For more information contact:
Amir Rosenthal
(203) 598-0397
Vice President, Chief Financial Officer,
General Counsel & Secretary

KATY INDUSTRIES, INC. REPORTS 2002 FIRST QUARTER RESULTS

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MIDDLEBURY, CT – May 10, 2002 – Katy Industries, Inc. (NYSE: KT) today reported
a net loss of $(7,590,000), or $(1.22) per share, in the first quarter of 2002,
versus a net loss of $(8,372,000), or $(1.01) per share, in the first quarter
of 2001. Excluding restructuring and other non-recurring or unusual items, the
net loss in the first quarter of 2002 was $(259,000), or $(.35) per share,
versus a net loss of $(2,183,000), or $(.26) per share, in the first quarter of
2001.

Earnings for the first quarter of 2002 were impacted by charges of $7,331,000
for restructuring and other non-recurring or unusual items related to severance
payments, facility exit costs, consulting fees on a resourcing project, a LIFO
inventory adjustment and charges related to a new agreement with respect to the
company’s waste-to-energy facility. Earnings per share for the three months
ended March 31, 2002 were reduced as a result of accruals for the fair value of
paid-in-kind dividends earned on convertible preferred stock. The impact of
these accruals was $.31 per share during the first quarter of 2002. There was
no convertible preferred stock issued and outstanding in the first quarter of
2001.

The 2001 earnings per share are presented on a pro forma basis to show more
meaningful comparisons as a result of the impact of the adoption of the non-
amortization provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets.” This accounting change resulted in a first quarter earnings
improvement of $0.3 million, or $.04 per share. The company adopted these
provisions during the first quarter of 2002, and will complete the assessment
and implementation of the new accounting standard during 2002.
Net sales in the first quarter of 2002 were $111.0 million, down 5.6% on a
comparable basis from the first quarter of 2001 (excluding Thorsen Tools, which
was sold in May 2001). Approximately half of the company's sales are consumer
products and half are commercial products. Sales of consumer products were
flat and sales of commercial products were down 11.1%.
Gross margins excluding unusual items were 17.5%, down from 18.0% in the first
quarter of 2001. Selling, general and administrative expenses, excluding
unusual items, were down $2.7 million, a 13% reduction from the first quarter
of 2001.

Interest expense was down $2.0 million as quarter-end debt was reduced by $69.7
from March 31, 2001. Debt was reduced $6.0 million during the quarter to $78.1
million, which is 32% of total capitalization. Cash on hand at the end of the
quarter was $5.0 million.
The company did not record any income tax benefits during the first quarter of
2002 because of significant tax benefits already recorded on prior operating
losses.

Liquidity was improved as the company generated free cash flow of $2.3 million
versus $10.2 million used in the first quarter of 2001, resulting in a quarter
over quarter improvement of $12.5 million. The company defines free cash flow
as cash generated from operations, net of capital expenditures and cash
dividends.

Management of inventory levels continues to be a major contributor to cash
flow. For the quarter, inventory levels were $69.6 million, down $29.6 million
from the first quarter of 2001.

On April 29, 2002, the company closed a joint venture transaction with Montenay
Power Corporation and its affiliates (“Montenay”) with respect to the company’s
SESCO waste-to-energy facility in Savannah, Georgia. Under this transaction,
the day-to-day operations for the facility will be transferred to Montenay.
This transaction has two principal benefits. First, the operational risk for
the SESCO facility has been transferred. The waste-to-energy facility operated
by SESCO is the only business of its type held by the company. However,
Montenay is an experienced operator of such facilities throughout North
America. Second, while the transaction will require payments to Montenay of
$6.6 million through 2008, the transaction limits the company’s cash flow
losses with regard to SESCO, which has consistently been a drain on the
company’s cash. Management has determined that it is in the company’s best
interest to enter into the SESCO transaction and reduce its further operational
exposures and limit its future losses related to the SESCO facility.
"We continue to restructure the company to be more competitive and integrate
our operations to better serve our customers," said C. Michael Jacobi, Katy
Industries' Chief Executive Officer. "The company is revitalizing its new
product development efforts and strengthening the sales and management team. We
are focused on improving gross margin and free cash flow, selling non-strategic
assets and reducing debt even further."

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:
First Quarter 2002 Financials


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