-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fZA+JipoETiOEuLW6yU5lePd+LWxzgvZtFvtYlNJbN+2L79TEQftua1iq70JcOyS 1N7aaJgZMs3rb4ldCqcLDg== 0000054681-94-000010.txt : 19941220 0000054681-94-000010.hdr.sgml : 19941220 ACCESSION NUMBER: 0000054681-94-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941122 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KATY INDUSTRIES INC CENTRAL INDEX KEY: 0000054681 STANDARD INDUSTRIAL CLASSIFICATION: 3559 IRS NUMBER: 751277589 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05558 FILM NUMBER: 94561423 BUSINESS ADDRESS: STREET 1: 853 DUNDEE AVE CITY: ELGIN STATE: IL ZIP: 60120 BUSINESS PHONE: 7086978900 MAIL ADDRESS: STREET 1: 853 DUNDEE AVE CITY: ELGIN STATE: IL ZIP: 60120 10-Q 1 TRANSMITTAL OF 10Q Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: September 30, 1994 Commission File Number 1-5558 Katy Industries, Inc. (Exact name of registrant as specified in its charter) Delaware 75-1277589 (State of Incorporation) (I.R.S. Employer Identification No.) 6300 S. Syracuse Way, Suite 300 Englewood, Colorado 80111 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (303)290-9300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding at September 30, 1994 Common stock, $1 par value 9,073,387 KATY INDUSTRIES, INC FORM 10-Q SEPTEMBER 30, 1994 INDEX Page No. PART I FINANCIAL INFORMATION Condensed Consolidated Balance Sheets September 30, 1994 and December 31, 1993 2 Statements of Condensed Consolidated Income Three months and nine months ended September 30, 1994 and 1993 4 Statements of Condensed Consolidated Cash Flows Nine months ended September 30, 1994 and 1993 6 Notes to Condensed Consolidated Financial Information 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II OTHER INFORMATION Item 1 Legal Proceedings 18 Item 6 Exhibits and Reports on Form 8-K 18 Signatures 19 KATY INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
September 30, December 31, 1994 1993 (Thousands of Dollars) CURRENT ASSETS: Cash and cash equivalents $ 8,084 $130,289 Marketable securities - available for sale (1993 at cost; market - $31,223) Note 1 26,736 15,795 Accounts receivable, trade, net of allowance for doubtful accounts of $4,179 and $7,975 22,610 20,568 Notes and other receivables, net of allowance for doubtful notes of $360 and $10 2,495 3,804 Inventories - Note 1 34,070 40,725 Other current assets 10,911 14,165 Total current assets 104,906 225,346 OTHER ASSETS: Investments, at equity, and advances to unconsolidated subsidiaries - Note 2 43,831 45,516 Investments, at cost - Note 3 425 6,704 Notes receivable, net of allowance for doubtful notes of $1,400 and $1,700 2,529 3,058 Miscellaneous 18,490 19,915 Total other assets 65,275 75,193 PROPERTIES, at cost: Land and improvements 5,222 3,433 Buildings and improvements 27,901 22,820 Machinery and equipment 59,041 52,488 92,164 78,741 Accumulated depreciation ( 52,508) ( 49,055) Net properties 39,656 29,686 $209,837 $330,225 See Notes to Condensed Consolidated Financial Information.
KATY INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
September 30, December 31, 1994 1993 (Thousands of Dollars) CURRENT LIABILITIES: Notes payable $ 12,271 $ 10,163 Accounts payable 7,773 8,777 Accrued compensation 5,614 5,058 Accrued interest and taxes 2,588 1,131 Accrued liabilities 25,209 21,508 Current maturities, long-term debt 2,117 2,991 Dividends payable 646 643 Total current liabilities 56,218 50,271 LONG-TERM DEBT, less current maturities 8,732 4,289 OTHER LIABILITIES 31,122 31,899 MINORITY INTEREST 215 - Total liabilities 96,287 86,459 STOCKHOLDERS' EQUITY: Common stock, $1 par value, authorized 25,000,000 shares, issued and outstanding 9,821,329 shares 9,821 9,821 Additional paid-in capital 51,111 51,111 Foreign currency translation and other adjustments - Note 7 2,396 3,880 Unrealized holding gains - Note 1 7,099 - Retained earnings 56,018 192,814 Treasury stock (1994 -747,942; 1993 - 803,942 shares) - Note 7 ( 12,895) ( 13,860) Total stockholders' equity 113,550 243,766 $209,837 $330,225 See Notes to Condensed Consolidated Financial Information.
KATY INDUSTRIES, INC. STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Three Months Nine Months Ended September 30 Ended September 30 1994 1993 1994 1993 (Thousands of Dollars Except Per Share Data) Net sales $ 40,561 $ 43,678 $121,625 $128,610 Costs and expenses: Cost of goods sold 26,195 31,635 89,347 92,658 Selling, general and administrative 11,811 13,340 33,254 36,055 Depreciation and amortization 1,501 1,408 4,559 4,386 Interest expense 335 474 1,357 1,291 Interest income ( 704) ( 980)( 3,223)( 3,631) Provision for (recovery of) doubtful accounts and notes - Note 5 5 1,027 (835) 1,217 Other expense (income), net - Note 5 ( 74)( 376) 2,323 ( 2,045) Gain on sale of stock - Note 3 - ( 8,497) - ( 14,578) Write off of assets - Note 5 - - 9,288 - 39,069 38,031 136,070 115,353 Income (loss) from continuing consolidated operations before provision for income taxes and minority interest 1,492 5,647 ( 14,445) 13,257 Benefit (Provision) for income taxes ( 540)( 2,807) 3,063 ( 6,997) Minority stockholders share of (income) loss( 5) 437 ( 10) 1,461 Income (loss) from continuing consolidated operations 947 3,277 ( 11,392) 7,721 Equity in income of unconsolidated subsidiaries - Note 2 1,086 1,018 2,390 2,342 Gain as a result of initial public offering by an unconsolidated subsidiary - Note 2 - - - 835 Income (loss) from continuing operations 2,033 4,295 ( 9,002) 10,898 Discontinued consolidated - ( 4,275) - ( 5,618) operations - Note 6 Income (loss) before cumulative effect of change in accounting principle 2,033 20 ( 9,002) 5,280 Cumulative effect of change in in accounting principle - - - ( 1,418) Net income (loss) $ 2,033 $ 20 ($ 9,002) $ 3,862 See Notes to Condensed Consolidated Financial Information.
KATY INDUSTRIES, INC. STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Three Months Nine Months Ended September 30 Ended September 30 1994 1993 1994 1993 (Thousands of Dollars Except Per Share Data) Earnings per share: Income (loss) from continuing operations $ .22 $ .48 ($ 1.00) $ 1.20 Discontinued consolidated operations - ( .48) - ( .62) Cumulative effect of change in accounting principle - - - ( .15) Net income (loss) $ .22 $ - ($ 1.00) $ .43 Average shares outstanding (in thousands) 9,018 9,017 9,018 9,017 Dividends per share - common stock - Note 4 $ .0625 $ .0625 $14.1250 $ .1875 See Notes to Condensed Consolidated Financial Information.
KATY INDUSTRIES, INC. STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Nine Months Ended September 30 1994 1993 Cash flows from operating activities: Net income (loss) ($ 9,002) $ 3,862 Gain as a result of an initial public offering by an unconsolidated subsidiary - ( 835) Write-off of investments 9,288 - Gain on sale of assets ( 70) ( 15,787) Discontinued operations - 5,618 Provisions for inventory valuation reserves 5,072 - Cumulative effect of change in accounting principle - 1,418 Adjustments to reconcile net income to net cash flows from operating activities 1,098 5,612 Net cash flows from operating activities 6,386 ( 112) Cash flows from investing activities: Proceeds from sale of assets 456 54,889 Time deposits and marketable securities activity - 18,815 Collections of notes receivable, net 640 81 Purchase of subsidiary, net of cash acquired ( 2,226) 150 Capital expenditures ( 2,193) ( 3,637) Net cash flows from investing activities ( 3,323) 70,298 Cash flows from financing activities: Notes payable activity, net 2,108 2,005 Principal payments on long-term debt ( 4,024) ( 1,253) Payment of dividends ( 127,371) ( 1,691) Additions to long-term debt 4,019 - Net cash flows from financing activities ( 125,268) ( 939) Net increase (decrease) in cash and cash equivalents ( 122,205) 69,247 Cash and cash equivalents beginning of period 130,289 34,801 Cash and cash equivalents end of period $ 8,084 $104,048 See Notes to Condensed Consolidated Financial Information.
(1) Significant Accounting Policies Consolidation Policy The financial statements include, on a consolidated basis, the accounts of Katy Industries, Inc. and subsidiaries (Katy) in which it has greater than 50% interest. The information furnished reflects all known adjustments which are, in the opinion of management, necessary for a fair presentation. Interim figures are subject to year-end audit adjustments. Certain amounts from prior years have been reclassified to conform with the 1994 financial statement presentation. Inventories The components of inventories are as follows: September 30, December 31, 1994 1993 (Thousands of Dollars) Raw materials $ 13,265 $ 13,710 Work in process 8,526 9,582 Finished goods 12,279 17,433 $ 34,070 $ 40,725 New Accounting Pronouncements On January 1, 1994 Katy adopted Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires, among other things, that securities which are available for sale be classified as such and stated at their fair value with the unrealized holding gain or loss accounted for as a separate component of stockholders' equity. Adoption of SFAS No. 115 resulted in the reclassification of marketable securities with a cost of $15,795,000 to securities available-for-sale. Such securities were also revalued to their fair value on January 1, 1994 of $31,223,000 and the unrealized holding gain of $9,257,000, net of related taxes, was accounted for as a separate component of stockholders' equity. As of September 30, 1994 the unrealized holding gain was $6,679,000, net of related taxes. During the nine months ended September 30, 1994 there were no purchases or sales of marketable securities. (2) Investments, at Equity, and Advances to Unconsolidated Subsidiaries Katy's investments in and advances to unconsolidated subsidiaries are comprised of the following:
September 30, 1994 Investments Advances Total (Thousands of Dollars) Syratech Corporation $36,900 $ - $36,900 Bee Gee Holding Company, Inc. 6,931 - 6,931 $43,831 $ - $43,831 December 31, 1993 Investments Advances Total Syratech Corporation $32,977 $ - $32,977 Bee Gee Holding Company, Inc. 6,281 - 6,281 C.E.G.F. (USA) 2,060 4,198 6,258 $41,318 $ 4,198 $45,516
In March, 1994 Katy purchased 50% of the outstanding common stock of C.E.G.F. (USA), an operator of cold storage facilities, for $2,750,000 which purchase resulted in Katy 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. As of March 31, 1994 the balance sheet of C.E.G.F. was included in Katy's Condensed Consolidated Balance Sheet and beginning in the second quarter of 1994 the income statement of C.E.G.F. has been included in Katy's Statement of Condensed Consolidated Operations. This acquisition does not materially impact Katy's results of operations or financial position. In December, 1992 Syratech Corporation completed an Initial Public Offering at $16.50 a share. This transaction diluted Katy's ownership percentage to 28.8% from 36.1%. Katy's share of Syratech's increased shareholder equity accounts resulted in a credit of $1,369,000 before income taxes of $534,000 ($.09 per share) to Katy's Statement of Condensed Consolidated Operations in the first quarter of 1993. At the time of the Initial Public Offering Syratech adopted a shareholder rights plan. Katy's shares are not registered and if sold to a single purchaser would cause the shareholder rights plan to become effective. Katy accounts for this investment on a three month lag basis. Katy's ownership percentage is currently 26.4% (25.7% on a fully diluted basis). (2) Investments, at Equity, and Advances to Unconsolidated Subsidiaries (Continued) The condensed financial information which follows reflects Katy's proportionate share in the financial position and results of operations of all of its unconsolidated subsidiaries:
September 30, December 31, 1994 1993 (Thousands of Dollars) Current assets $ 37,519 $ 35,356 Current liabilities ( 12,633) ( 13,864) Working capital 24,886 21,492 Properties, net 25,786 29,283 Other assets 767 913 Long-term debt ( 4,948) ( 8,979) Other liabilities ( 5,875) ( 5,234) Stockholders' equity 40,616 37,475 Unamortized excess of cost over net assets acquired 3,215 3,843 Investments, at equity, in unconsolidated subsidiaries $ 43,831 $ 41,318
Three Months Nine Months Ended September 30 Ended September 30 1994 1993 1994 1993 (Thousands of Dollars) Sales $ 25,891 $ 24,958 $ 67,675 $ 70,912 Costs and expenses ( 23,436) ( 23,014) ( 62,444) ( 66,268) Net income 2,455 1,944 5,231 4,644 Amortization of excess of cost over net assets acquired ( 197) ( 214) ( 599) ( 596) Provision for income taxes ( 1,172) ( 712) ( 2,242) ( 1,706) Equity in net income of unconsolidated subsidiaries $ 1,086 $ 1,018 $ 2,390 $ 2,342
(3) Investments, at Cost In April, 1994 management of Katy met with Katy's oil exploration joint venture partners and, based on current facts and circumstances, Katy has decided not to commit further funds to the oil exploration project and will not participate in any further activities on the site. Accordingly, in March, 1994 Katy wrote off its $6,580,000 investment. In January, 1993 Katy sold its 8% interest, (78,145 shares of common stock) in Compagnie des Entrepots et Gares Frigorifiques (CEGF), a French cold storage company, for cash proceeds of $10,953,000 resulting in a pre-tax gain of $6,081,000. In the third quarter of 1993 Katy sold 300,000 shares of Union Pacific Corporation common stock for proceeds of $18,091,000, resulting in a pre-tax gain of $8,497,000. (4) Special Dividend On June 29, 1994, Katy's Board of Directors declared a special cash dividend of $14.00 per share on Katy's common stock, payable August 19, 1994 to stockholders of record at the close of business on July 22, 1994. (5) Nonrecurring Items During the second quarter of 1994 Katy provided $5,072,000 of inventory reserves at certain subsidiaries, which were primarily related to the Industrial Machinery segment. In addition, Katy management has decided to cease production and re-build of presses at its manufacturer of presses resulting in a $600,000 charge. These provisions have been charged to cost of goods sold in the accompanying Statements of Condensed Consolidated Operations. Management has also concluded that the value ($2,708,000) of the Seghers waste-to-energy technology that was acquired in 1987 has been significantly impaired and wrote it off in the second quarter of 1994. In June, 1994, Katy incurred a charge of $650,000 for moving its corporate office to Englewood, Colorado including severance compensation for those employees not relocating. (6) Discontinued Consolidated Operations During the three months and nine months ended September 30, 1993 Katy provided $4,275,000 and $5,618,000, net of income tax benefits of $2,312,000 and $3,064,000, respectively, for additional environmental cleanup costs at plant sites of units discontinued in prior years and to record the loss on disposal of assets of a unit discontinued in a prior year. (7) 1994 Key Employee and Director Stock Purchase Plan During the third quarter of 1994 the Board of Directors approved a stock purchase plan for key employees and directors. Under the Plan, 75,000 shares of Katy common stock, held in treasury stock, were reserved for issuance at a purchase price equal to 65% of the market value of the shares as determined based upon the offering period established the Compensation Committee of Katy's Board of Directors. As of September 30, 1994, 56,000 shares were issued at a purchase price of $6.47 per share. (7) 1994 Key Employee and Director Stock Purchase Plan (Continued) Proceeds from the purchase of these shares consisted of notes receivable payable over sixty months with an interest rate equal to the Federal Short Term Rate. The excess of the cost of the treasury shares over the market value of the shares at the date of purchase has been charged to retained earnings. The notes receivable from plan participants are included in the Condensed Consolidated Balance Sheets under the caption "Foreign currency translation and other adjustments". (8) Sale of Subsidiary In September, 1994 Katy entered into a letter of intent to sell it's gas engine repair and compressor parts subsidiary, Panhandle Industrial Co. Sales of this subsidiary were $7,012,000 and $7,310,000 and pretax income was $751,000 and $590,000 for the nine months ended September 30, 1994 and 1993, respectively. Katy anticipates that the sale will be finalized in the fourth quarter and that it will not record a loss as a result of this sale. LIQUIDITY AND CAPITAL RESOURCES On June 29, 1994, Katy's Board of Directors declared a special cash dividend of $14.00 per share on Katy's Common Stock, payable August 19, 1994 to stockholders of record at the close of business on July 22, 1994. Action on the special dividend, which had initially been recommended to the Board by a special committee on March 8, 1994, had been deferred until the Delaware Court of Chancery ruled on Pensler Capital Partners and Herbert Mendel's application for a preliminary injunction. The Delaware Court of Chancery on Friday, June 17, 1994 denied the application for a preliminary injunction. The dividend amounting to $126,243,000, which will be taxable as ordinary income to the stockholders, was funded through Katy's cash and cash equivalent balances. During the nine months ended September 30, 1994 working capital decreased $126,387,000 compared to December 31, 1993. Current ratios were 1.87 to 1.00 at September 30, 1994 and 4.48 to 1.00 at December 31, 1993, respectively. The decrease in working capital and in the current ratio principally results from the payment of the special dividend which was declared on June 29, 1994. Katy has authorized and expects to commit an additional $1,800,000 for capital projects during the remainder of 1994. Funding for these expenditures and for working capital needs is expected to be accomplished substantially through use of internally generated funds from operations supplemented by short-term borrowing. On January 1, 1994 Katy adopted Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires, among other things, that securities which are available for sale be classified as such and stated at their fair value with the unrealized holding gain or loss accounted for as a separate component of stockholders' equity. Upon adoption Katy reclassified marketable securities with a cost of $15,795,000 to securities available for sale. Such securities were revalued to their fair value, on January 1, 1994, of $31,223,000 and the unrealized holding gain of $9,257,000, net of related taxes, was accounted for as a separate component of stockholders' equity. As of September 30, 1994 the securities were valued at $26,736,000 and the unrealized holding gain was $6,679,000, net of related taxes. Subsequent to September 30, 1994 the market value of the securities decreased to $23,682,000 and the unrealized holding gain decreased to $4,815,000, net of related taxes. The Company and certain of its current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the U.S. Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties ("PRP's") at a number of hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund") and equivalent state laws and, as such, may be liable for the cost of cleanup and other remedial activities at these sites. Responsibility for cleanup and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula. The means of determining allocation among PRPs LIQUIDITY AND CAPITAL RESOURCES (Continued) 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 volummetric contribution of waste to a site. The Company is also involved in remedial response and voluntary environmental clean-up at a number of other sites which are not currently the subject of any legal proceedings under Superfund, including certain of its current and formerly owned manufacturing facilities. Based on its estimate of allocation of liability among PRPs, the probability that other PRPs, many of whom are large, solvent, public companies, will fully pay the costs apportioned to them, currently available information concerning the scope of contamination, estimated remediation costs, estimated legal fees and other factors, the Company has remaining reserves at September 30, 1994 for indicated environmental liabilities in the aggregate amount of approximately $6,300,000. Although management believes that these matters in the aggregate are not likely to have a material adverse effect on Katy's consolidated financial position or results of operations, further costs could be significant and will be recorded as a charge to operations when such costs become probable and reasonably estimable. Katy also has a number of product liability and workers' compensation claims pending against it and its subsidiaries. With respect to the product liability and workers' compensation claims, Katy has provided for its share of expected losses beyond the applicable insurance coverage, including those incurred but not reported. Such accruals are developed using currently available claim information. The incurred but not reported component of the liability was developed using actuarial techniques. At September 30, 1994, Katy had short and long-term indebtedness for money borrowed of $23,120,000 of which $12,271,000 represented short-term bank credit lines from banks in Germany in support of Katy's 75% owned German subsidiary. Total debt was 16.92% of total debt and equity at September 30, 1994. In August, 1994, Katy changed it's banking relationship and has a commitment for a secured short-term line of credit from The Northern Trust Company in the amount of $20,000,000. In addition, a Katy subsidiary has obtained a secured bank loan for $7,400,000 of which $3,700,000 will be used for expansion of its Plant City, Florida cold storage warehouse. The balance of the loan proceeds was paid to Katy as partial payment of a mortgage it held on the property. During the first nine months of 1994, Katy's 75% owned German subsidiary, Schon & Cie, AG ("Schon") incurred losses of $5,986,000 from operations, including a provision for excess inventory quantities in the second quarter which was made in consolidation for United States reporting purposes. These losses were mitigated somewhat by a partial recovery of trade receivables written-off in prior years. In November Katy will pay approximately $5,200,000 of Schon's bank debt, representing 100% of the remaining amounts guaranteed by Katy and also will lend Schon $326,000 for working capital. In addition, Schon received approval from its banks for approximately $3,900,000 of new debt to provide for working capital needs. Sales volume and order backlog remain inadequate and management continues to evaluate its options with regard to Schon. Katy does not anticipate providing substantial additional funding for Schon. LIQUIDITY AND CAPITAL RESOURCES (Continued) In April, 1994 management of Katy met with Katy's oil exploration joint venture partners and, based on current facts and circumstances, Katy has decided not to commit further funds to the oil exploration project, and will not participate in any further activities on the site. Accordingly, the Company wrote off its investment in the oil exploration joint venture in March, 1994. Katy-Seghers, Inc., a wholly-owned subsidiary of the Company, has been the vehicle used to commercialize and bid on new projects in the waste-to-energy industry utilizing the Seghers technology. It has not formally bid on a new project since 1991. The Company currently owns and operates a waste-to-energy facility utilizing this technology in Savannah, Georgia. During the second quarter of 1994, the Supreme Court of the United States of America ruled that the ash generated by such waste-to-energy facilities is hazardous waste. This ruling has resulted in higher operating costs for waste-to-energy facilities. Based on the developments within the waste-to-energy industry in recent years and the ruling discussed above, management has concluded that further commercialization of the Seghers technology is unlikely, that the value of the technology has been significantly impaired and, accordingly, has written down its investment in this technology to zero. Management is in the process of reviewing each of its businesses to determine the Company's focus for the future. Upon the conclusion of such review, management may determine to sell certain companies and may augment its remaining businesses with acquisitions. Such review has yet to be completed. When sales do occur, management anticipates that funds from these sales will be used for general corporate purposes. Any acquisitions would be funded through cash balances, available lines of credit and future borrowings. In September, 1994 Katy announced that it has entered into a letter of intent to sell Panhandle Industrial Co., a gas engine repair and compressor parts business. Sales of this subsidiary were $7,012,000 and $7,310,000 and pretax income was $751,000 and 4590,000 for the nine months ended September 30, 1994 and 1993, respectively. Katy anticipates that the sale will be finalized in the fourth quarter and that it will not record a loss as a result of this sale. As a preliminary result of the above mentioned review process, Katy 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 unsalable inventories due to low sales in recent years and current low sales order backlogs for certain industrial companies, primarily foreign operations. The aggregate charge to cost of goods sold in the Statements of Condensed Consolidated Operations during the second quarter was $5,072,000 for these items.
RESULTS OF OPERATIONS Nine Months Ended September 30, 1994 Following are summaries of sales and operating income for the nine months ended September 30, 1994 and 1993 by industry segment: Sales Increase (Decrease) 1994 1993 Amount Per Cent (Thousands of Dollars) Industrial Machinery $ 46,529 $ 43,515 $ 3,014 6.92% Industrial Components 24,823 40,997 ( 16,174) (39.45 ) Consumer Products 50,273 44,098 6,175 14.00 Total sales $121,625 $128,610 ($ 6,985) ( 5.43%) Operating Income Percent of Sales 1994 1993 1994 1993 (Thousands of Dollars) Industrial Machinery ($ 4,577) ($ 2,822) ( 9.84%) ( 6.49%) Industrial Components 1,583 1,676 6.38 4.09 Consumer Products 6,169 4,482 12.27 10.16 Total operating income $ 3,175 $ 3,336 2.61% 2.59%
The increased sales of the Industrial Machinery segment is primarily attributable to the food packaging and food processing machinery manufacturers. The 1994 operating loss reported for the segment was considerably higher than the loss reported in 1993, the result of provisions to inventory valuation reserves at certain locations, primarily foreign operations. Increased operating income due to increased sales and improved operating margins of the food processing and food packaging machinery manufacturers were offset by the above mentioned inventory valuation provisions. The Industrial Components segment reported decreased sales primarily due to the divestiture of the pump manufacturing companies in the fourth quarter of 1993. Operating income declined primarily as the result of provisions to inventory valuation reserves of a foreign subsidiary which more than offset increased sales and operating income by the manufacturer of specialty metals and the divestiture of the pump manufacturing companies, which had reported an operating loss 1993. Nine Months Ended September 30, 1994 (Continued) The Consumer Products segment reported increased sales and operating income, the result of higher sales and improved margins. All units in the group, except for the filter business, reported increased sales. The filter business reported decreased sales, but improved operating margins, due to the closing of the IAQ 2000 product line in the fourth quarter of 1993. All other units, except the sanitary maintenance supply business, reported increased operating income. Selling, general and administrative expenses decreased by $2,801,000, primarily the result of decreased sales expenses due to lower sales in 1994 and the sale of the pump manufacturing companies in the fourth quarter of 1993. Income before income taxes decreased by $27,702,000, primarily the result of the write-off of investments of $9,288,000 (oil exploration joint venture investment and Seghers technology), provision for inventory valuation reserves of $5,072,000 in 1994 and the inclusion in 1993 of a gain of $15,956,000 from the sale of investments. Additionally, Katy ceased production and re-build activities at the manufacturer of presses incurring charges to operations of $600,000 and also incurred charges of $650,000 for the cost of moving its corporate office to Englewood, Colorado, including severance compensation for those employees not relocating. Equity in income of unconsolidated subsidiaries increased by $48,000. Bee Gee Holding Company, Inc. reported increased earnings due to higher sales and margins. Syratech Corporation reported increased earnings, resulting from a lower effective tax rate and increased sales. As a result of the dilution of Katy's ownership percentage of Syratech, Katy's share of Syratech's income in 1994 decreased slightly. For additional information on unconsolidated subsidiaries and gain as a result of initial public offering of an unconsolidated subsidiary in 1993, see Note 2 of Notes to Condensed Consolidated Financial Information. Three Months Ended September 30, 1994 Following are summaries of sales and operating income for the three months ended September 30, 1994 and 1993 by industry segment:
Sales Increase (Decrease) 1994 1993 Amount Per Cent (Thousands of Dollars) Industrial Machinery $ 15,161 $ 15,058 $ 103 .68% Industrial Components 7,952 13,450 ( 5,498) (40.88 ) Consumer Products 17,448 15,170 2,278 15.02 Total sales $ 40,561 $ 43,678 ($ 3,117) ( 7.14%) Three Months Ended September 30, 1994 (Continued) Operating Income Percent of Sales 1994 1993 1994 1993 (Thousands of Dollars) Industrial Machinery $ 972 ($ 690) 6.41% ( 4.58%) Industrial Components 1,313 ( 89) 16.51% ( .66%) Consumer Products 2,257 1,669 12.94% 11.00% Total operating income $ 4,542 $ 890 11.20% 2.04%
The Industrial Machinery segment reported increased sales in all units of the segment except for the press manufacturing operation which ceased operations in the second quarter of 1994. The manufacturers of food packaging and food processing equipment reported increased operating income, the result of increased sales, while the remaining units in the segment reported decreased operating income, the result of lower margins. The Industrial Components segment reported decreased sales while operating income increased substantially the result of the sale of the pump manufacturing companies in the fourth quarter of 1993. The manufacturers of electrical equipment and precision metal products reported increased sales and operating income, the result of higher profit margins. The Consumer Products segment reported increased sales and operating income, primarily due to the acquisition of a cold storage company (see Note 2 of Notes to Consolidated Financial Information) in March, 1994. Increased sales and operating income were reported by the distributor of electronic parts while the manufacturer of paints and stains posted increased sales with operating income remaining flat. The sanitary maintenance supplies business continued to face competitive pricing pressures which impact margins and result in a decline in operating income, despite increased sales. Income before income taxes decreased by $4,155,000, primarily the result of the inclusion in 1993 of a gain of $9,875,000 from the sale of investments. The provision for income taxes decreased in 1994 by $2,267,000, the result of lower domestic taxable income, primarily due to the inclusion in 1993 of a gain of $9,875,000 from the sale of investments. Equity in income of unconsolidated subsidiaries increased by $68,000. Bee Gee Holding Company, Inc. reported increased earnings due to higher sales volumes and margins. Syratech Corporation reported increased earnings, resulting from increased sales, a lower effective tax rate and slightly higher operating margins. As a result of the dilution of Katy's ownership percentage of Syratech, Katy's share of Syratech's income in 1994 decreased. For additional information on unconsolidated subsidiaries, see Note 2 of Notes to Consolidated Financial Information. KATY INDUSTRIES, INC. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS During the quarter for which this report is filed, there have been no material developments in previously reported legal proceedings, and no other cases or legal proceedings, other than ordinary routine litigation incidental to Katy's business and other non-material proceedings, have been brought against Katy. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KATY INDUSTRIES, INC. Registrant DATE: November 14, 1994 By /s/John R. Prann, Jr. John R. Prann, Jr. President, Chief Executive Officer & Chief Operating Officer DATE: November 14, 1994 By /s/P. Kurowski Paul Kurowski Secretary, Treasurer & Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----