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
<TABLE>
KATY INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
(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
<FN>
See Notes to Condensed Consolidated Financial Information.
</TABLE>
<TABLE>
KATY INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
<CAPTION>
September 30, December 31,
1994 1993
(Thousands of Dollars)
<S> <C> <C>
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
<FN>
See Notes to Condensed Consolidated Financial Information.
</TABLE>
<TABLE>
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
(Thousands of Dollars Except Per Share Data)
<S> <C> <C> <C> <C>
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
<FN>
See Notes to Condensed Consolidated Financial Information.
</TABLE>
<TABLE>
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
(Thousands of Dollars Except Per Share Data)
<S> <C> <C> <C> <C>
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
<FN>
See Notes to Condensed Consolidated Financial Information.
</TABLE>
<TABLE>
KATY INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
<CAPTION>
Nine Months Ended
September 30
1994 1993
<S> <C> <C>
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
<FN>
See Notes to Condensed Consolidated Financial Information.
</TABLE>
(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.
<TABLE>
(2) Investments, at Equity, and Advances to Unconsolidated Subsidiaries
Katy's investments in and advances to unconsolidated subsidiaries are
comprised of the following:
<CAPTION>
September 30, 1994 Investments Advances Total
(Thousands of Dollars)
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION> September 30, December 31,
1994 1993
(Thousands of Dollars)
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C> <C>
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
</TABLE>
(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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
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%
</TABLE>
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.
<PAGE>
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.
<TABLE>
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:
<CAPTION>
Sales
Increase (Decrease)
1994 1993 Amount Per Cent
(Thousands of Dollars)
<S> <C> <C> <C> <C>
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%
</TABLE>
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.
<PAGE>
KATY INDUSTRIES, INC.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
During the quarter for which this report is filed, there have
been no material developments in previously reported legal
proceedings, and no other cases or legal proceedings, other than
ordinary routine litigation incidental to Katy's business and
other non-material proceedings, have been brought against Katy.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(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
