or either of them, his attorneys-in-fact for him in any and all capacities,
with power of substitution, to sign any amendments to this report, and to file
the same with any exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of this 17th day of March, 2000.
Signature Title
- --------- -----
/S/ Jacob Saliba Chairman of the Board and Director
- ----------------
Jacob Saliba
/S/ John R. Prann, Jr. President, Chief Executive Officer and Director
- ---------------------- (Principal Executive Officer)
John R. Prann, Jr.
/S/ Stephen P. Nicholson Vice President, Finance and Chief Financial Officer
- ------------------------ (Principal Financial and Accounting Officer)
Stephen P. Nicholson
/S/ Glenn W. Turcotte Executive Vice President, Chief Operating Officer
- --------------------- and Director
Glenn W. Turcotte
/S/ Arthur R. Miller Executive Vice President, Corporate Development,
- -------------------- General Counsel and Director
Arthur R. Miller
/S/ William F. Andrews Director
- ----------------------
William F. Andrews
/S/ Amelia M. Carroll Director
- ---------------------
Amelia M. Carroll
/S/ Daniel B. Carroll Director
- ---------------------
Daniel B. Carroll
/S/ Wallace E. Carroll, Jr. Director
- ---------------------------
Wallace E. Carroll, Jr.
/S/ Lester I. Miller Director
- --------------------
Lester I. Miller
/S/ William H. Murphy Director
- ---------------------
William H. Murphy
/S/ Lutz Raettig Director
- ----------------
Lutz Raettig
/S/ Charles W. Sahlman Director
- ----------------------
Charles W. Sahlman
INDEX TO FINANCIAL STATEMENT SCHEDULES
Independent Accountants' Reports
Independent Auditors' Consent
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the Consolidated
Financial Statements of Katy or the Notes thereto.
INDEPENDENT ACCOUNTANTS' REPORT ON SUPPLEMENTAL SCHEDULE
TO KATY INDUSTRIES, INC.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Katy Industries, Inc. as of December 31,
1999 and 1998, and for the periods then ended included in this Form 10-K and
have issued our report thereon dated January 26, 2000. Our audits were made
for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The schedule listed in Item 14 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements as indicated in our report with respect
thereto and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
January 26, 2000
INDEPENDENT ACCOUNTANTS' REPORT ON SUPPLEMENTAL SCHEDULE
To the Board of Directors and Stockholders of Katy Industries, Inc.
We have audited the consolidated financial statements of Katy Industries, Inc.
and subsidiaries (the "Company") for the period ended December 31, 1997, and
have issued our report thereon dated January 27, 1998; such report is included
elsewhere in this Form 10-K. Our audit also included the 1997 financial
statement schedule of Katy Industries, Inc., listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion,
such 1997 financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 27, 1998
KATY INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Thousands of Dollars)
Balance at Additions Write-offs Balance
Beginning Charged to to the Other at End
Description of Year Expense Reserve Adjustments of Year
- ----------- ------- ------- ------- ----------- -------
Year ended December 31, 1999:
Reserve for doubtful accounts:
Trade receivables $ 963 $463 $(942) $ 636 [a] $1,120
Current notes and other
accounts receivable 198 - - (198)[a] 0
Long-term notes
receivable 2,452 - - (1,452)[a] 1,000
----- --- ---- ------ -----
$3,613 $463 $(942) $(1,014) $2,120
===== === ==== ====== =====
Year ended December 31, 1998:
Reserve for doubtful accounts:
Trade receivables $ 857 $382 $(106) $ (170)[a] $ 963
Current notes and other
accounts receivable 410 - - 48 [b] 198
(260)[a]
Long-term notes
receivable 2,500 - - (48)[b] 2,452
----- --- ---- ------ -----
$3,767 $382 $(106) $ (430) $3,613
===== === ==== ====== =====
Year ended December 31, 1997: [c]
Reserve for doubtful accounts:
Trade receivables $1,041 $526 $(430) $ (155)[a] $ 857
(94)[d]
(31)[e]
Current notes and other
accounts receivable 329 - - 94 [d] 410
(13)[a]
Long-term notes
receivable 2,500 - - - 2,500
----- --- ---- ------ -----
$3,870 $526 $(430) $ (199) $3,767
===== === ==== ====== =====
[a] Doubtful accounts and credit memos written-off against the reserve and/or
collections of previously written-off accounts.
[b] Amount reclassed from "Long-term notes receivable" to "Current notes and
other accounts receivable".
[c] In accordance with the divestiture plan, beginning balances for 1997
reflect the exclusion of the reserves for discontinued operations.
[d] Amount reclassed from the "Trade receivables" to "Current notes and other
accounts receivable".
[e] Amount included in "Net current assets of other operations to be disposed
of" line item in the current year and in the "Accounts receivable, trade"
line item in the prior year.
KATY INDUSTRIES, INC.
INDEX OF EXHIBITS
DECEMBER 31, 1999
Exhibit
Number Exhibit Title
- ------ -------------
3.1 Certificate of Incorporation (incorporated by reference to Katy's
Form 10-K for year ended December 31, 1987, filed March 29, 1988).
3.2 By-Laws (incorporated by reference to Katy's Form 8-K filed
February 15, 1996).
4.1 Rights Agreement dated as of January 13, 1995 between Katy and
Harris Trust and Savings Bank as Rights Agent (incorporated by
reference to Katy's Form 8-K filed January 24, 1995).
4.1a Amendment dated as of October 31, 1996 to the Rights Agreement
dated as of January 13, 1995 between Katy and Harris Trust and
Savings Bank as Rights Agent (incorporated by reference to Katy's
Form 8-K filed November 8, 1996).
4.1b Amendment dated as of January 8, 1999 to the Rights Agreement dated
as of January 13, 1995 between Katy and LaSalle National Bank as
Rights Agent (incorporated by reference to Katy's Form 8-K filed
January 15, 1999).
10.1 Katy's Industries, Inc. 1994 Key Employee and Director Stock
Purchase Plan (incorporated by reference to Katy's Registration
Statement on Form S-8 filed September 28, 1994, Reg. No. 33-55647).
10.2 Katy Industries, Inc. Long-Term Incentive Plan (incorporated by
reference to Katy's Registration Statement on Form S-8 filed
June 21, 1995, Reg. No. 33-60443).
10.3 Katy Industries, Inc. Non-Employee Director Stock Option Plan
(incorporated by reference to Katy's Registration Statement on
Form S-8 filed June 21, 1995, Reg. No. 33-60449).
10.4 Katy Industries, Inc. Supplemental Retirement and Deferral Plan
effective as of June 1, 1995.
10.5 Katy Industries, Inc. Directors' Deferred Compensation Plan
effective as of June 1, 1995.
10.6 Katy Industries, Inc. Form of Compensation and Benefits Assurance
Agreement (covering Tier I employees: John R. Prann, Jr., Glenn
W. Turcotte, Arthur R. Miller and Robert M. Baratta).
10.7 Katy Industries, Inc. Form of Compensation and Benefits Assurance
Agreement (covering Tier II employees: Michael G. Gordono, Peter S.
More and Stephen P. Nicholson).
4 Credit Agreement
21 Subsidiaries of registrant
23 Independent Auditors' Consent
23.1a Independent Auditors' Consent
27 Financial Data Schedule
* Indicates incorporated by reference.
Exhibit 21
----------
SUBSIDIARIES OF REGISTRANT
The following list sets forth subsidiaries of Katy Industries, Inc. as of March
17, 2000, as well as operating divisions of such subsidiaries, with successive
indentation indicating parent/subsidiary relationships of such subsidiaries.
The percentage (unless 100%) of outstanding equity securities owned by the
immediate parent and the state of jurisdiction or incorporation of each such
subsidiary is stated in parentheses. Omitted subsidiaries do not, in the
aggregate, constitute a "significant subsidiary".
American Gage & Machine Company (Illinois)
Bee Gee Holding Company, Inc. (Florida) (43%)
Contico International, L.L.C. (Delaware)
Contico Manufacturing Limited (U.K.)
CRL Export, Inc. (U.S. Virgin Islands)
Glit/Disco, Inc. (Delaware)
Duckback Products, Inc. (Delaware)
Primary Coatings, Inc. (Delaware)
Hallmark Holdings, Inc. (Delaware)
Bay State
GC/Waldom Electronics, Inc. (Delaware)
Glit
Glit/Gemtex, Inc. (Delaware)
Glit/Microtron
Hamilton Precision Metals, Inc. (Delaware)
Loren Products
Wabash Holding Corp. (Delaware)
Wilen Products, Inc. (Delaware)
Katy International, Inc. (British Virgin Islands)
Katy Oil Company of Indonesia (Delaware)
Katy-Teweh Petroleum Company (Delaware)
Katy-Seghers, Inc. (Delaware)
Savannah Energy Systems Company (Georgia)
PTR Machine Corp. (Delaware)
W.J. Smith Wood Preserving Company (Texas)
Woods Industries, Inc. (Delaware)
Thorsen Tools, Inc.
Woods Industries (Canada), Inc. (Ontario, Canada)
Glit/Gemtex, Ltd. (Ontario, Canada) (June 1, 1997 and forward)
Exhibit 23
----------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-55647, Registration Statement No. 33-60443 and Registration Statement
No. 33-60449 of Katy Industries, Inc. on Forms S-8 of our reports dated
January 27, 1998, appearing in this Annual Report on Form 10-K of Katy
Industries, Inc. for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 17, 2000
Exhibit 23.1a
-------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement No. 33-55647, Registration Statement No. 33-60443 and
Registration Statement No. 33-60449.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,988,000
<SECURITIES> 0
<RECEIVABLES> 98,473,000
<ALLOWANCES> 1,424,000
<INVENTORY> 117,400,000
<CURRENT-ASSETS> 237,792,000
<PP&E> 171,282,000
<DEPRECIATION> 32,495,000
<TOTAL-ASSETS> 491,836,000
<CURRENT-LIABILITIES> 116,899,000
<BONDS> 150,835,000
0
32,900,000
<COMMON> 9,822,000
<OTHER-SE> 150,489,000
<TOTAL-LIABILITY-AND-EQUITY> 491,836,000
<SALES> 565,941,000
<TOTAL-REVENUES> 565,941,000
<CGS> 391,382,000
<TOTAL-COSTS> 538,170,000
<OTHER-EXPENSES> 2,229,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,950,000
<INCOME-PRETAX> 17,050,000
<INCOME-TAX> 3,217,000
<INCOME-CONTINUING> 12,155,000
<DISCONTINUED> (1,700,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,455,000
<EPS-BASIC> 1.25
<EPS-DILUTED> 1.21
<FN>
<F1>Includes Equity in loss of operations to be disposed of, $206,000.
</FN>
</TABLE>
