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Amir Rosenthal
(203) 598-0397
Vice President, Chief Financial Officer,
General Counsel & Secretary

KATY INDUSTRIES, INC. ANNOUNCES RESULTS FOR FOURTH QUARTER

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MIDDLEBURY, CT – April 1, 2002 – Katy Industries, Inc. (NYSE: KT) today reported a net loss for the fourth quarter of 2001 of ($17,709,000), or ($2.43) per share, compared to a net loss of ($2,275,000), or ($.28) per share, in the fourth quarter of 2000. Excluding unusual items, operating income for the fourth quarter of 2001 was $4,468,000, compared to $2,541,000 in the fourth quarter of 2000. Unusual items for the fourth quarter of 2001 are detailed on a schedule accompanying this release. Earnings per share for the three months ended December 31, 2001 was reduced by $0.32 per share as a result of the impact of the accrual of payment in kind dividends on convertible preferred stock.

For the twelve months ended December 31, 2001, Katy reported a net loss of ($63,262,000), or ($7.28) per share, compared to a net loss of ($5,458,000), or ($.65) per share in the same period of 2000. Excluding unusual items, operating income for the twelve months ended December 31, 2001, was $6,132,000, compared to $13,684,000 in the same period of 2000. Unusual items for the twelve months ended December 31, 2001, are detailed on a schedule accompanying this release. Earnings per share for the twelve months ended December 31, 2001 was reduced by $0.53 per share as a result of the impact of the accrual of payment in kind dividends on convertible preferred stock.

Results for both the three and twelve month periods were impacted by sales declines of 16% and 13%, respectively. The company experienced these declines in both the retail and institutional markets into which it sells.

On June 28, 2001, Katy shareholders approved a series of proposals for the recapitalization of the company. KKTY Holding Company, L.L.C., an affiliate of an investment partnership affiliated with Kohlberg & Company, L.L.C., purchased 700,000 shares of convertible preferred stock for $70,000,000, before direct costs associated with the transaction. Shareholders elected six Kohlberg designees as directors for Katy, who represent a majority of Katy’s board. Also, the Board of Directors elected C. Michael Jacobi as President and CEO of Katy. In connection with the recapitalization, Katy refinanced its debt obligations and is now operating under a secured, asset-based credit facility agented by Bankers Trust Company. Katy’s bank debt was reduced to approximately $89,913,000 ($6,066,000 of which was due within one year) at June 30, 2001 from $147,820,000 (substantially all of which was due within one year) at March 31, 2001, and was further reduced to $84,093,000 ($14,619,000 of which is due within one year) at December 31, 2001. Also, an agreement was reached in conjunction with the recapitalization that allowed Katy to redeem approximately one-half of a third party’s $32,900,000 preferred interest for $9.9 million, lowering the stated amount of preferred interest by $16,500,000. Refer to the Katy press releases of June 28, 2001 and June 3, 2001, and the proxy documents filed by Katy with the SEC on April 25, 2001 and June 8, 2001, for a more complete description of the recapitalization transaction.

Katy’s balance sheet as of December 31, 2001 will, in addition to the current maturities of long-term debt indicated above, present $57,000,000 of obligations outstanding under its revolving credit facility as a current liability. This classification is a result of the combination of 1) lockbox agreements regarding Katy’s depository accounts, which are swept daily by the lender to reduce outstanding borrowings, and 2) the existence of a subjective Material Adverse Effect (MAE) clause in the credit agreement. While both of these features are common in commercial lending arrangements, generally accepted accounting principles require that companies present borrowings outstanding under agreements with these terms as current liabilities. The revolving credit facility expires on June 28, 2006.

Unusual charges recorded in the fourth quarter include the following items. Reference is also made to unusual charges recognized in the first, second, and third quarters, as well as in the prior year, for certain items. All amounts are presented pre-tax.

• Impairments of capitalized software costs at the Wilen division of $1,485,000, and an impairment of all long-lived assets at the company’s waste-to-energy facility (SESCO) of $9,816,000, and other impairments of $24,000. During the third quarter, the company recorded impairments of machinery and equipment at Woods Canada of $187,000. During the second quarter of 2001, the company recorded an impairment of goodwill and other intangibles at Wilen of $33,000,000, and other impairments of $2,111,000. During the first quarter of 2001, Katy recorded an impairment of $846,000 related to the long-lived assets of its Thorsen Tools subsidiary, which was sold during the second quarter of 2001.
  
  
• Severance and restructuring charges of $3,093,000. During the third quarter, the company recorded severance and restructuring charges of $6,518,000. Both third and fourth quarter amounts represented payments and accruals for employee stay and severance payments relating to the recapitalization and management transitions. Also included in the third and fourth quarter amounts are payments and charges related to consultants working with the company on strategic sourcing and other manufacturing and efficiency strategies. During the second quarter and first quarter of 2001, severance and restructuring charges of $2,719,000 and $1,318,000 were recorded. During the fourth quarter and third quarter of 2000, severance charges of $532,000 and $2,117,000 were recognized.
  
  
• Inventory valuation adjustments of $618,000, primarily at the Contico and Wilen divisions. During the third quarter inventory valuation adjustments of $1,470,000 were recorded, relating primarily to the GC/Waldom division. During the second quarter, inventory valuation adjustments of $2,056,000 were recorded, and during the first quarter, inventory adjustments primarily for losses associated with the exit from the electrical licensed branded product lines were recorded, which totaled $4,832,000. Total inventory valuation adjustments recorded during the year were $8,976,000. It should be noted that of this amount, $215,000 of income was booked related to LIFO inventory accounting. During the fourth quarter of 2000, inventory lower of cost or market adjustments of $1,372,000 were recorded. During 2000 in total, charges related to LIFO inventory accounting were booked totaling $650,000.
  
  
• Other items of $717,000, related primarily to accruals for contingent liabilities and costs associated with the exit of one of the lines of business. During the third quarter, $97,000 of income was recognized, related to the reversal of an accrual for potential losses associated with a bankrupt former customer, which was settled favorably. During the second quarter of 2001, other items totaling $1,017,000 were recorded, including exposures related to litigation and customer bankruptcies. During the fourth quarter of 2000, the company recognized unusual income of $498,000 related to collections on investments whose carrying values had been previously written off. During the third quarter of 2000, the company recognized a charge for a product recall at its consumer electronics division and other items totaling $805,000.
  
  
• Receivables valuation adjustments of $485,000, related to amounts owed from a recently bankrupt customer. During the third quarter, receivables valuation adjustments were booked in the amount of $577,000, related primarily to amounts owed from a second recently bankrupt customer. Receivables valuation adjustments recorded in the second quarter totaled $584,000.
  
  
• While no transaction costs associated with the recapitalization were recognized in the fourth quarter of 2001, costs of this nature were recorded in the second and first quarters of $448,000 and $2,525,000, respectively.
  
  
• During the second quarter of 2001, an extraordinary loss on the early extinguishment of debt of $1,818,000 ($1,812,000 after tax) was recorded, representing a write-off of previously capitalized costs associated with indebtedness under the former credit agreement.

Additionally, costs were incurred during 2001 associated with the issuance of the convertible preferred stock for the recapitalization of $4,899,000, pre- tax, and capitalized debt costs associated with the new credit agreement of $7,471,000, pre-tax, neither of which affected income. However, the debt costs are being amortized to interest over the five year life of the credit agreement.

Katy has moved its corporate headquarters to Middlebury, Connecticut, and closed its former headquarters in Englewood, Colorado, as well as another administrative office in Chicago, Illinois, during the fourth quarter.

This press release may contain various “forward-looking statements” as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934, as amended. The forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. We have based these forward-looking statements on current expectations and projections about future events and trends affecting the financial condition of our business. These forward- looking statements are subject to risks and uncertainties, detailed from time to time in Katy’s filings with the SEC, that may lead to results that differ materially from those expressed in any forward-looking statement made by us or on our behalf.

Katy Industries, Inc. is a diversified corporation with interests primarily in Electrical/Electronics and Maintenance Products.


Click below for PDF financials:
Fourth Quarter 2001 Financials


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