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Amir Rosenthal
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Vice President, Chief Financial Officer,
General Counsel & Secretary

KATY INDUSTRIES, INC. ANNOUNCES RESULTS FOR SECOND QUARTER

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ENGLEWOOD, CO - August 13, 2001 -- Katy Industries, Inc. (NYSE: KT) today reported a net loss for the second quarter of 2001 of ($31,616,000) or ($2.98) per share, compared to a net loss of ($1,282,000), or ($.15) per share, in the second quarter of 2000. Second quarter results of 2001 include extraordinary and unusual charges totaling ($28,440,000) after-tax, or ($2.47) per share. These items are detailed on a schedule accompanying this release.

For the six months of 2001, Katy reported a net loss of ($39,988,000) or ($3.98) per share. Net loss for the same period of 2000 was ($637,000), or ($0.08) per share. Results for the six months ended June 30, 2001, include extraordinary and unusual items totaling ($34,628,000) after-tax, or ($3.20) per share, which are also detailed on an attached schedule. The decrease in operating results for both periods is mainly due to sales declines of approximately 13%.

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 long-term debt has been reduced to approximately $89,800,000 ($6,000,000 of which is 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. Also, an agreement was reached in conjunction with the recapitalization that allowed Katy to redeem one-half of a third party's $32,900,000 preferred interest in a Katy subsidiary for $9.9 million, lowering the stated amount of the 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.

Unusual and extraordinary charges recorded in the second quarter include the following items. All amounts are presented after-tax.

• An impairment of goodwill and other intangible assets associated with Katy's mop, broom and brush division of $21,450,000, or $2.55 per share. Purchased by Katy in 1998, the division's performance has not reached expectations. While the company has plans to improve the division's performance, current sales levels and operating results do not support the pre-impairment carrying value of certain long-lived assets and would not be recoverable through forecasted future cash flows. Other impairments of long-lived assets, primarily property, plant and equipment, were recorded amounting to $1,372,000, or $0.16 per share. These impairments are the result of management decisions regarding the discontinuance of utilization of certain capitalized assets. During the first quarter, Katy impaired goodwill of $550,000, or $0.07 per share, associated with the Thorsen Tools business unit, which was sold during the second quarter.
  
  
• Severance and restructuring charges of $1,767,000, or $.21 per share, related to 1) reductions in force primarily at the consumer and industrial plastics division, 2) exit costs associated with the planned closing of the current corporate office in Englewood, Colorado, and 3) severance and exit costs associated with the closure of a facility and the transfer of certain administrative functions from the mop, broom and brush division. During the first quarter, severance and restructuring costs of $856,000 were recorded.
  
  
• Inventory valuation adjustments of $1,336,000, or $0.16 per share, which resulted from the impact of lower sales or product line discontinuances during the first half of 2001 and management strategies to reduce SKU's and monetize aged inventory. During the first quarter, adjustments for LIFO accounting and losses associated with the exit from the electrical licensed branded product lines were recorded, which totaled $3,008,000.
  
  
• Other items totaling $662,000, or $0.08 per share, including reserve adjustments for litigation and potential exposures that have developed related to a now-bankrupt former customer.
  
  
• Receivables valuation adjustments of $380,000, or $0.05 per share, which resulted from determinations of amounts to be realized on balances owed from parties related to former Katy investments and operations, and from former customers of certain operating divisions.
  
  
• Expenses associated with the recapitalization transaction of $291,000, or $0.03 per share. During the first quarter, expenses associated with the recapitalization of $1,641,000 were recorded.
  
  
• Extraordinary loss on early extinguishment of debt of $1,182,000, or $0.14 per share, representing the write-off of previously capitalized costs associated with indebtedness under the former credit agreement.
  
  
• Also during the first quarter, Katy recorded an inventory valuation adjustment of $133,000, or $0.02 per share, to the carrying values of certain Thorsen Tool assets, a business that was sold during the second quarter of 2001.
  

Additionally, costs were incurred associated with the issuance of the convertible preferred stock for the recapitalization of $4,003,000, pre-tax, and capitalized debt costs associated with the new credit agreement of $6,507,000, pre-tax, neither of which affected income. As certain conditions are met, amounts totaling up to $6,400,000 will become due, mainly for employee stay and severance payments relating to the recapitalization, management transitions and closure of the corporate headquarters in Englewood. These expenses are expected to be recognized during the second half of the year.

Some of the foregoing communications constitute "forward-looking statements." Such forward-looking statements are subject to various risks and uncertainties and Katy claims the protection afforded by the safe harbor for forward-looking statements in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that, together with the other risks and uncertainties detailed from time to time in Katy's filings with the SEC, may cause the actual results, performance or achievements of Katy to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

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


Click below for PDF financials:
Second Quarter 2001 Financials


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