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, 1996 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 25, 1997 was $55,529,964. On that date 8,213,662
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 "1997 Proxy Statement") with respect to the 1997 annual meeting of
shareholders are incorporated by reference into Part III of this Form 10-K.
Exhibit index appears on page 42. Report consists of 43 pages.
PART I
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Item 1. Business
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Katy Industries, Inc. ("Katy" or the "Company") was organized as a
Delaware corporation in 1967, and carries on business through three principal
operating groups: Distribution and Service, Industrial and Consumer
Manufacturing, and Machinery Manufacturing. Katy also has equity investments
in two companies. Each Katy subsidiary has its own management and the head
of each subsidiary is responsible for the business and affairs of that
company. Nevertheless, each enterprise 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.
Management continuously reviews each of its businesses. As a result of
these ongoing reviews management may determine to sell certain companies and
intends to augment certain businesses with acquisitions. Any acquisitions
would be funded through current cash balances, available lines of credit
and/or new borrowings.
As a result of recent acquisitions and dispositions, Katy's operating
groups were realigned and renamed and the business units reclassified
during 1995. All operating data for years prior to 1995 was reclassified
to reflect this change. Selected restated operating data for each operating
group is incorporated herein by reference to "Managements 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 10 of the 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:
Distribution and Service Group
- ------------------------------
This group's principal business is the distribution of electronic
components and nonpowered hand tools. Other companies in this group
operate cold storage facilities, operate a waste-to-energy facility and
provide specialty metal products to a wide range of high-tech industries.
In 1996 the group accounted for 47% of the Company's total sales. The
companies in this group do not experience a seasonal sales trend, and have
a number of competitors, some of which are larger and have greater
financial resources. The five business units comprising this group are
described below:
GC Thorsen, Inc.
- ----------------
GC Thorsen, acquired by Katy in April of 1995, is headquartered in Rockford,
Illinois, and has a sourcing office in Taiwan. GC Thorsen is a leading
value-added distributor of electronic and electrical parts and accessories,
and nonpowered hand tools. In addition, the company produces a full line of
home entertainment component parts and service technician products.
Waldom Electronics, Inc.
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Waldom, located in Chicago, Illinois, is a leading distributor of high
quality, brand name electronic and electrical components, and loudspeakers
and their components. Waldom distributes primarily to the electronic,
automotive and communication industries.
Hamilton Precision Metals, Inc.
- -------------------------------
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.
C.E.G.F. (USA), Inc.
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This 95% owned company is headquartered in Plant City, Florida, and operates
refrigeration and cold storage facilities in Plant City, Florida and in
Houston, Texas. The facilities serve the needs of a variety of firms in the
frozen food, grocery and seafood industries.
Savannah Energy Systems Company
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Savannah Energy owns and operates a waste-to-energy facility in Savannah,
Georgia.
Industrial and Consumer Manufacturing Group
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The group's principal business is the manufacture, distribution, packaging
and sale of consumer electric corded products, electrical/electronic
accessories, sanitary maintenance supplies, abrasives and stains. The group
accounted for 36% of the Company's sales in 1996. The manufacturer of electric
corded products and electrical/electronic accessories and the manufacturer of
stain are the only businesses in this group that experience seasonal sales
trends. All have a number of competitors, some of which are larger and have
greater financial resources. The four business units comprising this group
are described below:
Glit/Microtron Abrasives
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Glit/Microtron, headquartered in Wrens, Georgia, also has a manufacturing
facility in Pineville, North Carolina, and a sales office in Mississauga,
Ontario, Canada. Glit/Microtron manufactures nonwoven floor maintenance pads,
scouring pads and sponges, 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 the brand names Hannah's Helper and Kleenfast through supermarkets and
drug and variety stores.
Gemtex Abrasives
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Gemtex, which was acquired by Katy in August of 1995, is headquartered in
Etobicoke, Ontario, Canada and has an additional manufacturing plant in
Buffalo, New York. Gemtex is a manufacturer and distributor of coated
abrasives for the automotive, industrial and retail markets.
Duckback Products, Inc.
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Located in Chico, California, Duckback is a manufacturer of high-tech
exterior transparent stains, coatings and water repellents. These products
are sold under the trade names Superdeck, Supershade and Fightback.
Woods Industries, Inc.
- ----------------------
Woods, which was acquired by Katy in December of 1996, is headquartered in
Carmel, Indiana and has additional warehousing, distribution and manufacturing
facilities in Jasonville, Loogootee, Mooresville, Spencer and Worthington,
Indiana, Sparks, Nevada, and London, Ontario, Canada. Woods manufactures and
distributes consumer electric corded products and supplies electrical/
electronic accessories. These products are sold to retailers principally
located in the United States and Canada.
Machinery Manufacturing Group
- -----------------------------
The principal business of this group is the manufacture of machinery for
the cookie sandwich, food processing and wood working industries. One company
manufactures testing and measuring instruments for the electrical and
electronic markets and recording devices for the transportation industry, and
another produces gauging and control systems for the metalworking industry.
Sales of the group accounted for 17% of the Company's sales in 1996. The
companies in this group do not experience seasonal sales trends. All the
companies in the group have a number of competitors, some of which are larger
and have greater financial resources. The five business units comprising this
group are described below:
Beehive Machinery, Inc.
- -----------------------
Located in Sandy, Utah, Beehive is a leading manufacturer in the specialized
field of mechanical meat and food separation equipment for the food
processing industry. Approximately 50% of Beehive's sales are made outside
the United States.
Bach-Simpson, Ltd.
- ------------------
Bach Simpson is a manufacturer of transportation test and monitoring system
equipment, speed indicators, fuel gauges and specialized diagnostic and
testing products. Primary markets served are the railroad and general
industrial markets. Bach Simpson is located in London, Ontario, Canada and
has a sales office in Cary, Illinois.
Peters Machinery Company
- ------------------------
Peters, which designs and manufactures proprietary machinery for producing
cookie and cracker sandwiches, is located in Chicago, Illinois. Approximately
73% of Peters' sales are made outside the United States.
Diehl Machines, Inc.
- --------------------
Diehl, located in Wabash, Indiana, is a pioneer in the production of ripsaws,
veneer splicers, automatic lathes and moulders. Primary customers are in the
millwork industry and manufacturers of doors, windows, cabinets and furniture.
AirTronics
- ----------
AirTronics, which is located in Elgin, Illinois, supplies the metalworking
industry with engineered gauging and control systems. In addition,
AirTronics rebuilds and resells centerless grinding machines.
Investments, at equity
- ----------------------
Katy has investments, at equity, in two companies. Bee Gee Holding
Company, Inc. harvests shrimp off the coast of South America and, during
1996, processed shrimp and other seafoods in Tampa, Florida for the domestic
and foreign markets. Schoen & Cie, AG ("Schoen") manufactures a wide range
of mechanical and programmable four post, web and flat bed die-cutting
equipment and shoe manufacturing machines. These companies have a number of
competitors, some of which are larger and have greater financial resources.
For additional information related to investments, reference is made to Notes
3 and 12 of the Notes to Consolidated Financial Statements in this report,
which information is included in Part II, Item 8.
Raw Materials
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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.
Employees
- ---------
As of December 31, 1996, Katy employed 2,049 people, approximately 104 of
whom 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.
Environmental Policies and Controls
- -----------------------------------
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 1997, in accordance
with terms agreed upon with the United States Environmental Protection Agency
and various state environmental agencies. (See Part I, Item 3 - Legal
Proceedings - Environmental Claims)
Licenses, Patents and Trademarks
- --------------------------------
The success of Katy's products has not depended on patent and license
protection, but rather on the quality of Katy's products, proprietary
technology, contract performance and the technical competence and creative
ability of Katy's personnel to develop and introduce saleable products.
Research and Development Costs
- ------------------------------
Research and development costs are expensed as incurred and are not
material to Katy's operations.
Item 2. PROPERTIES
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As of December 31, 1996, Katy's total building floor area owned or
leased was 2,258,000 square feet, of which 1,360,000 square feet were owned
and 898,000 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)
Distribution and Service - primarily plant and
office facilities with principal facilities
located in Savannah, Georgia; Chicago, Illinois;
Plant City, Florida; Houston, Texas;
Lancaster, Pennsylvania; Rockford, Illinois;
and Taipei, Taiwan. 629 30 659
Industrial and Consumer Manufacturing - primarily
plant and office facilities with principal
facilities located in Wrens, Georgia; Pineville,
North Carolina; Chico, California; Buffalo,
New York; Carmel, Indianapolis, Loogootee,
Mooresville, Spencer, and Worthington, Indiana;
Sparks, Nevada, and Etobicoke, London and
Mississauga, Ontario, Canada 330 855 1,185
Machinery Manufacturing - primarily plant and
office facilities with principal facilities
located in Sandy, Utah; Elgin, Forest Park, and
Chicago, Illinois; Wabash, Indiana; and London,
Ontario, Canada 261 0 261
Corporate - office facilities in Englewood,
Colorado and rental properties in Elk Grove
Village, Illinois and New York, New York 140 13 153
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 and are fully productive.
Item 3. LEGAL PROCEEDINGS
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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
--------------------
(1) United States vs. Midwest Solvent Recovery, Inc., et al. and (Third
Party Action) American Can Company et al. vs. Accutronics, et al.,
Case No. 79-556 (U.S. District Court, Northern District of
(Indiana). Third Party Complaint filed January 17, 1985 (Size
Control Company, a former division of a subsidiary of Katy, is a
third party defendant).
(2) United States vs. W.J. Smith Wood Preserving Co., Civil No.
S-87-193 CA (U.S. District Court, Eastern District of Texas,
Sherman Division); and Texas Water Commission Administrative
Enforcement Action.
(3) Notice of Potential Liability, issued by United States Environmental
Protection Agency to LaBour Pump Company, a former division of
American Gage & Machine Company, a Katy subsidiary, concerning
Himco Dump site in Elkhart, Indiana.
(4) Notice of Potential Liability, issued by United States
Environmental Protection Agency to Katy concerning Double Eagle
Refining site in Oklahoma City, Oklahoma.
(5) Notice of Potential Liability, issued by United States
Environmental Protection Agency to Katy concerning Galaxy/Spectron
Refining site in Elkton, Maryland.
(6) Notice of Claim - Medford, Oregon.
(7) Demand for Indemnification - Southington, Connecticut.
(8) Notice of Potential Liability, issued by United States
Environmental Protection Agency to Katy concerning Old Southington
Landfill Site in Southington, Connecticut.
(9) Notice of Potential Liability, issued by Kansas Department of
Health and Environment to Panhandle Industrial Company, Inc.
concerning municipal landfill in McPherson, Kansas.
(10) Demand for Indemnification - Londonderry, New Hampshire.
(11) Request that Katy join Potentially Responsible Party Group - Fuels
and Chemicals Superfund Site, Coaling, Alabama.
(12) Demand for Indemnification - Elgin, Illinois.
(13) Request for Information - West Jordan, Utah.
In matters (1), (3), (4), (5), (7), and (8) above, the United States is
alleging, under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA" or "Superfund"), that various generators and/or
transporters of hazardous wastes are responsible for the clean-up of certain
sites where there have been releases or threatened releases of hazardous
substances into the environment. One or more Katy subsidiaries, or former
subsidiaries, has been identified as a potentially responsible party ("PRP") in
these matters. Under the federal Superfund statute, parties are held to be
jointly and severally liable, thus subjecting them to potential individual
liability for the entire cost of clean-up at the site. These costs are, by
nature, difficult to estimate and subject to substantial change as litigation
or negotiations with the United States, states, and other parties proceed.
In the Midwest Solvent case, matter (1) above, the United States brought
action to recover its costs in completing the initial clean-up of two dump
sites. A number of original defendants in the case filed a third party
complaint against Size Control Company, a former Katy subsidiary ("Size
Control"), and other PRP's, for contribution. Size Control disputed
liability. A partial settlement agreement was entered into pursuant to which
the United States has been reimbursed for its initial clean-up costs. Size
Control has entered into a settlement agreement, approved by the court, in
order to settle its liability in this matter. Pursuant to this arrangement
and assuming that projected clean-up costs are accurate, Size Control will
pay approximately $200,000 over ten years, of which approximately $94,000
has been paid to date.
The W. J. Smith case, matter (2) above, originated as an enforcement
action for civil penalties and injunctive relief under the Federal Resource
Conservation and Recovery Act ("RCRA"). The United States Environmental
Protection Agency ("USEPA") alleged violations of RCRA based upon the alleged
status of sludge drying beds of W.J. Smith Wood Preserving Company, a Katy
subsidiary ("W.J. Smith"), as a hazardous waste management unit. A consent
decree was entered in this case on November 8, 1989. The consent decree
provided for a $60,000 civil penalty that was paid in December, 1989, clean
closure of the sludge drying beds and installation of a new groundwater
monitoring system.
The Texas Water Commission's ("TWC") administrative enforcement action was
settled with the entry of an Agreed Order (the "Order") on January 20, 1988,
whereby a civil penalty of $8,800 was assessed against W.J. Smith, $3,300 of
which was deferred so long as W.J. Smith complies with the terms of the
Order. The Order required W.J. Smith to: close an earthen basin and the
sludge drying beds; conduct soil and groundwater contamination studies; and,
if necessary, propose and implement a remedial action plan. On September 27,
1990, the TWC issued a notice of solid waste violations to W.J. Smith.
In 1993, TWC referred the entire matter to the USEPA, which initiated a
Unilateral Administrative Order Proceeding under Section 7003 of 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 $4,800,000 in undertaking
cleanup and compliance activities in connection with this matter and has
established a reserve, in excess of $1,200,000, 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 (3) above, on April 20, 1989, USEPA issued a Notice of
Potential Liability to LaBour Pump Company ("LaBour"), a former division of
American Gage & Machine Company, a Katy subsidiary ("American Gage"), and
thirty-six other PRP's concerning the Himco, Inc. dump site in Elkhart,
Indiana. The notice stated that USEPA was planning to spend public funds to
perform a remedial investigation and feasibility study ("RIFS") at the site
unless such action was undertaken by responsible parties, and identifies all
recipients of the notice as PRP's. The notice also requested further
information. There was no agreement among PRP's to perform the RIFS and,
therefore, USEPA undertook to perform it. USEPA issued another general
notice with regard to this site and Katy and its counsel are continuing to
investigate this matter. The liability of Katy's subsidiary cannot be
determined at this time.
Concerning matter (4) above, on September 26, 1989, USEPA issued a
Notice of Potential Liability to Katy and numerous other PRP's concerning the
Double Eagle Refinery site in Oklahoma City, Oklahoma. The notice identifies
all recipients as PRP's, demands reimbursement for $145,000 for its costs and
requests information. Katy has disputed any liability with respect to this
matter and Katy's liability, if any, cannot be determined at this time.
Concerning matter (5) above, on March 19, 1990, USEPA issued a Notice of
Potential Liability to Hamilton Precision Metals ("Hamilton"), a subsidiary
of Bush Universal Inc. (a Katy subsidiary) and numerous other PRP's
concerning the second phase of a clean-up of the Galaxy/Spectron Site in
Elkton, Maryland. In September, 1991, Hamilton elected to participate in
such clean-up. To date, Hamilton has paid approximately $1,600 in connection
therewith. The future liability of Katy's subsidiary cannot be determined
at this time.
Concerning matter (6) 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. Balteau has demanded that Katy accept
financial responsibility for investigation and clean-up costs incurred as a
result of the PCB contamination. Cost estimates for the clean-up currently
range between $2,000,000 and $3,000,000. Katy and Balteau have agreed to
share such costs. Pursuant to such agreement, Katy will be responsible for
65% of the first $2,000,000 of such costs and 50% of such costs to the extent
that they exceed $2,450,000. Katy has established a reserve in connection
with this matter. The liability of Katy and its subsidiary cannot be
determined at this time.
Concerning matter (7) above, on July 9, 1992, Katy received a letter
from Syratech Corporation ("Syratech") requesting that Katy indemnify
Syratech for any liability incurred by it in connection with the
investigation and clean-up by USEPA of the Solvents Recovery Service of New
England Superfund Site in Southington, Connecticut (the "Southington Site").
Such request stems from the Agreements. On April 22, 1993, USEPA sent Katy
a Notice of Potential Liability with regard to the Southington Site, which
indicated that Katy was responsible for all or a portion of the contamination
at the Southington Site that USEPA had previously attributed to Syratech.
Katy and its counsel have determined that the volume of materials that USEPA
has sought to attribute to Katy and its subsidiaries is small in quantity.
On February 15, 1994, USEPA sent a letter to Katy and certain other PRP's
advising these parties of an opportunity to enter into a "de minimis"
settlement agreement with USEPA concerning alleged liability for cleanup of
the Southington Site. All potentially responsible parties that sent no more
than 10,000 gallons of material to the Southington Site are eligible to
participate. The terms of the offer require the settlors to pay their
volumetric share of the estimated costs of cleanup of the Southington Site,
plus a premium of 153%. As of April 1994, USEPA estimated total cleanup
costs at $73,740,665. Under the terms of the offer, Katy is eligible to
participate in the "de minimis" settlement, if it elects to do so. Katy also
has the option of delaying its participation in the "de minimis" settlement
in favor of a second phase comprehensive settlement of this matter and the Old
Southington Landfill matter (see matter (8) below). If Katy elects to
participate in such a second phase settlement, it will be subject to an
interest charge at the rate of 8.75% per annum for any amounts due as of the
payment date of the first phase settlement. Katy's liability in this matter
cannot be determined at this time.
Concerning matter (8) above, on January 21, 1994, USEPA sent a Notice of
Potential Liability to Katy advising Katy that it is potentially liable under
CERCLA and RCRA for the costs of remedial investigations and remedial actions
to clean up hazardous substances disposed at the Old Southington Landfill
Site in Southington, Connecticut. USEPA alleged that Katy's former
subsidiary, Wallace Silversmiths, sent hazardous substances to Solvents
Recovery Services of New England (see matter (7) above), which, in turn, sent
an unspecified amount of these materials to the Old Southington Landfill Site
for disposal. At this time, USEPA has not produced any direct evidence
concerning the alleged transactions between the two sites. Katy's liability
with regard to this matter cannot be ascertained at this time.
Concerning matter (9) above, on May 22, 1992, Panhandle Industrial
Company, Inc., a Katy subsidiary ("Panhandle"), received a notice from the
Kansas Department of Health and Environment stating that Panhandle may be
responsible under Kansas law for a portion of the clean-up costs relating to
a municipal landfill in McPherson, Kansas. Present clean-up cost estimates
for the landfill approximate $1,000,000. Panhandle, together with other
potentially responsible parties, are currently negotiating an agreement to fund
investigation and clean-up activities. Panhandle's liability cannot be
determined at this time.
Concerning matter (10) above, in September of 1993, Katy received a
letter from counsel to Allard Industries, Inc. ("Allard") requesting that
Katy and its subsidiaries, American Gage and JEI Liquidating, Inc., indemnify
Allard for any liability incurred by it in connection with a case captioned
Town of Londonderry v. Exxon Corporation, et al., Case No. C-93-95-L (United
States District Court, District of New Hampshire). Such request stems from
certain agreements among Katy, Allard and other parties. The case at issue
concerns the disposal and treatment of hazardous wastes and substances at a
landfill site in Londonderry, New Hampshire (the "Londonderry Site"), states
claims under CERCLA and state law, and seeks, inter alia, recovery of response
costs with respect to the Londonderry Site, declaratory judgment with respect
to the defendants' liability for future response costs and unspecified monetary
damages. Katy has agreed to defend and indemnify Allard in this matter.
The parties in the lawsuit agreed to mediate the case. The mediation
resulted in a settlement in principle between the parties which will be
memorialized in a Consent Decree. Under the expected Consent Decree,
Allard/Katy and several other parties will cash out and perform no future
work at the site. In exchange, Allard and Katy will receive a release and
contribution protection. Allard/Katy's payment under the Consent Decree is
expected to be approximately $287,000. Payment will likely be due in 1997.
In response to Allard/Katy's demands for contribution, Honeywell, a former
owner/operator of the Manchester facility, has agreed in principle to pay
$40,000 of the Allard/Katy's settlement under the Consent Decree.
Concerning matter (11) above, in December, 1993, Katy received a letter
addressed to LaBour from Stephan K. Todd, Chairman-Fuels and Chemicals CERCLA
PRP Group. Mr. Todd contended that LaBour is a PRP at the site, and
requested that LaBour join the Fuels and Chemicals PRP Group, which would
require payment of administrative costs, as well as a share of past and future
remediation costs. The extent of these costs is not known at this time.
Katy has agreed to pay approximately $5,000 in settlement of its liability in
this matter, to the extent that total cleanup costs are less than or equal to
$5,000,000, and has agreed to a formula for future contribution to the extent
that total cleanup costs exceed $5,000,000. Katy's future liability with
respect to this matter, if any, cannot be determined at this time.
Concerning matter (12) above, American Gage received a claim from
Elgiloy Limited Partners ("Elgiloy") requesting that it pay costs associated
with the cleanup of solvent contamination at Elgiloy's Elgin, Illinois property
pursuant to the terms of a Settlement Agreement, General Release and Covenant
Not to Sue, which American Gage executed on September 25, 1989. Under such
agreement, American Gage agreed to pay 67.7% of future costs associated with
environmental cleanup activities at such property, up to a maximum of
$500,000. American Gage and Elgiloy are currently in the process of
identifying those environmental cleanup activities. The total amount of
American Gage's liability cannot be determined at this time.
Concerning matter (13) above, in the Fall of 1996, USEPA issued to
Hamilton Precision Metals a request for information pursuant to Section
104(e) of CERCLA concerning the Reclaim Barrell Company Site in West Jordan,
Utah. Hamilton responded to USEPA's request in October 1996. Hamilton has
not been contacted by USEPA since. The liability of Hamilton, if any, cannot
be determined at this time.
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 Industries, Inc., a subsidiary of the Company, and
against certain past and present officers and directors and former owners of
Woods Industries, Inc. 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.
The plaintiff also alleges that it made loans to an entity controlled by
officers and directors based upon fraudulent representations. The plaintiff
seeks to hold Woods Industries, Inc. 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. Katy may have recourse against the former owners of Woods
under the purchase agreement; however, as the litigation is in preliminary
stages, it is impossible at this time for the Company to determine the limit
of such recourse. As the litigation is in preliminary stages, it is impossible
at this time for the Company to determine an outcome or reasonably estimate
the range of potential exposure.
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 1996.
PART II.
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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
------ ------- ------- ---------
1996
First Quarter $13 3/4 $ 9 3/4 $.0750
Second Quarter 15 1/8 12 1/2 .0750
Third Quarter 14 5/8 10 7/8 .0750
Fourth Quarter 14 7/8 10 3/4 .0750
1995
First Quarter $10 1/8 $ 8 3/8 $.0625
Second Quarter 9 5/8 7 .0625
Third Quarter 9 5/8 7 3/4 .0625
Fourth Quarter 10 7/8 9 1/8 .0625
As of February 28, 1997, there were 1,344 record holders of the Common
Stock and there were 8,228,062 shares of Common Stock outstanding.
Item 6. SELECTED FINANCIAL DATA
- --------------------------------
Years Ended December 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Thousands of dollars, except per share data and ratios)
Net sales $188,518 $171,269 $159,581 $168,723 $177,077
Income (loss) from continuing operations before
cumulative effect of change in accounting principle 13,716 28,571 (8,843) 5,496 1,102
Earnings (loss) per common share 1.64 3.18 (.98) .60 .12
Net income (loss)* 13,716 28,571 (8,843) (1,540) 1,102
Cash flows from operating activities 22,524 7,620 8,418 (1,844) 22,390
Total assets 239,509 225,412 203,142 330,225 314,661
Total liabilities and minority interest 109,463 95,082 92,364 86,459 67,461
Shareholders' equity 130,046 130,330 110,778 243,766 247,200
Long-term debt, excluding current portion 8,582 9,346 10,572 4,289 5,942
Depreciation and amortization 5,505 5,949 6,049 5,716 5,709
Capital expenditures 5,319 9,163 4,105 4,278 5,504
Working capital 107,569 96,425 50,041 175,075 135,965
Ratio of debt to total debt and equity 6.6% 15.8% 15.9% 6.7% 6.4%
Shareholders' equity per share 15.78 14.94 12.21 27.03 27.41
Return on average shareholders' equity 10.5% 23.7% (5.0%) (.6%) .4%
Common shares outstanding stock 8,239,262 8,724,187 9,076,387 9,017,387 9,017,387
Shareholders of record 1,351 1,410 1,471 1,560 1,741
Number of employees 2,049 1,109 1,285 1,506 1,972
Cash dividends declared per share $.30 $.25 $14.1875 $.25 $.25
* Includes loss from discontinued operations of $5,618 in 1993 and the
cumulative effect of change in accounting principle of $1,418 loss in 1993.
<FN>
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 Statements of Consolidated Operations
(included in Part II, Item 8). Katy consists of three business segments:
Distribution and Service, Industrial and Consumer Manufacturing and Machinery
Manufacturing. The Distribution and Service Group is primarily involved in
the distribution of electronic components and nonpowered hand tools.
Additionally, this group provides cold storage services and waste-to-energy
services and produces specialty metal foils primarily for the electronic and
medical industries. The Industrial and Consumer Manufacturing Group produces
sanitary maintenance supplies and electrical corded products, abrasives and
stains for the consumer, maintenance, automotive and industrial markets.
The Machinery Manufacturing Group manufactures machinery for the cookie
sandwich, food processing and wood working industries and also manufactures
testing and measuring instruments for the electrical and electronic markets
and recording devices for the transportation industry and gauging and control
systems for the metalworking industry. Katy intends to seek additional
acquisitions to grow its electronic/electrical distribution, do-it-yourself
and sanitary maintenance businesses.
The table below and the narrative which follows summarize the key factors in
the year-to-year changes in operating results.
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(Thousands of dollars)
Distribution and Service Group
- ------------------------------
Net sales $88,732 $70,596 $32,343
Income from operations 8,891 6,076 3,766
Operating margin 10.0% 8.6% 11.6%
Identifiable assets 82,159 76,713 42,520
Depreciation and amortization 3,079 2,930 1,741
Capital expenditures 3,018 6,638 1,742
Industrial and Consumer Manufacturing Group
- -------------------------------------------
Net sales $67,141 $49,021 $46,283
Income from operations 5,137 3,814 4,237
Operating margin 7.7% 7.8% 9.2%
Identifiable assets 89,229 33,093 21,917
Depreciation and amortization 1,525 1,527 1,185
Capital expenditures 1,235 1,055 892
Machinery Manufacturing Group
- -----------------------------
Net sales $32,645 $51,652 $80,955
Income (loss) from operations 2,291 1,319 (2,396)
Operating margin 7.0% 2.6% (3.0%)
Identifiable assets 23,128 27,153 50,501
Depreciation and amortization 747 1,318 2,754
Capital expenditures 884 1,303 1,319
Corporate
- ---------
Corporate expenses $ 6,783 $ 6,670 $12,624
Identifiable assets 44,993 88,453 88,204
Depreciation and amortization 154 174 369
Capital expenditures 182 167 152
Company
- -------
Net sales $188,518 $171,269 $159,581
Income (loss) from operations 9,536 4,539 (7,017)
Operating margin 5.1% 2.7% (4.4%)
Identifiable assets 239,509 225,412 203,142
Depreciation and amortization 5,505 5,949 6,049
Capital expenditures 5,319 9,163 4,105
1996 Compared to 1995
- ---------------------
Distribution and Service Group sales increased $18,136,000 or 26%. The
acquisition of GC Thorsen effective March 31, 1995, provided the majority of
the increase due to having a full year of operations and increased market
penetration during 1996. Increased sales of other electronic components and
increased sales in the rerolled metals area also led to the improved sales.
Operating income for the group increased $2,815,000 or 46%. Improved margins
and a full year of operations at GC Thorsen were the primary reasons for the
improvement.
Capital expenditures for the group decreased during the year due to
expenditures made during 1995 for a plant expansion at the cold storage
facility, that were not repeated in 1996.
The Industrial and the Consumer Manufacturing Group's sales increased
$18,120,000 or 37%. The increased sales were due to the acquisition of Woods
effective December 1996, a full year of sales from Gemtex, which was acquired
in August 1995, and increased sales throughout product lines from existing
businesses, partially offset by the divestiture of the filter business in
December, 1995.
Operating income for the group increased $1,323,000 or 35%. The improvement
was due to higher margins and a full year of operations at Gemtex, operating
income generated at Woods during December 1996 and the elimination of
operating losses in 1995 at the filter business. Operating income in all
other product lines was relatively comparable to the prior year.
The increase in identifiable assets for the group was due mainly to the
acquisition of Woods in December 1996.
Sales for the Machinery Manufacturing Group decreased $19,007,000 or 37%.
The deconsolidation of the Schoen Group and the disposition of B. M. Root
during 1995 contributed to most of this sales decrease. An increase in sales
at the cookie sandwich machinery line was offset by decreases in the wood
processing machinery and gauging and control systems businesses.
Operating income for the group increased $972,000 or 74%. Losses at the
Schoen Group during 1995 were the primary factor in this improvement during the
year. This improvement was offset by decreased income from operations at the
wood processing machinery and the gauging and control systems due to lower
sales volumes during 1996.
Corporate expenses in 1996 remained constant with expenses incurred in 1995.
Identifiable assets at Corporate decreased during the year mainly due to
lower cash levels at year end, as a result of the Woods acquisition and the
sale of Union Pacific Corporation common stock during 1996.
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 electronic/electrical distribution,
do-it-yourself and sanitary maintenance 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 increased $7,523,000 as gross margins improved to 31% from 30%
in 1995 while selling, general and administrative expenses increased $2,526,000
in 1996 compared to the prior year. The increase in selling, general and
administrative expenses of 5% is mainly due to the 10% increase in sales
volumes during 1996.
Interest expense decreased $1,668,000 from 1995 as the Company had no
outstanding short-term borrowings and lower long-term debt. Borrowings in
1995 were incurred in connection with the GC Thorsen acquisition. Interest
income increased $1,430,000 during 1996 due to the Company maintaining higher
average cash and cash equivalent balances during 1996 compared to 1995.
During 1996, the Company sold 250,000 shares of Union Pacific Corporation
common stock and 97,938 shares of Union Pacific Resources Corporation common
stock, resulting in a pre-tax gain of $10,612,000. During 1995, the Company
sold 248,566 shares of Union Pacific Corporation common stock, resulting in a
pre-tax gain of $7,675,000. Also in 1995, the Company sold one-half of its 75%
interest in Schoen. In connection with the sale, the Company recorded a gain
of $4,920,000 reflecting the reversal of previously recorded losses of Schoen.
Other, net in 1996 was income of $980,000 versus income of $3,591,000 in
1995. In 1995, the Company received settlements from various insurance
companies in the amount of $2,846,000 in settlement of claims associated with
environmental issues. During 1996 the Company recognized $304,000 of income
due to similar settlements.
Income from continuing consolidated operations before income taxes increased
to $22,479,000 in 1996 from $18,133,000 in 1995. A $4,997,000 increase in
income from operating units in 1996 was offset partially by the gains in 1995
described above.
Provision for income taxes was $8,199,000 or an effective rate of 36% in
1996, and $3,771,000 or an effective rate of 21% in 1995. The 1995 effective
tax rate reflects the fact that the gains on the Schoen sale were not tax
effected, since the losses had not previously provided a tax benefit.
Equity in income of unconsolidated subsidiaries decreased $14,773,000 in 1996
due to the gain in 1995 recognized on the sale of Syroco, Inc. by Syratech, and
the tax benefit realized from the reversal of taxes previously provided on
Katy's share of Syratech's income, which is no longer required because of the
sale of WSC Liquidating and Katy's holdings of Syratech stock.
1995 Compared to 1994
- ---------------------
Distribution and Service Group sales increased $38,253,000 or 118%. The
acquisition of GC Thorsen effective March 31, 1995, provided the majority of
the increase. Sales of cold storage services increased due to increased plant
capacity brought on line during 1995, waste-to-energy services increased due
to increased market penetration, specialty metals increased due to new product
lines, and electronics distribution increased due to increased market
penetration.
Operating income for the group increased $2,310,000 or 61%. The inclusion
of GC Thorsen was a major factor in the increase, along with sharply improved
margins for waste-to-energy services and cold storage services. Specialty
metals and electronics distribution also had slightly higher margins for the
year, primarily due to higher volume.
Capital expenditures for the group increased primarily due to a plant
expansion at the cold storage facility and a major machinery addition at the
specialty metals manufacturer.
The Industrial and Consumer Manufacturing Group's sales for the year
increased 6% for the year or $2,738,000. The addition of sales from Gemtex
effective August, 1995, along with increased sales of stains, offset
decreases in the filter business, which was disposed of at year end.
Increased marketing and penetration into new sales territories were the
primary factors in the increase in stain sales.
Operating income for the group decreased $423,000 or 10%, primarily due
to lower margins on filter products. Income in all other product lines was
relatively comparable to the prior year. Pricing pressure from competitors
was the main reason for the lack of income growth.
Sales for the Machinery Manufacturing Group decreased $29,303,000 or 36%.
The dispositions of Panhandle, a remanufacturer of machinery for the oil, gas
and petrochemical industries, and the Schoen Group resulted in most of this
sales decrease. A decrease in sales of cookie sandwich machinery was offset
by increased sales of food processing machinery, wood processing machinery
and gauging and control systems. These sales increases resulted from new
products and increased market penetration.
Operating income for the group increased $3,715,000 from the prior year.
Inventory write-downs of $4,330,000 in 1994, which were absent in 1995, were
the primary factor in the increase. The lower volume in cookie sandwich
machinery resulted in a 52% decline in operating income for that product line.
Most other products showed modest increases in income.
Corporate expenses in 1995 decreased $5,954,000 due primarily to lower
environmental, insurance and legal costs.
Following is a discussion concerning other factors which affected the
Company's net income.
Gross profit increased $9,257,000 in 1995 as margins improved to 30% from
26% in the prior year, while selling, general and administrative expenses
decreased $2,299,000 or 5% due in large part to lower corporate expenses.
Interest expense increased $837,000 due to borrowings in connection with
the purchase of GC Thorsen, while interest income declined $2,427,000 due to
the special dividend paid in 1994 which significantly reduced the Company's
interest-bearing cash and cash equivalents balance.
During 1995, Company sold 248,566 shares of Union Pacific Corporation
common stock, resulting in a gain of $7,675,000. The Company also sold
one-half of its 75% interest in Schoen & Cie, AG. In connection with the sale,
the Company recorded a gain of $4,920,000 reflecting the reversal of
previously recorded losses of Schoen.
Other, net in 1995 was income of $3,591,000 versus expense of $1,265,000
in 1994. Other, net in 1995 was favorably impacted by the gain realized on
the sale of WSC Liquidating and Katy's holdings of Syratech stock of $793,000.
In addition, in 1995, the Company received settlements from various insurance
companies in the amount of $2,846,000 in settlement of claims associated with
environmental issues. Other, net in 1994 was impacted by $2,500,000 of special
charges for environmental costs and moving the corporate headquarters.
Income from continuing consolidated operations before income taxes and
minority interest was $18,149,000 in 1995 versus a loss of $16,048,000 in 1994.
An $11,566,000 increase in income from operating units and the gains described
above were the primary reasons for this change. In addition, in 1994, the
Company wrote-off various assets in the amount of $9,288,000.
Income taxes of $3,771,000, or an effective rate of 21%, reflect the fact
that the gains on the Schoen sale were not tax effected, since the losses had
not previously provided a tax benefit. The tax benefit in 1994 was adversely
impacted by the fact that losses from Schoen provided no tax benefit.
Equity in income of unconsolidated subsidiaries increased in 1995 by
$10,914,000 due to a gain recognized on the sale of Syroco, Inc. by Syratech
and from the reversal of taxes previously provided on Katy's share of
Syratech's income, which is no longer required because of the sale of WSC
Liquidating and Katy's holdings of Syratech stock.
New Accounting Pronouncements
- -----------------------------
In October of 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which was effective for the Company beginning
January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages, but does not require,
compensation cost to be measured based on fair value of the equity instrument
awarded. Companies are permitted, however, to continue to apply APB Opinion
No. 25, which recognizes compensation cost based on the intrinsic value of
the equity instrument awarded. The Company applies APB Opinion No. 25 to its
stock based compensation awards to employees and discloses the required pro
forma effect on net income and earnings per share.
Financial Position and Cash Flow
- --------------------------------
Combined cash, cash equivalents and marketable securities decreased
$33,033,000 to $27,321,000 on December 31, 1996, from $60,354,000 on
December 31, 1995, mostly due to the Woods acquisition. Current ratios were
2.82 to 1.00 and 2.81 to 1.00 at December 31, 1996 and 1995, respectively.
Working capital increased $11,144,000 in 1996. The increase in working
capital and in the current ratio in 1996, primarily resulted from the
acquisition of Woods Industries, Inc. in December of 1996.
In August, 1995, Katy's Board of Directors authorized the Company to
repurchase up to 400,000 shares of its common stock over the subsequent twelve
months in open market transactions. On January 2, 1996, Katy's board
authorized the Company to repurchase an additional 500,000 shares, bringing
the total authorization to 900,000 shares. In connection therewith, Katy
repurchased 509,800 of its common shares in the year ended December 31, 1996,
at a total cost of $6,367,000. Additionally, in the first two months of 1997,
the Company repurchased 11,200 shares, at a cost of $155,835, bringing the
total shares repurchased to 873,200.
Katy has authorized and expects to commit approximately $11,600,000 for
capital projects in 1997, exclusive of acquisitions, if any, and expects to
meet these capital expenditure requirements through the use of available cash
and internally generated funds. The Company continues to search for appropriate
acquisition candidates, and may obtain all or a portion of the financing for
future acquisitions through the incurrence of additional debt, which the
Company believes it can obtain at reasonable terms and pricing.
At December 31, 1996, Katy had short and long-term indebtedness of
$9,239,000, secured by assets of its cold storage company. Total debt was
6.6% of total debt and equity at December 31, 1996. Katy has a commited
unsecured line of credit with The Northern Trust Company in the amount of
$20,000,000, which is used principally for letters of credit. Katy intends to
secure an additional commitment of bank credit in an amount it determines
appropriate for future acquisitions.
Management continuously reviews each of its businesses. As a result of
these ongoing reviews, management may determine to sell certain companies and
may augment its remaining businesses with acquisitions. When sales do occur,
management anticipates that funds from these sales will be used for general
corporate purposes or to fund acquisitions. Acquisitions may also be funded
through cash balances, available lines of credit and future borrowings. See
Note 2 to the Consolidated Financial Statements for a discussion of
acquisitions and dispositions.
Environmental and Other Contingencies
- -------------------------------------
In December, 1996, Banco del Atlantico, a bank located in Mexico, filed a
lawsuit against Woods Industries, Inc., a subsidiary of the Company, and
against certain past and present officers and directors and former owners of
Woods Industries, Inc. 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.
The plaintiff also alleges that it made loans to an entity controlled by
officers and directors based upon fraudulent representations. The plaintiff
seeks to hold Woods Industries, Inc. 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. Katy may have recourse against the former owners of Woods
under the purchase agreement; however, as the litigation is in preliminary
stages, it is impossible at this time for the Company to determine the limit
of such recourse. As the litigation is in preliminary stages, it is
impossible at this time for the Company to determine an outcome or reasonably
estimate the range of potential exposure.
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
U.S. Environmental Protection Agency and certain 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") and equivalent state laws and,
as such, may be liable for the cost of cleanup and other remedial activities
at these sites. Responsibility for cleanup and other remedial activities at
a Superfund site is typically shared among PRPs based on an allocation formula.
The means of determining allocation among PRPs is generally set forth in a
written agreement entered into by the PRPs at a particular site. An allocation
share assigned to a PRP is often based on the PRP's volumetric contribution
of waste to a site. Under the federal Superfund statue, parties are held to
be jointly and severally liable, thus subjecting them to potential individual
liability for the entire cost of cleanup at the site. The Company is also
involved in remedial response and voluntary environmental cleanup at a number
of other sites which are not currently the subject of any legal proceedings
under Superfund, including certain of its current and formerly owned
manufacturing facilities. Based on its estimate of allocation of liability
among PRPs, the probability that other PRPs, many of whom are large, solvent,
public companies, will fully pay the costs apportioned to them, currently
available information concerning the scope of contamination, estimated
remediation costs, estimated legal fees and other factors, the Company has
recorded and accrued for indicated environmental liabilities in the aggregate
amount of approximately $5,266,000 at December 31, 1996. 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. The United States had alleged violations of the Resource Conservation
and Recovery Act ("RCRA") based upon the alleged status of sludge
drying beds of W.J. Smith Wood Preserving Company, a Company
subsidiary ("W.J. Smith"), as a hazardous waste management unit.
Since 1990, the Company has spent in excess of $4,800,000 in
undertaking cleanup and compliance activities in connection with this
matter and has established reserves for future remediation activities.
An Administrative Order on Consent was entered effective December 29,
1995, with estimated additional remediation costs of $1,200,000.
2. During 1995, the Company reached agreement with the Oregon Department
of Environmental Quality ("ODEQ") as to a clean up plan for PCB
contamination at the Medford, Oregon facility of the former Standard
Transformer division of American Gage. The plan called for the Company
to provide a trust fund of $1,300,000 to fund clean up costs at the
site. These funds were expended in 1995. The plan also called for
the present occupants of the site, Balteau Standard, Inc. to provide
the next $450,000 of cost, with any additional costs to be shared
equally between the two parties. The Company believes the clean up
plan has been successful and has requested that the ODEQ inspect the
property and approve the remediation work to release the Company from
any future liability.
3. In September of 1993, Katy received a letter from counsel to Allard
Industries, Inc. ("Allard") requesting that Katy and its subsidiaries,
American Gage and JEI Liquidating, Inc., indemnify Allard for any
liability incurred by it in connection with a case captioned Town of
Londonderry v. Exxon Corporation, et al., Case No. C-93-95-L (United
States District Court, District of New Hampshire). Such request stems
from certain agreements among Katy, Allard and other parties. The case
at issue concerns the disposal and treatment of hazardous wastes and
substances at a landfill site in Londonderry, New Hampshire
(the "Londonderry Site"), states claims under CERCLA and state law,
and seeks, inter alia recovery of response costs with respect to the
Londonderry Site, declaratory judgment with respect to the defendants'
liability for future response costs and unspecified monetary damages.
Katy has agreed to defend and indemnify Allard in this matter.
The parties in the lawsuit agreed to mediate the case. The mediation
resulted in a settlement in principle between the parties which will
be memorialized in a Consent Decree. Under the expected Consent
Decree, Allard/Katy and several other parties will cash out and
perform no future work at the site. In exchange, Allard and Katy will
receive a release and contribution protection. Allard/Katy's payment
under the Consent Decree is expected to be approximately $287,000.
Payment will likely be due in 1997. In response to Allard/Katy's
demands for contribution, Honeywell, a former owner/operator of the
Manchester facility, has agreed in principle to pay $40,000 of the
Allard/Katy's settlement under the Consent Decree.
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.
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.
John R. Prann, Jr.
President, Chief Executive Officer and Chief Operating Officer
Stephen P. Nicholson
Vice President, Finance and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
KATY INDUSTRIES, INC.
We have audited the accompanying consolidated balance sheets of Katy
Industries, Inc. and subsidiaries (the "Company") as of December 31, 1996 and
1995, and the related statements of consolidated operations, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Katy Industries, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 28, 1997
KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
As of December 31, 1996 1995
---- ----
(Thousands of dollars)
CURRENT ASSETS:
Cash and cash equivalents - Note 1 $ 27,321 $ 43,701
Marketable securities - available for sale - Note 1 - 16,653
Accounts receivable, trade, net of allowance
for doubtful accounts of $1,181 and $886 50,324 22,399
Receivable from sale of business - Note 3 - 12,444
Notes and other receivables, net of allowance
for doubtful notes of $445 and $966 2,154 3,201
Inventories - Note 1 68,885 35,902
Deferred income taxes - Note 8 14,331 12,170
Other current assets 3,500 3,127
------- ------
Total current assets 166,515 149,597
------- -------
OTHER ASSETS:
Investments, at equity, in unconsolidated subsidiaries - Note 3 6,382 7,328
Investment in waste-to-energy facility - Note 7 11,058 11,360
Notes receivable, net of allowance for
doubtful notes of $2,500 and $2,500 1,260 1,566
Cost in excess of net assets of
businesses acquired - Note 2 6,723 7,249
Miscellaneous - Notes 2, 5, 7 and 12 5,211 5,664
------- -------
Total other assets 30,634 33,167
------- -------
PROPERTIES - Note 1:
Land and improvements 3,776 4,308
Buildings and improvements 32,545 32,464
Machinery and equipment 41,773 38,723
------- -------
78,094 75,495
Accumulated depreciation (35,734) (32,847)
------- -------
Net properties 42,360 42,648
------- -------
$239,509 $225,412
======== ========
See Notes to Consolidated Financial Statements.
<FN>
KATY INDUSTRIES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES
-----------
As of December 31, 1996 1995
---- ----
(Thousands of dollars)
CURRENT LIABILITIES:
Notes payable - Note 4 $ - $ 14,193
Accounts payable 20,318 8,361
Accrued compensation 3,410 3,792
Accrued expenses - Note 1 33,318 23,947
Accrued interest and taxes 623 1,342
Current maturities, long-term debt - Note 4 657 913
Dividends payable 620 624
------- --------
Total current liabilities 58,946 53,172
------- --------
LONG-TERM DEBT, less current maturities - Note 4 8,582 9,346
------- --------
OTHER LIABILITIES - Note 5 9,557 7,966
------- --------
EXCESS OF ACQUIRED NET
ASSETS OVER COST, Net - Note 2 8,517 -
------- --------
DEFERRED INCOME TAXES - Note 8 23,861 24,598
------- --------
SHAREHOLDERS' EQUITY - Note 6:
Common stock, $1 par value; authorized
25,000,000 shares, issued - 9,822,204 and 9,821,329 9,822 9,821
Additional paid-in capital 51,117 51,111
Foreign currency translation and other
adjustments (1,778) (1,640)
Unrealized holding gains - 5,297
Retained earnings 93,099 81,925
Treasury stock, at cost, 1,582,942
and 1,097,142 shares (22,214) (16,184)
------- --------
Total shareholders' equity 130,046 130,330
------- --------
$239,509 $225,412
======== ========
See Notes to Consolidated Financial Statements.
<FN>
KATY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
For the years ended December 31, 1996 1995 1994
---- ---- ----
(Thousands of dollars except per share amounts)
Net sales $188,518 $171,269 $159,581
Cost of goods sold 130,163 120,437 118,006
-------- -------- --------
Gross profit 58,355 50,832 41,575
Selling, general and administrative expenses 48,819 46,293 48,592
-------- -------- --------
Income (loss) from operations 9,536 4,539 (7,017)
Interest expense (1,085) (2,753) (1,916)
Interest income 2,441 1,011 3,438
Gain on sales of marketable securities - Notes 1 and 12 10,612 6,841 -
Reversal of previously recorded losses - Note 2 - 4,920 -
Write-off of assets - Note 12 - - (9,288)
Other, net 975 3,575 (1,278)
-------- -------- --------
Income (loss) from continuing consolidated
operations before income taxes 22,479 18,133 (16,061)
Provision (benefit) for income taxes - Note 8 8,199 3,771 (3,923)
-------- -------- --------
Income (loss) from continuing consolidated operations 14,280 14,362 (12,138)
-------- -------- --------
Equity in income (loss) of unconsolidated
subsidiaries (net of tax) - Note 3
Income (loss) from continuing operations (564) 1,920 1,364
Income from discontinued operations - 678 1,931
Gain on sale of Syroco, Inc. - 4,904 -
Tax benefit from sale of investment in Syratech - Note 3 - 6,707 -
-------- -------- --------
Total (564) 14,209 3,295
-------- -------- --------
Net income (loss) $ 13,716 $ 28,571 $ (8,843)
======== ========= =========
Earnings (loss) per share of common stock - Note 1: $ 1.64 $ 3.18 $ (.98)
======== ========= =========
Dividends paid per share of common stock $ .2875 $ .25 $ 14.1875
======== ========= =========
See Notes to Consolidated Financial Statements.
<FN>
KATY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Foreign
Common Stock Additional Currency Unrealized
Number Par Paid-in and Other Holding Retained Treasury
of Shares Value Capital Adjustments Gains Earnings Stock
--------- ------ ---------- ----------- ---------- -------- --------
(Thousands of dollars)
Balance, January 1, 1994 9,821,329 $9,821 $51,111 $3,880 $ - $192,814 $(13,860)
Net loss - - - - - (8,843) -
Common stock dividends - - - - - (127,942) -
Foreign currency translation
adjustments - Note 6 - - - (822) - - -
Issuance of shares under the
Stock Purchase Plan - Note 6 - - - (382) - (442) 1,017
Unrealized holding gains
adjustment- Note 1 - - - - 4,426 - -
--------- ------ ------- ------ ------- --------- ---------
Balance, December 31, 1994 9,821,329 9,821 51,111 2,676 4,426 55,587 (12,843)
Net income - - - - - 28,571 -
Common stock dividends - - - - - (2,233) -
Foreign currency translation
adjustments - Note 6 - - - (4,316) - - -
Purchase of Treasury Shares-
Note 6 - - - - - - (3,341)
Unrealized holding gains
adjustment - Note 1 - - - - 871 - -
--------- ------ ------- -------- ------ ------ --------
Balance, December 31, 1995 9,821,329 9,821 51,111 (1,640) 5,297 81,925 (16,184)
Net income - - - - - 13,716 -
Common stock dividends - - - - - (2,499) -
Foreign currency translation
adjustments - Note 6 - - - 3 - - -
Issuance of shares under Stock
Purchase Plan - Note 6 875 1 6 (141) - (43) 337
Purchase of Treasury Shares-
Note 6 - - - - - - (6,367)
Unrealized holding gains
adjustment - Note 1 - - - - (5,297) - -
--------- ------ ------- -------- ------- ------- ---------
Balance, December 31, 1996 9,822,204 $9,822 $51,117 $(1,778) $ - $93,099 $(22,214)
========= ====== ======= ======== ======== ======= =========
See Notes to Consolidated Financial Statements.
<FN>
KATY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the years ended December 31, 1996 1995 1994
---- ---- ----
(Thousands of dollars)
Cash flows from operating activities:
Net income (loss) $13,716 $28,571 $(8,843)
Depreciation and amortization 5,505 5,949 6,049
(Gain) loss on sale of assets 160 (150) (266)
Disposition of portion of investment in subsidiary - (7,920) -
Write-off of assets - - 9,288
Gain on marketable security transactions (10,612) (6,841) -
Equity in (income) loss of unconsolidated subsidiaries 564 (14,209) (3,295)
Deferred income taxes 6,239 (819) (2,182)
Changes in assets and liabilities,
net of acquisition/disposition of subsidiaries:
Receivables 9,547 (13,919) 1,884
Inventories (1,983) 1,191 6,107
Other current assets (373) 10,819 451
Accounts payable and accrued liabilities (44) 5,280 (1,930)
Other, net (195) (332) 1,155
-------- -------- --------
Net cash flows from operating activities 22,524 7,620 8,418
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of assets 1,205 43,032 5,782
Collections of notes receivable and
receivable from sale of business 13,211 1,168 1,455
Proceeds from sales of marketable securities 18,681 15,550 -
Payments for purchase of subsidiaries, net of cash acquired (42,648) (30,416) (3,241)
Capital expenditures (5,319) (9,163) (4,105)
-------- -------- --------
Net cash flows from investing activities (14,870) 20,171 (109)
-------- -------- --------
Cash flows from financing activities:
Notes payable activity, net (14,193) 12,529 (2,214)
Proceeds from issuance of long-term debt - 2,852 4,830
Principal payments on long-term debt (1,019) (2,403) (4,992)
Payments of dividends (2,452) (2,233) (127,939)
Purchase of treasury shares (6,367) (3,341) -
-------- -------- ---------
Net cash flows from financing activities (24,031) 7,404 (130,315)
-------- -------- ---------
Effect of exchange rate changes on cash (3) 31 192
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents (16,380) 35,226 (121,814)
Cash and cash equivalents at beginning of year 43,701 8,475 130,289
-------- -------- ---------
Cash and cash equivalents at end of year $27,321 $43,701 $ 8,475
======== ======== =========
See Notes to Consolidated Financial Statements.
<FN>
Note 1. SIGNIFICANT ACCOUNTING POLICIES:
Consolidation Policy -
- ----------------------
The financial statements include, on a consolidated basis, the accounts of
Katy Industries, Inc. and subsidiaries ("Katy" or "the Company") in which it
has a greater than 50% interest. All intercompany accounts, profits and
transactions have been eliminated in consolidation. The results of operations
of Schoen & Cie, AG ("Schoen") and its subsidiaries included in Katy's
Consolidated Financial Statements are for the year ended October 31, 1994
and the six months ended April 30, 1995 (the effective date of Katy's
disposition of Schoen stock - see Note 2). The financial statements of these
subsidiaries are as of a different date because of the time required to
prepare and translate such financial statements under United States generally
accepted accounting principles.
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 each of the three year
periods ended December 31, 1996, 1995, and 1994 are described in 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, 1996 include $5,151,000 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 subsidiaries 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.
Significant estimates used by management in the preparation of these financial
statements include the valuation of accounts receivable, the carrying value of
inventories, the useful lives and recoverability of property, plant and
equipment and cost in excess of net assets of businesses acquired, potential
product liability and workers compensation claims, and environmental claims
as discussed in Note 11.
Cash and Cash Equivalents -
- ---------------------------
Cash equivalents consist of highly liquid investments with original
maturities of three months or less and total $27,321,000 and $43,701,000, as
of December 31, 1996 and 1995, respectively, which approximates their fair
value.
Supplemental Cash Flow Information -
- ------------------------------------
Details regarding noncash investing and financing activities are disclosed
in Notes 1, 2, 3 and 6 to the Consolidated Financial Statements. Cash paid
during the year for interest and income taxes is as follows:
1996 1995 1994
---- ---- ----
(Thousands of dollars)
Interest $1,143 $2,231 $2,021
====== ====== ======
Income taxes $3,445 $2,646 $3,759
====== ====== ======
Marketable Securities - available for sale -
- --------------------------------------------
Marketable equity securities are stated at their fair value based on quoted
market prices. During 1996, the Company sold its remaining investment in Union
Pacific common stock and Union Pacific Resources common stock for total
proceeds of $18,681,000 resulting in a pre-tax gain of $10,612,000. The cost
basis of these securities was $8,073,000 at December 31, 1995. During 1996,
unrealized holding gains, net of income taxes, included in shareholders' equity
decreased $5,297,000. During 1995, unrealized holding gains, net of income
taxes, included in shareholders' equity increased $871,000.
Notes and Other Receivables -
- -----------------------------
The carrying value of notes and other receivables approximates their fair
value.
Inventories -
- -------------
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market. The components of inventories are:
December 31,
------------
1996 1995
---- ----
(Thousands of dollars)
Raw materials $15,933 $14,471
Work in process 6,269 7,132
Finished goods 46,683 14,299
------- -------
$68,885 $35,902
======= =======
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. Management
periodically reviews the carrying value of its long-lived assets for impairment
and adjusts the carrying value and/or amortization period of such assets
whenever events or changes in circumstances warrant.
Accrued Expenses -
- ------------------
The components of accrued expenses are:
December 31,
------------
1996 1995
---- ----
(Thousands of dollars)
Accrued insurance $ 7,553 $ 8,541
Accrued EPA costs 5,266 6,351
Other accrued expenses 20,499 9,055
-------- --------
$33,318 $23,947
======== ========
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.
Earnings Per Share -
- --------------------
Earnings per share are based on the weighted average number of shares of
common stock outstanding during the year (8,354,203 in 1996, 8,985,921 in 1995
and 9,031,541 in 1994).
New Accounting Pronouncements -
- -------------------------------
In October of 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which was effective for the Company beginning
January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages, but does not require,
compensation cost to be measured based on fair value of the equity instrument
awarded. Companies are permitted, however, to continue to apply APB Opinion
No. 25, which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company applies APB Opinion No. 25 to its
stock based compensation awards to employees and discloses the required pro
forma effect on net income and earnings per share.
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 with
the 1996 financial statement presentation.
Note 2. ACQUISITIONS AND DISPOSITIONS:
Acquisitions
- ------------
On December 2, 1996, the Company purchased all of the outstanding shares
of common stock of Woods Industries, Inc., ("Woods"). Woods is a manufacturer
and distributor of electrical corded products as well as electrical and
electronic passive components. The estimated purchase price, including
acquisition costs, was $46,800,000 and was below Woods' book value.
The purchase price was paid in cash, of which $3,250,000 was funded through a
borrowing against the Company's unsecured line of credit at The Northern
Trust Company. The purchase price for Woods is preliminary and adjustments may
be recorded in 1997. The acquisition has been accounted for under the purchase
method, and accordingly, the estimated excess of acquired net assets over
cost of approximately $8,517,000 has been recorded as excess of acquired net
assets over cost in the Consolidated Balance Sheet and is being amortized over
five years. Certain balance sheet adjustments and/or resolutions of issues
between the parties will also affect the ultimate price of the acquisition and
the allocation of the purchase price. The accounts of Woods have been included
in the Company's Consolidated Financial Statements from the acquisition date.
The following unaudited pro forma information has been prepared assuming
that this acquisition had occurred at the beginning of the respective periods.
The pro forma information includes adjustments for (1) the elimination of
Woods' depreciation due to the write-down of plant and equipment pursuant to
purchase accounting, (2) the elimination of Woods' amortization due to the
write-down of cost in excess of businesses acquired pursuant to purchase
accounting, (3) the amortization of the estimated excess of acquired net
assets over cost recorded pursuant to purchase accounting, (4) elimination of
Woods' interest expense as all debt is repaid on date of purchase pursuant to
the purchase agreement, (5) the increase in interest expense for the year
ended December 31, 1995 due to assumed borrowings at applicable rates for the
purchase price (for the year ended December 31, 1996, Katy's cash position
would have made borrowing unnecessary), (6) decrease in interest income due
to use of cash for the purchase price, and (7) the estimated related income
tax effects. The pro forma financial information is presented for
informational purposes only and may not be indicative of the results of
operations as they would have been had the transaction been effected on the
assumed dates nor is it necessarily indicative of the results of operations
which may occur in the future.
Years ended December 31,
------------------------
1996 1995
---- ----
(Thousands of dollars)
Net sales $334,357 $318,686
Income from operations 19,302 11,994
Net income 18,538 32,788
Earnings per share 2.22 3.65
On August 10, 1995, the Company purchased the assets of Gemtex Company
Limited and its United States affiliate, Gemtex Abrasives, Inc. (considered
together as "Gemtex"). Gemtex is a manufacturer and distributor of coated
abrasives for the automotive, industrial and retail markets. The purchase
price approximated net book value. The acquisition has been accounted for
under the purchase method. The accounts of Gemtex have been included in the
Company's Consolidated Financial Statements from the acquisition date. This
acquisition does not materially impact the Company's results of operations or
financial position.
Effective March 31, 1995, the Company purchased all of the outstanding
shares of common stock of GC Thorsen, Inc., ("GC Thorsen"), a value added
distributor of electronic and electrical parts and accessories, and nonpowered
hand tools. The purchase price, including acquisition costs, was $24,076,000
in cash, of which $19,500,000 was financed through the Company's bank line of
credit. The acquisition has been accounted for under the purchase method, and
accordingly, the excess of the purchase price over the fair value of the net
assets acquired of approximately $3,553,000, is being amortized over 20 years.
The accounts of GC Thorsen have been included in the Company's Consolidated
Financial Statements from the acquisition date.
In March, 1994, the Company purchased an additional 50% of the outstanding
common stock of C.E.G.F. (USA), Inc., an operator of cold storage facilities
in the United States, for $2,750,000 in cash, which purchase resulted in the
Company owning 95% of C.E.G.F. The excess of the purchase price over the net
book value of assets purchased has been allocated to properties and is being
depreciated over the remaining lives of the assets. The accounts of C.E.G.F.
have been included in the Company's Consolidated Financial Statements from the
acquisition date. This acquisition of this former equity investee did not
materially impact the Company's results of operations or financial position.
As part of its 1991 purchase of substantially all of the net operating
assets of the stain business of Sinecure Financial Corp. (formerly Duckback
Industries, Inc.), the Company was obligated to pay to the seller additional
purchase price amounts which were contingent upon the attainment of certain
earnings levels during the period from the date of acquisition to September
30, 1994. The Company provided $1,496,000 in 1994 for such additional payments
and recorded these amounts as goodwill, included in "Cost in Excess of Assets
of Businesses Acquired" in the Consolidated Balance Sheets. The accrual of
these future cash payments is a noncash investing transaction. During 1995 and
1994, the Company paid $1,787,000 and $1,015,000, respectively, to Sinecure,
to complete the Company's obligation under the earnout provision of the
purchase agreement. Goodwill relating to this acquisition is being amortized
over 10 years.
Dispositions
- ------------
On April 4, 1996, the Company sold substantially all of the assets of its
Walsh Press subsidiary for net proceeds of $1,125,000 which included net cash
of $721,000 and a note receivable of $404,000, resulting in a nominal loss.
The note receivable portion of the consideration is a noncash investing
transaction. The Consolidated Financial Statements include Walsh Press'
results of operations through that date. Sales of this subsidiary were
$151,000, $680,000 and $1,151,000 and operating losses were $37,000, $49,000,
and $135,0000 for 1996, 1995 and 1994, respectively.
In December, 1995, the Company concluded the sale of its Moldan Filters
operation for net proceeds of $2,808,000 which included net cash of $1,350,000
and accounts and notes receivable of $1,458,000, resulting in a nominal gain.
The notes receivable portion of the consideration is a noncash investing
transaction. The effective date of sale was December 28, 1995, therefore,
the Consolidated Financial Statements include results of operations through
that date. Sales of this unit were $4,592,000 and $6,066,000 and operating
losses were $892,000 and $610,000 in 1995 and 1994, respectively.
On August 25, 1995, the Company sold the assets and business of the
Laboratory Equipment Division of its Bach Simpson Limited operation for net
proceeds of $900,000 in cash, resulting in a nominal loss. This operation was
not material to Katy and, accordingly, its sale does not significantly affect
Katy's consolidated financial position or results of operations.
On June 30, 1995, the Company concluded the irrevocable sale of one-half of
its 75% interest (90,000 shares) in Schoen. The sale was made on the basis of
a contingent price, whereby the Company will receive two thirds of the amount
ultimately realized by the purchasers in any future sale of such shares or,
under some circumstances, the Company will be entitled to find a buyer for
two-thirds of such shares and receive the proceeds of the sale thereof. The
Company continues to have a 27.6% interest in Schoen. With the reduction in
its ownership interest and influence, the Company began reporting its
continuing investment in Schoen using the equity method of accounting for this
minority owned subsidiary effective June 30, 1995. With the change to the
equity method the Company will not record future losses of Schoen, and will
only record income when the Company's equity becomes positive. In connection
with the sale, in the second quarter of 1995, the Company recorded a gain of
$4,920,000 reflecting the reversal of previously recorded losses of Schoen and
a deferred tax asset of $3,000,000. The Company's investment in Schoen is
recorded at zero as of December 31, 1996 and 1995.
On June 14, 1995, the Company sold its B.M. Root operation for net
proceeds of $700,000 in cash, resulting in a nominal gain. The Consolidated
Financial Statements include results of operations through that date. Sales
of this unit were $1,416,000 and $2,781,000 and operating income was $103,000
and $168,000 in 1995 and 1994, respectively.
Effective October 28, 1994, the Company concluded the sale of its
Panhandle Industrial operation for net proceeds of $7,378,000, which included
net cash of $4,878,000 and notes receivable of $2,500,000 resulting in a
nominal gain. The notes receivable portion of the consideration is a noncash
investing transaction. Sales of this unit were $7,690,000 and operating income
was $814,000 in 1994.
In June, 1994, the Company sold, for a nominal loss, its Bach Simpson, U.K.
operation. This operation was not material to Katy and, accordingly, its sale
did not significantly affect Katy's consolidated financial position or results
of operations.
Note 3. INVESTMENTS, AT EQUITY, IN UNCONSOLIDATED SUBSIDIARIES:
The Company's investments in unconsolidated subsidiaries are comprised of
the following:
1996 1995
---- ----
(Thousands of dollars)
Schoen & Cie, AG $ - $ -
Bee Gee Holding Company, Inc. 6,382 7,328
------ ------
$6,382 $7,328
====== ======
Syratech Corporation ("Syratech")
- ---------------------------------
On December 29, 1995, the Company sold to Syratech its wholly owned
subsidiary, WSC Liquidating Co., whose sole asset consisted of 2,555,500
common shares of Syratech. The Company also sold to Syratech the remaining
509,251 shares of Syratech stock held directly by Katy. None of these shares
had been previously registered and could not have been sold without Katy
bearing the costs of registration. In addition, because of the nature of the
shares, the Company was restricted as to the number of shares which could be
sold at any one time. The net proceeds from both transactions were
approximately $50,800,000. The transactions reflected a per share price of
$17, which represented a discount of 15% to the closing price of Syratech's
shares on the New York Stock Exchange on the day of the transaction. The
transactions resulted in a total after-tax gain of $7,500,000 which is
comprised of a gain of $793,000 and the reversal of $6,707,000 of deferred
income taxes previously provided on Katy's share of Syratech's income, which
has been determined to not be required as a result of these transactions.
In connection with the sale, Katy recorded a receivable in the amount of
$12,444,000 from Syratech which was subsequently paid on January 2, 1996.
On March 28, 1995, Syratech sold its subsidiary, Syroco, Inc. for
$140,000,000 resulting in a gain of $30,451,000. Katy's share of the gain
($4,904,000, net of tax) is reflected in Katy's Consolidated Statement of
Operations as gain on sale of Syroco. Syroco's results from operations are
shown below in the results of operations of unconsolidated subsidiaries and in
Katy's Consolidated Statements of Operations as income from discontinued
operations in the "Equity in Income of Unconsolidated Subsidiaries" section.
Schoen & Cie, AG ("Schoen")
- -------------------------
At December 31, 1996, the Company has a 27.6% interest in Schoen. Schoen
consists of three operating companies engaged in the business of manufacturing
a wide range of mechanical and programmable four post, web and flat bed
die-cutting equipment and shoe manufacturing machinery. During the second
quarter, 1996, Schoen acquired J. Sandt AG, a major competitor in the same
geographical area. This transaction reduced Katy's interest in Schoen from
37.5% to 27.6%. The transaction had no effect on Katy's results for the
period. Schoen's assets and liabilities and sales and costs and expenses are
included in the following table subsequent to June 30, 1995, but there is no
effect on the Company's investment or equity in income of unconsolidated
subsidiaries.
Bee Gee Holding Company, Inc. ("Bee Gee")
- -----------------------------------------
The Company owns 30,000 shares of common stock, a 39% interest, of Bee Gee,
which consists of several subsidiaries engaged in the business of harvesting
shrimp off the coast of South America and, during 1996, processed shrimp and
other sea foods for domestic and foreign markets. 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 is being amortized over
ten years.
Financial Information
- ---------------------
The condensed financial information which follows reflects the Company's
proportionate share in the financial position and results of operations of its
unconsolidated subsidiaries:
1996 1995
---- ----
(Thousands of dollars)
Current assets $ 8,175 $15,968
Current liabilities (6,285) (15,105)
------- -------
Working capital 1,890 863
Properties, net 8,248 9,112
Other assets 487 3,785
Long-term debt (3,360) (3,998)
Other liabilities (1,284) (1,514)
------- -------
Shareholders' equity 5,981 8,248
Shareholders' equity of Schoen - (1,604)
Unamortized excess of cost over
net assets acquired 401 684
------- -------
Investments, at equity, in
unconsolidated subsidiaries $ 6,382 $ 7,328
======== =======
1996 1995 1994
---- ---- ----
(Thousands of dollars)
Sales $26,890 $81,892 $65,376
Costs and expenses (27,414) (79,451) (62,505)
------- ------- -------
Net income, from continuing operations (524) 2,441 2,871
Unrecorded losses of Schoen - 1,336 -
Amortization of excess of cost over net assets acquired (421) (384) (305)
Provision for income taxes 381 (1,473) (1,202)
------ ------ ------
Equity in net income of continuing unconsolidated subsidiaries (564) 1,920 1,364
Discontinued operation:
Gain on sale of Syroco, Inc. - net of tax - 4,904 -
Income from discontinued operations - net of tax - 678 1,931
------ ------ ------
Equity in net income of unconsolidated subsidiaries $ (564) $ 7,502 $ 3,295
====== ======= =======
<FN>
Note 4. INDEBTEDNESS:
Notes Payable
- -------------
As of December 31, 1996, the company did not have any borrowings. Notes
payable as of December 31, 1995 were comprised of short-term borrowings under
the Company's line of credit and cash overdrafts. The maximum short-term
borrowings outstanding at any month-end were $0 in 1996 and $27,140,000 in
1995. Interest rates on such short-term borrowings averaged 8.5% at December
31, 1995. The average short-term borrowings was $17,283,000 in 1995. The
weighted average interest rates on short-term borrowings from banks averaged
approximately 8.9% during 1995.
Credit Agreement
- ----------------
In August, 1994, the Company entered into a credit agreement with The
Northern Trust Company providing for an unsecured revolving credit facility
not to exceed $20,000,000 expiring on November 30, 1999. Interest on the
revolving credit facility is, at the Company's option, either the bank's prime
interest rate or .50% over the bank's cost of funds interest rate in effect
at the time funds are borrowed, or the LIBOR interest rate in effect at the
time funds are borrowed plus an applicable margin ranging from .50% to 1%
depending on the Company's debt to tangible net worth ratios.
The Company had no amounts outstanding under this agreement at December 31,
1996. This facility is used primarily for letters of credit. Letters of
credit totaling $9,206,000 were outstanding at December 31, 1996.
Long-Term Debt
- --------------
Long-term debt at December 31 includes: 1996 1995
---- ----
(Thousands of dollars)
Real estate and chattel mortgages, with interest
at various rates, due through 2008 $9,239 $9,995
Other notes payable - 264
------ ------
9,239 10,259
Less current maturities (657) (913)
------ ------
$8,582 $9,346
====== ======
Aggregate maturities of long-term debt during the five years ending December
31, 2001 are as follows:
(Thousands of dollars)
1997 $657
1998 607
1999 607
2000 607
2001 607
Later years 6,154
-----
Total $9,239
=====
Other
- -----
As of December 31, 1996, the Company is contingently liable for $8,000,000 of
8-1/8% Subordinated Industrial Development Bonds issued by Bee Gee.
The carrying amounts of the Company's long and short-term debt agreements
approximate their fair market values.
Note 5. RETIREMENT BENEFIT PLANS:
Pension Plans
- -------------
Several domestic and foreign 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. Schoen's pension plan, which is funded by a note receivable from
Schoen, is not included in the following data subsequent to June 30, 1995, the
date on which the Company sold one-half of its 75% ownership interest.
Net pension expense includes the following components:
1996 1995 1994
---- ---- ----
(Thousands of dollars)
Service cost $218 $117 $161
Interest cost 234 331 478
Actual return on plan assets (411) (359) (336)
Net amortization and deferral 140 178 92
---- ---- ----
Net pension expense $181 $267 $395
==== ==== ====
Major assumptions used to determine pension obligations:
Discount rates for obligations 7-8.5% 7-8.5% 7-8.5%
Discount rates for expenses 7-8.5% 7-8.5% 7-8.5%
Expected long-term rates of return 8-8.5% 7-8.5% 7-8.5%
Assumed rates of compensation increases 0-5% 5% 2-5%
U.S. plans have been valued using discount rates ranging from 7.0% to 7.5%.
Foreign plans have been valued using discount rates ranging from 7.0 to 8.5%
which approximate rates for obligations of similar duration in those countries
to which the plans apply.
The funded status of all plans at December 31 follows:
1996 1995
---- ----
Assets Accumulated Assets Accumulated
Exceed Benefit Exceed Benefit
Accumulated Obligations Accumulated Obligations
Benefit Exceed Benefit Exceed
Obligations Assets Obligations Assets
----------- ----------- ----------- -----------
(Thousands of dollars)
Vested benefits $(2,120) $(989) $(1,834) $(374)
Nonvested benefits (133) (16) (180) (-)
------- ----- ------- -----
Accumulated benefit obligation (2,253) (1,005) (2,014) (374)
Effect of future compensation increases 18 (36) - -
------- ------ ------- -----
Projected benefit obligation (2,235) (1,041) (2,014) (374)
Plan assets at fair value 2,816 814 2,659 307
------- ------ ------- -----
Projected benefit obligation less
than (in excess of) plan assets 581 (227) 645 (67)
Unrecognized net loss 13 476 14 93
Unrecognized net transition obligation (asset) (481) 76 (528) 89
Unrecognized prior service cost 82 - 89 -
Additional minimum liability - (544) - (182)
------- ------ ------- ------
Prepaid (accrued) pension cost $ 195 $ (219) $ 220 $ (67)
======= ====== ======= ======
<FN>
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 represents the best
estimate of the obligation which vested immediately upon Board approval and
is to be paid for services rendered to date.
Postretirement Benefits Other than Pensions
- -------------------------------------------
The Company provides certain health care and life insurance benefits for
some of its retired employees.
The accumulated postretirement benefit obligation at December 31, 1996
and 1995 is as follows:
1996 1995
---- ----
(Thousands of dollars)
Retirees $1,571 $1,663
Fully eligible active plan participants 228 213
Other active plan participants 344 303
Unrecognized net gain 596 644
Prior service cost (38) (44)
------ ------
$2,699 $2,779
====== ======
Net postretirement benefit costs for 1996, 1995 and 1994 include
the following:
1996 1995 1994
---- ---- ----
(Thousands of dollars)
Service cost-benefits earned during the year $ 20 $ 20 $ 27
Interest cost on accumulated
postretirement benefit obligation 146 162 183
Amortization of unrecognized gain (44) (56) (44)
---- ---- ----
Total cost $122 $126 $166
==== ==== ====
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1996 was 9% for 1996
decreasing linearly each successive year until it reaches 4.5% in 2001, after
which it remains constant. A one-percentage-point increase in the assumed
health care cost trend rate for each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996 and net
postretirement health care cost by approximately 14%. The assumed discount
rate used in determining the accumulated postretirement benefit obligation at
December 31, 1996 and 1995 was 7.0%, compounded annually.
401(k) Plans
- ------------
The Company offers its employees the opportunity to voluntarily
participatein one of seven 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 $474,000, $227,000 and $258,000 in 1996, 1995 and 1994,
respectively.
Note 6. SHAREHOLDERS' EQUITY:
Share Repurchase
- ----------------
In August, 1995, Katy's Board of Directors authorized the Company to
repurchase up to 400,000 shares of its common stock over the subsequent twelve
months in open market transactions. On January 2, 1996, Katy's Board
authorized the Company to repurchase an additional 500,000 shares, bringing the
total authorization to 900,000 shares. In connection therewith, Katy
repurchased 509,800 and 352,200 of its common shares during the years ended
December 31, 1996 and 1995, at a total cost of $6,367,000 and $3,341,000,
respectively.
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 shareholder to acquire one share
of the Company's common stock at an exercise price of $35, subject to
adjustment. The rights are not and will not become exercisable unless certain
change of control events occur. None of the rights are exercisable as of
December 31, 1996.
Special Cash Dividend
- ---------------------
On June 29, 1994, the Company's Board of Directors declared a special cash
dividend payable August 19, 1994 to shareholders of record on July 22, 1994.
The dividend amounted to $126,243,000.
1994 Key Employee and Director Stock Purchase Plan
- --------------------------------------------------
In 1994, the Board of Directors approved the Stock Purchase Plan for Key
Employees and Directors. Under the 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 Company's Board of Directors. During 1996, 24,000 shares
were issued at prices ranging from $6.17 to $8.02 per share. As of December
31, 1996, 83,000 shares have been issued at prices ranging from $6.17 to $8.02
per share. The issuance of these shares, in 1996 and 1994, for total notes
receivable of $141,000 and $382,000, respectively, 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 twenty-four 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 "Foreign
currency translation and 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 and $442,000 was charged to retained earnings in 1996 and 1994,
respectively. The excess of the market value of the shares over the purchase
price of $113,000 and $194,000 was charged to compensation expense in 1996 and
1994, respectively.
Stock Option Plans
- ------------------
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
non employee 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 under the plans:
Weighted
Average Weighted
Remaining Average
Contractual Exercise
Options Exercise Price Life Price
------- -------------- ----------- --------
Outstanding at December 31, 1994 -
Granted 197,000 $8.50 - 9.25 $8.96
Canceled -
-------
Outstanding at December 31, 1995 197,000 $8.50 - 9.25 9.8 years $8.96
Granted 304,750 $12.69 - 13.57 $13.21
Canceled (12,000) $8.50 - 9.25 $9.00
-------
Outstanding at December 31, 1996 489,750 $8.50 - 13.57 9.5 years $11.60
=======
Exercisable at December 31, 1996 77,000 $9.94
=======
Available for grant at December 31, 1996 210,250
=======
<FN>
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations in accounting for its stock option
plans. Accordingly, no compensation cost has been recognized. Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") 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 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 1996 and 1995 were $13.21 and $8.96, 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 and
December 9, 1996, respectively: dividend yield of 2.35% for all grants;
expected volatility of 18.9%, 22.1%, 21.8%, 17.8%, and 27.2%, risk-free
interest rates of 6.32%, 6.38%, 6.41%, 6.43%, and 6.44%; and expected lives
of 5 years for all grants.
1996 1995
---- ----
(In thousands, except per share amounts)
Net income as reported $13,716 $28,571
======= =======
Net income - pro forma $13,628 $28,559
======= =======
Earnings per share as reported $1.64 $3.18
======= =======
Earnings per share - pro forma $1.63 $3.18
======= =======
The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts and additional awards are anticipated
in future years.
Foreign Currency Translation and Other Adjustments
- --------------------------------------------------
The components of the foreign currency translation and other adjustments
section of shareholders' equity are as follows:
December 31, 1996 1995
---- ----
(Thousands of dollars)
Foreign currency translation adjustments $(1,287) $(1,290)
Notes receivable from key employees and
directors under the Stock Purchase Plan (491) (350)
------- -------
$(1,778) $(1,640)
======= =======
Note 7. WASTE-TO-ENERGY FACILITY:
A Katy limited partnership has a contract to operate a waste-to-energy
facility in Savannah, Georgia through the year 2007. This facility is owned
by a limited partnership, all the partners of which are the Company's
subsidiaries. The limited partnership is under contract with the Resource
Recovery Development Authority of the City of Savannah (the City) to receive
and dispose of the City of Savannah's solid waste through 2007. The contract
provides for minimum levels of the limited partnership's disposal fee income to
be used to retire the $50,700,000 of industrial revenue bonds issued by an
Authority of the City to finance construction of the plant. Under certain
circumstances, the Company is contingently liable to the extent of its
investment in the limited partnership.
In substance, the City desired a solid waste disposal and resource recovery
facility, issued bonds to finance construction of the facility, and contracted
the Company (inclusive of its subsidiaries and their partnership interests) 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. The Company is
obligated to perform under the various agreements. The Company 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 since a right of offset exists.
Under terms of the contract, the Company has made contributions to the
trust fund 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 trust fund.
The Company's subsidiary has made capital expenditures to improve the
operating facility, and these expenditures have been accounted for as deferred
expenses and are being amortized through 2007, the period during which the
Company expects to realize the economic benefits associated with such
expenditures. At December 31, 1996 and 1995, expenditures of $1,858,000 and
$2,160,000, net of accumulated amortization of $5,841,000 and $5,539,000,
respectively, and the contributions to the trust fund are included in
"Investment in waste-to-energy facility" in the Consolidated Balance Sheets.
Note 8. INCOME TAXES:
The domestic and foreign components of income (loss) before income taxes,
exclusive of equity in income of unconsolidated subsidiaries, are:
1996 1995 1994
---- ---- ----
(Thousands of dollars)
Domestic $22,830 $17,221 $(10,115)
Foreign (351) 912 (5,946)
------- ------- --------
Total worldwide $22,479 $18,133 $(16,061)
======= ======= ========
The components of the net provision (benefit) for income taxes are:
1996 1995 1994
---- ---- ----
(Thousands of dollars)
Current:
Federal $1,500 $3,413 $ 197
State 215 (512) 428
Foreign (136) 25 450
------ ------ ------
Total 1,579 2,926 1,075
------ ------ ------
Deferred:
Federal 6,288 980 (2,948)
State 167 (1,915) 1,100
Foreign (216) 116 (334)
----- ----- -----
Total 6,239 (819) (2,182)
----- ----- -----
Net provision (benefit) for income taxes $7,818 $2,107 $(1,107)
====== ====== =======
<FN>
The total income tax provision differed from the amount computed by
applying the statutory federal income tax rate to pretax income from continuing
operations. The computed amount and the differences for the years ended
December 31, 1996, 1995 and 1994 were as follows:
1996 1995 1994
---- ---- ----
(Thousands of dollars)
Provision (benefit) for income taxes at statutory rate $7,868 $6,352 $(5,621)
State income taxes, net of federal benefit 464 1,080 993
Foreign tax rate differential (14) (14) 549
Foreign losses for which no tax benefit is available - - 2,311
Tax benefit from Schoen sale - Note 2 - (3,000) -
Benefit of net operating loss carryforwards (22) (49) (336)
Benefit of tax credit carryforwards - - (2,450)
Other, net (97) (598) 631
----- ----- -----
Provision (benefit) for income taxes from consolidated operations 8,199 3,771 (3,923)
Undistributed earnings (loss) of equity investees (381) (1,664) 2,816
----- ----- -----
Net provision (benefit) for income taxes $7,818 $2,107 $(1,107)
====== ====== =======
<FN>
The tax effects of significant items comprising the Company's net deferred
tax liability as of December 31, 1996 and 1995 are as follows:
1996 1995
---- ----
(Thousands of dollars)
Deferred tax liabilities:
Difference between book and tax basis of property $ 95 $ 1,954
Waste-to-energy facility 17,668 17,303
Undistributed earnings of equity investees 10,570 7,695
Unrealized holding gain - marketable securities - available for sale - 3,282
------ ------
28,333 30,234
------ ------
Deferred tax assets:
Allowance for doubtful receivables 1,824 1,673
Inventory costs 2,402 1,871
Accrued expenses and other items 11,962 10,131
Operating loss carryforwards - domestic 3,233 3,234
Operating loss carryforwards - foreign 160 -
Tax credit carryforwards 122 2,390
------ ------
19,703 19,299
Less valuation allowance (900) (1,493)
------ ------
18,803 17,806
------ ------
Net deferred tax liability $ 9,530 $12,428
======= =======
<FN>
The valuation allowance primarily relates to domestic net operating loss
carryforwards and foreign tax credit carryforwards that may not be realized
due to uncertainties as to certain subsidiaries realization of future income
and to past losses from foreign operations. The valuation allowance decreased
$593,000 during the year ended December 31, 1996, primarily due to the
reduction in allowable foreign tax credits. The domestic net operating loss
carryforwards primarily relate to the waste-to-energy facility and the business
that operates cold storage facilities and can only be used to offset income
from those operations. Domestic net operating loss carryforwards have
expiration dates ranging from 1997 to 2007.
At December 31, 1996, foreign tax credit carryforwards of $46,000 (with an
expiration date in 1998) and alternative minimum tax carryforwards of $76,000
(with no expiration date) are available.
Note 9. LEASE OBLIGATIONS:
The Company has entered into noncancelable leases for manufacturing and
data processing equipment and real property with lease terms of up to five
years. The Company is generally obligated for the cost of property taxes,
insurance and maintenance. Future minimum lease payments as of December 31,
1996 are as follows:
(Thousands of dollars)
1997.................................. $ 3,296
1998.................................. 2,800
1999.................................. 2,028
2000.................................. 823
2001.................................. 765
Later years........................ 3,866
--------
Total minimum payments............... $13,578
========
Rental expense for 1996, 1995 and 1994 for operating leases was $1,456,000,
$1,458,000 and $1,567,000, respectively.
Note 10. 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, electronic components, nonpowered hand tools, specialty metal products,
testing and measuring instruments, recording devices for the transportation
industry, machinery for the cookie sandwich, food processing and woodworking
industries, and also operates cold storage facilities and a waste-to-energy
facility. Principal markets are in the United States and Canada, and include
the sanitary maintenance, restaurant supply, retail, food processing, millwork,
transportation, electronic, automotive, and computer markets. The diversity
of the Company's products and markets ensure that there is not a material
impact on the Company in total from one product or one marketplace. These
activities are grouped into three industry segments: Distribution and Service,
Industrial and Consumer Manufacturing and Machinery Manufacturing. There were
no material sales to any single customer, and the Company is not reliant upon
any one significant vendor or material.
Segment information for the years ended December 31, 1996, 1995 and 1994
is presented under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Part II, Item 7.
Export sales of products, primarily to Central and South America, Western
Europe, the Middle East and the Far East, were $19,558,000, $18,870,000, and
$15,062,000 in 1996, 1995 and 1994, respectively.
The Company operates businesses both in the United States and foreign
countries. The operations for 1996, 1995 and 1994 of businesses within major
geographic areas are summarized as follows:
United Western
States Europe Other Consolidated
------ ------ ----- ------------
(Thousands of dollars)
1996:
Sales to unaffiliated customers $164,074 $ 5,137 $19,307 $188,518
======== ======= ======= ========
Operating income $ 14,514 $ 497 $ 1,308 $ 16,319
======== ======= ======= ========
Identifiable assets $178,268 $ - $16,248 $194,516
======== ======= ======= ========
1995:
Sales to unaffiliated customers $149,967 $11,072 $10,230 $171,269
======== ======= ======= ========
Operating income (loss) $ 13,921 $(2,913) $ 201 $ 11,209
======== ======= ======= ========
Identifiable assets $121,481 $ - $15,478 $136,959
======== ======= ======= ========
1994:
Sales to unaffiliated customers $128,739 $23,453 $ 7,389 $159,581
======== ======= ======= ========
Operating income (loss) $ 8,511 $(2,505) $ (399) $ 5,607
======== ======= ======= ========
Identifiable assets $ 92,625 $18,168 $ 4,145 $114,938
======== ======= ======= ========
Net sales for each geographic area include sales of products produced in
that area and sold to unaffiliated customers, as reported in the Statements of
Consolidated Operations.
Note 11. CONTINGENT LIABILITIES
In December, 1996, Banco del Atlantico, a bank located in Mexico, filed a
lawsuit against Woods Industries, Inc., a subsidiary of the Company, and
against certain past and present officers and directors and former owners of
Woods Industries, Inc. 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.
The plaintiff also alleges that it made loans to an entity controlled by
officers and directors based upon fraudulent representations. The plaintiff
seeks to hold Woods Industries, Inc. 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. Katy may have recourse against the former owners of Woods
under the purchase agreement; however, as the litigation is in preliminary
stages, it is impossible at this time for the Company to determine the limit of
such recourse. As the litigation is in preliminary stages, it is
impossible at this time for the Company to determine an outcome or reasonably
estimate the range of potential exposure.
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
U.S. Environmental Protection Agency and certain 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") and equivalent state laws and, as
such, may be liable for the cost of cleanup and other remedial activities at
these sites. Responsibility for cleanup and other remedial activities at a
Superfund site is typically shared among PRPs based on an allocation formula.
The means of determining allocation among PRPs is generally set forth in a
written agreement entered into by the PRPs at a particular site. An
allocation share assigned to a PRP is often based on the PRP's volumetric
contribution of waste to a site. Under the federal Superfund statue, parties
are held to be jointly and severally liable, thus subjecting them to potential
individual liability for the entire cost of cleanup at the site. The Company
is also involved in remedial response and voluntary environmental cleanup at
a number of other sites which are not currently the subject of any legal
proceedings under Superfund, including certain of its current and formerly
owned manufacturing facilities. Based on its estimate of allocation of
liability among PRPs, the probability that other PRPs, many of whom are large,
solvent, public companies, will fully pay the costs apportioned to them,
currently available information concerning the scope of contamination,
estimated remediation costs, estimated legal fees and other factors, the
Company has recorded and accrued for indicated environmental liabilities
in the aggregate amount of approximately $5,266,000 at December 31, 1996.
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. The United States had alleged violations of the Resource Conservation and
Recovery Act ("RCRA") based upon the alleged status of sludge drying beds
of W.J. Smith Wood Preserving Company, a Company subsidiary ("W.J.
Smith"), as a hazardous waste management unit. Since 1990, the Company
has spent in excess of $4,800,000 in undertaking cleanup and compliance
activities in connection with this matter and has established reserves
for future remediation activities. An Administrative Order on Consent
was entered effective December 29, 1995, with estimated additional
remediation costs of $1,200,000.
2. During 1995, the Company reached agreement with the Oregon Department of
Environmental Quality ("ODEQ") as to a clean up plan for PCB
contamination at the Medford, Oregon facility of the former Standard
Transformer division of American Gage. The plan called for the Company
to provide a trust fund of $1,300,000 to fund clean up costs at the site.
These funds were expended in 1995. The plan also called for the present
occupants of the site, Balteau Standard, Inc. to provide the next
$450,000 of cost, with any additional costs to be shared equally
between the two parties. The Company believes the clean up plan has
been successful and has requested that the ODEQ inspect the property
and approve the remediation work to release the Company from any future
liability.
3. In September of 1993, Katy received a letter from counsel to Allard
Industries, Inc. ("Allard") requesting that Katy and its subsidiaries,
American Gage and JEI Liquidating, Inc., indemnify Allard for any
liability incurred by it in connection with a case captioned Town of
Londonderry v. Exxon Corporation, et al., Case No. C-93-95-L (United
States District Court, District of New Hampshire). Such request stems
from certain agreements among Katy, Allard and other parties. The case
at issue concerns the disposal and treatment of hazardous wastes and
substances at a landfill site in Londonderry, New Hampshire (the
"Londonderry Site"), states claims under CERCLA and state law, and seeks,
inter alia recovery of response costs with respect to the Londonderry
Site, declaratory judgment with respect to the defendants' liability
for future response costs and unspecified monetary damages. Katy has
agreed to defend and indemnify Allard in this matter. The parties in the
lawsuit agreed to mediate the case. The mediation resulted in a
settlement in principle between the parties which will be memorialized
in a Consent Decree. Under the expected Consent Decree, Allard/Katy and
several other parties will cash out and perform no future work at the
site. In exchange, Allard and Katy will receive a release and
contribution protection. Allard/Katy's payment under the Consent Decree
is expected to be approximately $287,000. Payment will likely be due in
1997. In response to Allard/Katy's demands for contribution, Honeywell,
a former owner/operator of the Manchester facility, has agreed in
principle to pay $40,000 of the Allard/Katy's settlement under the
Consent Decree.
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 12. UNUSUAL ITEMS:
During 1996, 1995 and 1994, various charges and credits, as follows, were
recorded in the Company's Statements of Consolidated Operations:
1996
- ----
During 1996, the Company sold its remaining investment in Union Pacific
common stock and Union Pacific Resources common stock for total proceeds of
$18,681,000 resulting in a pre-tax gain of $10,612,000.
1995
- ----
During the second quarter of 1995, the Company sold one-half of its 75%
interest in Schoen & Cie, AG. With the reduction in its ownership interest,
the Company began reporting its continuing investment in Schoen using the
equity method of accounting. In connection with the sale, the Company recorded
a gain of $4,920,000 reflecting the reversal of previously recorded losses of
Schoen and a deferred tax asset of $3,000,000.
During the third quarter of 1995, the Company sold a portion of its holdings
of Union Pacific Corporation common stock for proceeds of $15,550,000,
resulting in a pre-tax gain of $7,675,000.
During 1995, the Company received settlements from various insurance
companies in the amount of $2,846,000 in settlement of claims associated with
environmental issues.
In the fourth quarter of 1995, the Company sold its wholly owned subsidiary,
WSC Liquidating Co., whose sole asset consisted of common shares of Syratech
Corporation. Katy also sold additional shares which were held directly by
Katy. The net proceeds from these transactions were approximately $50,800,000
and resulted in an after tax gain of $7,500,000, comprised of a gain of
$793,000 and the reversal of $6,707,000 of deferred taxes previously provided
on Katy's share of Syratech's income, which has been determined to not be
required as a result of these transactions.
1994
- ----
The Company has a 15% interest in a joint venture which holds exclusive
exploratory and production rights in a specified on-shore area of Indonesia
under a production sharing contract with Pertamina, the Indonesian government
oil and gas enterprise. A 60% interest is held by a major American oil
company, and 25% is held by a Japanese concern. In April, 1994, management of
the Company met with the Company's oil exploration joint venture partners and,
based on current facts and circumstances, the Company and its partners decided
not to commit further funds to the oil exploration project. Accordingly, the
Company wrote off its ($6,580,000) investment in the oil exploration joint
venture in March, 1994.
During the second quarter of 1994, the Supreme Court of the United States of
America ruled that the ash generated by waste-to-energy facilities, like the
Company's subsidiary in Savannah, Georgia, is hazardous waste. This ruling has
resulted in higher operating costs for waste-to-energy facilities. Based upon
this ruling and developments within the waste-to-energy industry in recent
years, management concluded that further commercialization of the Seghers
technology, which it owns, is unlikely and that the value of the technology
was significantly impaired. Accordingly, the Company wrote down its investment
($2,708,000) in this technology to zero.
During the second quarter of 1994, management decided that for consolidated
financial reporting purposes, a consistent methodology for estimating inventory
valuation reserves should be applied for all subsidiaries, regardless of their
unique business or foreign financial reporting requirements. As a result
consolidated inventory valuation reserves increased for excess and potentially
unsaleable inventories due to price erosion, low sales in recent years and
current low sales order backlogs for certain industrial companies, primarily
foreign operations. An aggregate charge to cost of goods sold of $5,072,000
was recorded for these items.
During the second quarter of 1994, management decided to cease production
and rebuild of presses at its Walsh Press operation, resulting in a $600,000
charge and also incurred a charge of $650,000 for moving its corporate office
to Englewood, Colorado, including severance compensation for those employees
not relocating. Such charges were included in "Other, net" in the Consolidated
Statements of Operations.
In the fourth quarter of 1994, the Company incurred charges of $1,250,000
relating to additional provisions for costs associated with environmental
remediation at certain sites where the Company used to conduct operations.
This charge is included in other expense rather than discontinued operations,
as the sale or shutdown of those operations in prior years was not classified
as discontinued. Additionally, a charge of $900,000 was included in cost of
sales to reflect adjustments to casualty insurance and product warranty claim
liabilities to reflect information received in the fourth quarter related to
certain claims.
The Company's German subsidiary, Schoen & Cie, AG, recorded a charge, during
1994, of $1,000,000 for further severance costs, which was offset by a
partial recovery of trade receivables, owed by customers in the former Soviet
Union, which had been written off in prior years, of approximately $1,710,000.
Note 13: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Quarterly results of operations have been affected by unusual or
infrequently occurring items as discussed in Notes 3 and 12.
1996 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ---- ------- ------- ------- -------
(Thousands of dollars, except per share amounts)
Net sales $42,465 $44,857 $46,068 $55,128
======= ======= ======= =======
Gross profit $13,914 $14,585 $13,984 $15,872
======= ======= ======= =======
Net income $ 4,429 $ 2,299 $ 1,635 $ 5,353
======= ======= ======= =======
Earnings per share $ 0.52 $ 0.28 $ 0.20 $ 0.65
======= ======= ======= =======
1995 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ---- ------- ------- ------- -------
(Thousands of dollars except per share amounts)
Net sales $38,358 $49,609 $42,336 $40,966
======= ======= ======= =======
Gross profit $10,984 $14,391 $13,789 $11,668
======= ======= ======= =======
Net income (loss) $ (737) $ 8,355 $10,689 $10,264
======= ======= ======= =======
Earnings (loss) per share $ (.08) $ .92 $ 1.18 $ 1.16
======= ======= ======= =======
Item 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
- -----------------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
Not applicable.
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 1997 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 1997
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
1997 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 1997 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 1997
Proxy Statement.
Part IV.
--------
Item 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
- ---------------------------------------------------------------------------
(a) 1. Financial Statement Schedules
---------------------------------
The Financial statement schedules filed with this report are 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 December 17, 1996, the Company filed a current report on Form 8-K
providing information in response to Item 2 to Form 8-K with respect
to the acquisition of Woods' Industries, Inc.
On February 17, 1997, the Company filed a current report on Form 8-K/A
providing information in response to Item 7 to Form 8-K with respect
to financial statements of Woods Industries, Inc. and pro forma financial
statements related to the acquisition of Woods Industries, Inc. by the
Company.
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 25, 1997 KATY INDUSTRIES, INC.
Registrant
/s/ John R. Prann, Jr.
------------------
President, Chief Executive and Operating 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 25th day of March, 1997.
Signature Title
- --------- -----
/S/ Philip E. Johnson Chairman of the Board and Director
- ---------------------
Philip E. Johnson
/S/ John R. Prann, Jr. President, Chief Executive Officer,
- ---------------------- Chief Operating Officer and Director
John R. Prann, Jr. (Principal Executive Officer)
/S/ Stephen P. Nicholson Vice President, Finance and Chief Financial
- ------------------------ Officer (Principal Financial and Accounting
Stephen P. Nicholson Officer)
/S/ Glenn W. Turcotte Executive Vice President and Director
- ---------------------
Glenn W. Turcotte
/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/ Arthur R. Miller Director
- --------------------
Arthur R. Miller
/S/ William H. Murphy Director
- ---------------------
William H. Murphy
/S/ Lutz Raettig Director
- ----------------
Lutz Raettig
/S/ Charles W. Sahlman Director
- ----------------------
Charles W. Sahlman
/S/ Jacob Saliba Director
- ----------------
Jacob Saliba
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
----
Independent Auditors' Report 40
Schedule II - Valuation and Qualifying Accounts 41
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 AUDITORS' REPORT
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") as of December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, and have
issued our report thereon dated January 28, 1997; such report is included
elsewhere in this Form 10-K. Our audits also included the 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 audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 28, 1997
KATY INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Thousands of dollars)
Balance at Additions Recoveries Balance
Beginning Charged to Credited to Other at End
Description of Year Expense Expense Adjustments of Year
- ----------- ---------- ---------- ----------- ----------- -------
Reserves deducted from
assets to which they apply:
Year ended December 31, 1996:
Reserve for doubtful accounts:
Trade receivables $886 $455 $(174) $42 [a] $1,181
(28) [b]
Current notes and other
accounts receivable 966 146 (667) - 445
Long-term notes receivable 2,500 - - - 2,500
----- ---- ----- ---- ------
$4,352 $601 $(841) $14 $4,126
====== ==== ===== ==== ======
Year ended December 31, 1995:
Reserve for doubtful accounts:
Trade receivables $3,183 $257 $(105) $12 [a] $886
(2,461) [c]
Current notes and other
accounts receivable 854 422 (54) (256) [b] 966
Long-term notes receivable 2,500 - - - 2,500
------ ---- ----- ------ -----
$6,537 $679 $(159) $(2,705) $4,352
====== ==== ===== ======= ======
Year ended December 31, 1994:
Reserve for doubtful accounts:
Trade receivables $7,795 $ 548 $(1,725) $(4,515) [a] $3,183
900 [d]
Current notes and other
accounts receivable 10 708 (97) (67) [b] 854
300 [e]
Long-term notes receivable 1,700 - (447) 1,547 [f]
(300) [e] 2,500
----- ---- ------ ----- -----
$9,685 $1,256 $(2,269) $(2,135) $6,537
====== ====== ======= ======= ======
[a] Adjustment due to acquisition of subsidiary.
[b] Doubtful accounts written-off against the reserve.
[c] Adjustment due to deconsolidation of subsidiary.
[d] Adjustment due to fluctuation of foreign exchange rates.
[e] Reclassification from long-term to current notes receivable.
[f] Reclassification from other balance sheet accounts.
<FN>
KATY INDUSTRIES, INC.
INDEX OF EXHIBITS
DECEMBER 31, 1996
Exhibit
Number Exhibit Title Page
- ----- ------------- ----
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)
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 and Robert Baratta).
10.7 Katy Industries, Inc. Form of Compensation and Benefits *
Assurance Agreement (covering Tier II employees: Michael
G. Gordono).
21 Subsidiaries of registrant 43
23 Independent Auditors' Consent 40
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 25, 1997, 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)
Bach Simpson, Inc. (Delaware)
Bach-Simpson, Ltd. (Ontario, Canada)
Bee Gee Holding Company, Inc. (Florida) (39%)
Bush Universal, Inc. (New York)
Hamilton Precision Metals, Inc. (Delaware)
Waldom Electronics, Inc. (Delaware)
C.E.G.F.(USA), Inc. (Delaware) (95%)
Duckback Products, Inc. (Delaware)
Hallmark Holdings, Inc. (Delaware) (Formerly Elgin Watch International, Inc.)
Diehl Machines, Inc.
GC Thorsen, Inc.
Glit/Gemtex, Inc.
Glit/Gemtex, Ltd.
Katy Oil Company of Indonesia (Delaware)
Katy-Teweh Petroleum Company (Delaware)
Katy-Seghers, Inc. (Delaware)
Peters Machinery Company (Delaware)
Woods Industries, Inc. (Delaware)
Schoen & Cie, AG (Germany) (27.6%)
American Shoe Machinery Corporation, Inc. (Delaware)
Societe de Fabrication Europeenne des Machines, S.A.R.L. (France)
Schoen Machinery U.S.A., Inc. (Illinois)
Schoen Engineering KFT (Hungary) (51%)
Schoen-Kaev-Eger KFT (Hungary) (58%)
Sinecure Financial Corp. (Colorado) (11%)
The Original Italian Pasta Products Co., Inc. (Massachusetts) (21%)