KATY INDUSTRIES, INC. ANNOUNCES RESULTS FOR THIRD QUARTER

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MIDDLEBURY, CT - November 12, 2001 - Katy Industries, Inc. (NYSE: KT) today reported a net loss for the third quarter of 2001 of ($5,565,000), or ($.87) per share, compared to a net loss of ($2,546,000), or ($.30) per share, in the third quarter of 2000. Results for the three months ended September 30, 2001 include unusual charges totaling ($5,636,000) after-tax, or ($.67) per share. These items are detailed on a schedule accompanying this release. Results for the three months ended September 30, 2000 included unusual charges of ($2,531,000) after-tax, or ($.30) per share. Earnings per share for the three months ended September 30, 2001 was reduced by $0.21 per share as a result of the impact of the accrual of payment in kind dividends on convertible preferred stock.

For the nine months ended September 30, 2001, Katy reported a net loss of ($45,553,000), or ($4.85) per share, compared to a net loss of ($3,183,000), or ($.38) per share in the same period of 2000. Results for the nine months ended September 30, 2001, include unusual charges totaling ($40,264,000) after-tax, or ($4.01) per share, which are also detailed on an attached schedule. Results for the nine months ended September 30, 2000 included unusual charges totaling ($2,531,000) after-tax, or ($.30) per share. Earnings per share for the nine months ended September 30, 2001 was reduced by $0.21 per share as a result of the impact of the accrual of payment in kind dividends on convertible preferred stock.

The decrease in operating results for both the three and nine month periods was due mainly to sales declines of 10% 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 long-term debt was reduced to approximately $89,900,000 ($6,100,000 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 $88,000,000 ($6,100,000 of which is due within one year) at September 30, 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 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.

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

• Impairments of machinery and equipment at Katy's consumer electrical products division of $122,000, or $.01 per share. During the second quarter of 2001, the company recorded an impairment of goodwill and other intangibles associated with Katy's mop, broom and brush division of $21,450,000, and other impairments of $1,372,000. During the first quarter of 2001, Katy recorded an impairment of $550,000 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 $4,237,000, or $.50 per share, representing payments and accruals for employee stay and severance payments relating to the recapitalization and management transitions. While most of these types of charges have been recognized by September 30, 2001, approximately $400,000 of these costs will be expensed in the fourth quarter of 2001 as stay bonuses are earned. Also included in this amount are payments and charges related to consultants working with the company on strategic operational and financial planning strategies. During the second quarter and first quarter of 2001, severance and restructuring charges of $1,767,000 and $856,000 were recorded. During the third quarter of 2000, severance charges of $1,377,000 were recognized.
  
  
• Inventory valuation adjustments of $965,000, or $.12 per share, relating primarily to the company's electronics distribution division. The amount shown above also includes positive adjustments (income) for LIFO accounting in the third quarter. During the second quarter, inventory valuation adjustments of $1,336,000 were recorded, and 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. During the third quarter of 2000, charges related to LIFO accounting were recorded totaling $585,000.
  
  
• Other items of $63,000 (income), or $0.01 per share, relate 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 $662,000 were recorded, including exposures related to litigation and customer bankruptcies. During the third quarter of 2000, the company recognized a charge for a product recall at its consumer electronics division and other items totaling $569,000.
  
  
• Receivables valuation adjustments of $375,000, or $0.04 per share, relate primarily to amounts owed from a recently bankrupt customer. Receivables valuation adjustments recorded in the second quarter totaled $380,000.
  
  
• While no transactional costs associated with the recapitalization were recognized in the third quarter of 2001, costs of this nature were recorded in the second and first quarters of $291,000 and $1,641,000, respectively.
  
  
• During the second quarter of 2001, an extraordinary loss on the early extinguishment of debt of $1,182,000 was recorded, representing a write-off of previously capitalized costs associated with indebtedness under the former credit agreement.
  
  
• During the first quarter of 2001, Katy recorded an inventory valuation adjustment of $133,000 to the carrying values of certain Thorsen Tool assets, a business that was sold during the second quarter of 2001.

Additionally, costs were incurred during 2001 associated with the issuance of the convertible preferred stock for the recapitalization of $4,349,000, pre-tax, and capitalized debt costs associated with the new credit agreement of $6,692,000, pre-tax, neither of which affected income. However, the debt costs will be amortized to interest over the five year life of the credit agreement.

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

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:
Third Quarter 2001 Financials


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