FORM 10-K

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United States Securities and Exchange Commission
Washington, D.C. 20549

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FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the fiscal year ended: December 31, 2000

[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

Commission file number 1-5558

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Katy Industries, Inc.
(Exact name of registrant as specified in its charter)

Delaware 00-0000000
(State of Incorporation) (IRS Employer Identification Number)

6300 S. Syracuse #300, Englewood, 80111
Colorado (Zip Code)
(Address of Principal Executive
Offices)

Registrant's telephone number, including area code: (000) 000-0000

Securities registered pursuant to Section 12(b) of the Act:

(Title of each class) (Name of each exchange on which
Common Stock, $1.00 par value registered)
Common Stock Purchase Rights New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check xxxx 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 by check xxxx if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 19, 2001, was $26,899,768. On that date 8,394,058
shares of Common Stock, $1.00 par value, were outstanding, the only class of
the registrant's common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement of Katy Industries, Inc. (The
"2001 Proxy Statement") With respect to the 2001 annual meeting of
stockholders are incorporated by reference into Part III of this Form 10-K.

Exhibit index appears on page 59. Report consists of 62 pages.

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PART I

ITEM 1. BUSINESS

Katy Industries, Inc. ("Katy" or the "Company") was organized as a Delaware
corporation in 1967. Katy carries on business through two principal operating
groups: Electrical/Electronics and Maintenance Products. The other businesses
comprise only a portion of Katy's previously reported Distribution and Service
Group and one of Katy's equity investments. The operations of these businesses
have been reported as "Equity in income (loss) of operations to be disposed
of" in the Consolidated Statements of Operations. See Note 5 to Consolidated
Financial Statements for further discussion. Each Katy company operates within
a framework of broad policies and corporate goals established by Katy's
corporate management, which is responsible for overall planning, financial
management, acquisitions, dispositions, and other related administrative and
corporate matters.

On January 8, 1999, the Company purchased all of the common membership
interest in Contico International, L.L.C., a Delaware limited liability
company ("Contico") and the successor to the business of Contico International
Inc. Contico, based in St. Louis, Missouri, manufactures and distributes
consumer storage, home and automotive products, as well as janitorial and food
service equipment and supplies, with annual sales of approximately $223.0
million. See Note 4 to Consolidated Financial Statements.

Recapitalization

On March 30, 2001, Katy announced that the Company had reached a definitive
agreement with KKTY Holding Company LLC ("KKTY"), an affiliate of Kohlberg
Investors IV, L.P. for the recapitalization of the Company (the
"Recapitalization"). To effectuate the Recapitalization, KKTY would purchase
from Katy not less than 400,000 shares of newly issued preferred stock, $100
par value per share (the "Convertible Preferred Stock"), convertible into not
less than 5,000,000 common shares, for an aggregate purchase price of $40.0
million.

Under the terms of the Recapitalization, nominees for directors designated
by KKTY would represent a majority of Katy's Board of Directors. Shareholder
approval will be required to complete the Recapitalization. Accordingly, a
proxy statement will be mailed to shareholders, with a vote planned at the
annual meeting of shareholders.

The Convertible Preferred Stock would be convertible at the option of the
holder at any time after the earlier of 1) the fifth anniversary of the
closing date of the Recapitalization, 2) board approval of a merger,
consolidation or other business combination involving a change in control of
the Company, sale of all or substantially all of the assets or liquidation of
the Company or 3) a contested election for directors of the Company nominated
by KKTY. Each preferred share would be convertible into 12.5 shares of common
stock, and the conversion price would be $8.00 for every share of common stock
to be issued. The preferred shares would be 1) non-voting, 2) non-redeemable,
except in whole, but not in part, at the Company's option not earlier than the
20th anniversary of the closing date of the Recapitalization, 3) would not
participate in dividend distributions, 4) would have no preemptive rights with
respect to any other securities or instruments issued by the Company and 5)
would have customary piggy-back registration rights in the event of a
registration of common shares by Katy. The Convertible Preferred Stock would
have a liquidation preference of $100.00 per share before any distribution
could be made to common shareholders.

Under the Recapitalization, KKTY would also commence a tender offer (the
"Offer") to purchase 2,500,000 outstanding shares of Katy common stock, at
$8.00 per common share, inclusive of the associated common stock rights (the
"Rights") issued pursuant to the Rights Agreement, dated as of January 13,
1995, as amended. KKTY will in no event acquire more than 29.9% of the
outstanding voting securities of Katy in the Offer. The obligation of KKTY to
purchase shares tendered under the Offer would be subject to pro rata
acceptance of common shares tendered if the total number exceeds 2,500,000.
The initial expiration of the Offer, terms of which will be detailed in a
proxy statement to be mailed to shareholders, would be the later of 1) the day
after the date of the annual meeting of shareholders, or 2) the 20th business
day after the Offer

commencement date. KKTY can extend the Offer for an additional 20 days (and
must extend the Offer at Katy's request if certain conditions are satisfied).
However, in no event shall the Offer be extended beyond June 30, 2001.

Katy expects to utilize funds from three sources to refinance Katy's
existing obligations under its current revolving credit agreement (the "Credit
Agreement"): 1) $30.0 million of the proceeds from the issuance of the
Convertible Preferred Stock, 2) a $150.0 million five year credit facility
(the "New Credit Facility"), which would include a Term Loan Facility (the
"Term Loan") and a Revolving Credit Facility, for which KKTY has entered into
a commitment letter with Bankers Trust Company, which is contingent upon,
among other things, closing the sale of the Convertible Preferred Stock, and
3) the sale of Xxxxxxxx Metals, L.P., ("Xxxxxxxx"), a wholly owned subsidiary,
for at least $20.0 million, net of retained liabilities. Katy has entered into
a non-binding letter of intent with a potential buyer for a sale of
substantially all of the assets of Xxxxxxxx.

The Term Loan is expected to have a final maturity date of five years after
the closing of the transaction and be in an original principal amount of $40.0
million. Quarterly amortization is expected to be required in aggregate annual
amounts of $8.0 million. The Revolving Credit Facility is expected to have a
final maturity date of five years after the closing date and be in an original
amount of up to $110.0 million (subject to certain borrowing base limits). All
extensions of credit to the Company would be secured by a first priority
perfected security interest in and lien upon the capital stock of each
material domestic subsidiary (66% of the capital stock of each material
foreign subsidiary), and all present and future material assets and properties
of the Company. Availability of loans and letters of credit under the
Revolving Credit Facility would be subject to a borrowing base determined by
eligible inventory and accounts receivable. Customary financial covenants
would apply. The obligation of Bankers Trust to provide such financing, which
runs to KKTY and not to the Company, is subject to a number of conditions
precedent, including, without limitation, the consummation of the sale of
Xxxxxxxx, the approval by the shareholders of the authorization and issuance
of the convertible preferred stock, and the absence of any material adverse
change in the business of the Company or in the financing and credit facility
syndication markets. Bankers Trust also reserves the right unilaterally to
adjust the terms of the credit facility, including the maturity, to the extent
necessary to achieve syndication. There can be no assurance that such
financing will be available on terms the Company finds attractive or at all.

In connection with the Recapitalization, the Company has entered into an
agreement with the holder of the preferred interest in its Contico
International, LLC subsidiary to redeem at a discount approximately half a
portion of such interest, which in total has a stated value at December 31,
2000 of $32.9 million. Katy will utilize $9.9 million of the proceeds from the
issuance of the Convertible Preferred Stock for this purpose. The holder will
retain approximately 50% of the preferred interest, or a stated value of $16.4
million. Consummation of this redemption is conditioned on consummation of the
Recapitalization.

See Liquidity and Capital Resources section of Items 7., Management's
Discussion and Analysis of Financial Condition and Results of Operations, for
further discussions of the impact of, and uncertainties related to, the
proposed Recapitalization.

Consummation of the Recapitalization is subject to a number of conditions,
including: absence of a material adverse change in financial markets that
results in KKTY not obtaining funding under its commitment letter with Bankers
Trust; the shareholders electing KKTY's designees, amending Katy's certificate
of incorporation to authorize the issue of the Convertible Preferred Stock and
to classify Katy's Board of Directors; and authorizing the issuance and sale
of the Convertible Preferred Stock to KKTY; and Katy consummating the sale of
its Xxxxxxxx subsidiary for at least $20.0 million, net of retained
liabilities.

Operations

Selected restated operating data for each operating group is incorporated
herein by reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Part II, Item 7. Information
regarding foreign and domestic operations and export sales is incorporated
herein by

reference to Note 16 to Consolidated Financial Statements of Katy included in
Part II, Item 8. Set forth below is information about Katy's operating groups
and investments and about Katy's business in general:

Maintenance Products Group

The group's principal business is the manufacture, distribution, packaging
and sale of sanitary maintenance supplies, professional cleaning products,
consumer products, abrasives and stains. The group accounted for 66% of the
Company's consolidated sales in 2000. Duckback Products, Inc. ("Duckback") is
the only business in this group that experiences significant seasonal sales
trends. The seven business units comprising this group are described below:

Contico International, L.L.C. Contico, based in St. Louis, Missouri,
manufactures and distributes consumer storage, home and automotive products,
as well as janitorial and food service equipment and supplies. Products are
sold primarily to the consumer storage, home and automotive, food service and
sanitary maintenance markets, under both the Contico and Continental names.

Glit/Disco, Inc. ("Disco") Disco is located in McDonough, Georgia. Disco is
a manufacturer and distributor of cleaning and specialty products sold to the
restaurant/food service industry.

Duckback Products, Inc. Duckback, located in Chico, California, is a
manufacturer of high quality exterior transparent stains, coatings and water
repellents. These products are sold under the trade names Superdeck, Xxxxx'x
Select, Supershade and Fightback. Duckback's revenues and operating income
experience seasonal trends, with low sales levels in the fourth quarter.

Glit/Microtron Abrasives ("Glit/Microtron") Glit/Microtron is headquartered
in Wrens, Georgia, and has additional manufacturing and sales facilities in
Pineville, North Carolina, and Xxxxxxxxxxx, Xxxxxxx, Xxxxxx. Glit/Microtron
manufactures nonwoven floor maintenance pads, scouring pads and specialty
abrasive products for cleaning and finishing. Products are sold primarily to
the sanitary maintenance, restaurant supply and consumer markets. In addition,
Glit/Microtron manufactures a line of wood sanding products which are sold
through retail stores across the United States and Canada. Consumer products
are marketed under various brand names, including Kleenfast, through
supermarkets and drug and variety stores.

Glit/Gemtex Abrasives ("Gemtex") Gemtex is headquartered in Xxxxxxxxx,
Xxxxxxx, Xxxxxx and has an additional distribution plant in Buffalo, New York.
Gemtex is a manufacturer and distributor of fiber disks and coated abrasives
for the automotive, industrial and consumer markets.

Xxxxx Products ("Xxxxx") Xxxxx is headquartered in Lawrence, Massachusetts.
Xxxxx is a manufacturer and distributor of cleaning and abrasive products for
the industrial markets and building products for the consumer markets. Xxxxx
markets its institutional products under the brand names of Brillo and Boraxo
and manufactures certain products under private labels.

Xxxxx Products, Inc. ("Xxxxx") Xxxxx is headquartered in Atlanta, Georgia.
Xxxxx is a manufacturer and distributor of a wide variety of professional
cleaning products, including mops, brooms and plastic cleaning accessories for
both the industrial and consumer markets.

Electrical/Electronics Group

The group's principal business is the manufacture, distribution, packaging
and sale of consumer electric corded products, electrical and electronic
accessories, electronic components and nonpowered hand tools and specialty
metals. The group accounted for 34% of the Company's consolidated sales in
2000. Xxxxx Industries, Inc. ("Xxxxx") and Xxxxx Industries (Canada), Inc.
("Xxxxx Canada") experience seasonal sales trends. The five business units
comprising this group are described below:

GC/Waldom Electronics, Inc. ("GC/Waldom") GC/Waldom is headquartered in
Rockford, Illinois. GC/Waldom is a leading value-added distributor of high
quality, brand name electrical and electronic parts,

components and accessories. In addition, the company produces a full line of
home entertainment component parts and service technician products. GC/Waldom
distributes primarily to the electronic, automotive and communication
industries. A significant portion of GC/Waldom's products is sourced from
Asia.

Xxxxxxx Tools, Inc. ("Xxxxxxx") Xxxxxxx is headquartered in Carmel, Indiana.
Xxxxxxx is a leading value-added distributor of nonpowered hand tools. Xxxxxxx
Tool's products are sourced from Asia. During the first quarter of 2001, the
Company entered into a letter of intent for the sale of Xxxxxxx Tools.

Xxxxxxxx Metals, L.P. ("Xxxxxxxx") Xxxxxxxx, located in Lancaster,
Pennsylvania, re-rolls a wide range of precision metal strip and foil for the
medical, electronics, aerospace and computer industries. The company's
products are used in a wide range of high-tech applications. Katy has entered
into a letter of intent with respect to the sale of Xxxxxxxx. Consummation of
the transaction is subject to negotiation of definitive agreements, board
approvals and other conditions.

Xxxxx Industries (Canada), Inc. Xxxxx Canada is headquartered in Xxxxxxx,
Xxxxxxx, Xxxxxx. Xxxxx Canada designs, manufactures and markets a wide variety
of consumer corded products including low voltage garden lighting, extension
cords, multiple outlet and surge strips, specialty corded products, automotive
products and electronic timers.

Xxxxx Industries, Inc. Xxxxx is headquartered in Carmel, Indiana and has
additional warehousing, distribution and manufacturing facilities in
Bloomington, Jasonville, Loogootee, Mooresville and Worthington, Indiana, and
Xxxxxxx, Xxxxxxx, Xxxxxx. Xxxxx manufactures and distributes consumer electric
corded products, supplies and electrical/electronics accessories. These
products are sold to retailers principally located in the United States and
Canada. A significant portion of Xxxxx' products is sourced from Asia.

Operations to be Disposed Of

The companies in this group include a shrimp harvesting and farming
operation, and a waste-to-energy facility operation. The gross sales of these
operations are excluded from the Consolidated Statements of Operations, see
Note 3 to Consolidated Financial Statements for further discussion. The
companies in this group do not experience seasonal sales trends. Bee Gee
Holding Company, Inc. ("Bee Gee") has a number of competitors, some of which
are larger and have greater financial resources. The two businesses comprising
the Operations to be Disposed Of are described below:

Bee Gee Holding Company, Inc. Bee Gee harvests shrimp off the coast of South
and Central America and owns shrimp farming operations in Nicaragua. Katy's
interest in this company is an equity investment. See Note 5 to Consolidated
Financial Statements.

Savannah Energy Systems Company ("XXXXX"). XXXXX owns and operates a waste-
to-energy facility in Savannah, Georgia. See Note 12 to Consolidated Financial
Statements. XXXXX'x profitability is seasonal in that its fourth quarter
results tend to be higher as a result of the contractual nature of its
business with a local municipality.

Customers

Katy has several large customers in the mass merchant/discount/home
improvement retail markets. One customer, Wal Mart/Sam's Club, accounted for
13% of consolidated net sales while two other customers approached 10% of net
sales. A significant loss of business at any of these retail outlets would
have an adverse impact on the Company's results. Katy had one major customer
in its Electrical/Electronics segment that accounted for approximately 14% of
the Company's consolidated 1998 annual sales. On November 4, 1998, the Company
announced that this major customer withdrew its commitment to purchase
extension corded products from Xxxxx.

Backlog

Electrical/Electronics: The Company's aggregate backlog position for this
segment was $13.1 million and $16.6 million as of December 31, 2000 and 1999,
respectively. The 2000 orders are firm and are expected to be shipped during
2001.

Maintenance Products: The Company's aggregate backlog position for this
segment was $11.1 million and $13.6 million as of December 31, 2000 and 1999,
respectively. The 2000 orders are firm and are expected to be shipped during
2001.

Markets and Competition

Electrical/Electronics: The Company markets branded electrical and
electronics products primarily in North America through a combination of
direct salesmen, manufacturers' sales representatives and wholesale
distributors. The Company's primary customer base is made up of major national
retail chains that service the home improvement, hardware, mass merchant,
discount and automotive markets, smaller regional concerns serving a similar
customer base and a variety of electrical and electronic distributors.

Electrical and electronic products sold by the Company are generally used by
consumers and include such items as extension cords, work lights, surge
suppressors, power taps and strips, computer connectivity devices, telephone
accessories, outdoor lights and timers and a variety of electronic connectors
and switches. The Company has entered into license agreements pursuant to
which it markets certain of its products using certain other companies'
proprietary brand names. Overall demand for the Company's products is highly
correlated with consumer demand, the performance of the general economy and to
a lesser extent home construction and resale activity.

The markets for the Company's electrical and electronic products are highly
competitive. Competition is based primarily on price and the ability to
provide superior customer service in the form of complete on-time product
delivery. Other competitive factors include brand recognition, product design,
quality and performance. Foreign competitors, especially from Asia, provide an
increasing level of competition. In the retail extension cord market, there
are two major competitors who collectively, with the Company, account for the
major share of the United States market.

The markets in the Company's remaining product lines are significantly more
fragmented and typically 5-8 primary competitors are competing for market
share. The basis for competition in these product categories is similar to the
extension cord market with brand identification representing a much greater
factor. In general, the Company believes it is competitive with respect to
each of the factors affecting each of the respective markets in which it
competes.

Maintenance Products: The Company markets branded consumer storage, sanitary
maintenance supplies, professional cleaning products, abrasives and stains
primarily in North America and Europe through a combination of direct
salesmen, manufacturers sales representatives and wholesale distributors. The
Company's Maintenance Products Group services the home improvement, hardware,
sanitary maintenance, industrial, food service and automotive markets.

Maintenance products sold by the Company include such items as plastic
storage containers, floor maintenance pads, scouring pads, sponges, specialty
abrasive products for cleaning and finishing; brooms, mops, buckets and other
plastic cleaning products; high quality exterior transparent stains, coating
and water repellents; and cleaning and specialty products for the
restaurant/food service industry.

The markets for the Company's maintenance products are highly competitive.
Competition is based primarily on price and the ability to provide superior
customer service in the form of complete on-time product delivery. Other
competitive factors include brand recognition and product design, quality and
performance.

The Company competes for market share with several competitors in this
industry. The Company believes that it has established long standing
relationships with its major customers based on high quality products and
service, while continuing its position of being a low cost provider in this
industry. Resin prices are influenced to a certain degree by market prices for
natural gas and crude oil, as well as supply and demand factors within the
plastics manufacturing industry.

Raw Materials

Katy's operations have not experienced significant difficulty in obtaining
raw materials, fuels, parts or supplies for their activities during the most
recent fiscal year, but no prediction can be made as to possible future supply
problems or production disruptions resulting from possible shortages. The
Company, particularly its Contico subsidiary, uses polyethylene, polypropylene
and other thermoplastic resins as raw material in a substantial portion of its
products. Resin prices began increasing steadily, beginning in mid-year 1999,
and remained at relatively high levels throughout 2000, in comparison to resin
prices in 1998 and early 1999. The Company has been able to pass through some
modest price increases, but in general has had difficulty recovering resin
cost increases through product pricing, and the Company's 2000 and 1999
results were negatively impacted as a result. The Company does not employ an
active hedging program related to its commodity price risk. The Company's
future earnings may be negatively impacted to the extent these increased costs
cannot be recovered.

Employees

As of March 19, 2001, Katy employed 3,509 people, of which 3,469 related to
the Company's continuing businesses. Approximately 717 employees of the
Company were members of various unions. One union contract covering 40
employees is scheduled to expire on May 13, 2001. Katy's labor relations are
generally satisfactory and there have been no strikes in recent years that
have materially affected its operations.

Regulatory and Environmental Matters

Katy does not anticipate that federal, state or local environmental laws or
regulations will have a material adverse effect on its consolidated operations
or financial position. Katy anticipates making additional expenditures for
environmental control facilities during 2001, in accordance with terms agreed
upon with the United States Environmental Protection Agency and various state
environmental agencies. (See Part II, Item 7--Environmental and Other
Contingencies)

Licenses, Patents and Trademarks

The success of Katy's products historically has not depended on patent,
trademark and license protection, but rather on the quality of Katy's
products, proprietary technology, contract performance, customer service and
the technical competence and creative ability of Katy's personnel to develop
and introduce saleable products. While this remains true with a majority of
Katy's businesses, certain recent acquisitions are more reliant on patent
protection and licensing agreements in the successful marketing of their
products. Examples include licensed branding programs involving Xxxxx, Xxxxx
Canada and Xxxxx, and the development of patented products and technology at
Contico and Xxxxx.

ITEM 2. PROPERTIES

As of December 31, 2000, Katy's total building floor area owned or leased
was 4,848,000 square feet, of which 1,063,000 square feet were owned and
3,785,000 square feet were leased. The following table shows by industry
segment a summary of the size (in square feet) and character of the various
facilities included in the above totals together with the location of the
principal facilities.

Industry Segment Owned Leased Total
---------------- ----- ------ -----
(In thousands of
square feet)

Electrical/Electronics--primarily plant and office
facilities with principal facilities located in Chicago
and Rockford, Illinois; Taipei, Taiwan; Carmel,
Bloomington, Jasonville, Loogootee, Mooresville, and
Worthington, Indiana; Lancaster, Pennsylvania; and
Toronto, Ontario, Canada.................................. 585 683 1,268
Maintenance Products--primarily plant and office facilities
with principal facilities located in Chico, Norwalk and
Sante Fe Springs, California; Wrens, Thomson, McDonough,
and Atlanta, Georgia; Phoenix, Arizona; Bridgeton, Creve
Coeur, Earth City, Xxxxxxxxx and St. Louis, Missouri;
Pineville, North Carolina; Buffalo, New York; Lawrence,
Massachusetts; Winters, Texas; Etobicoke and Xxxxxxxxxxx,
Xxxxxxx, Xxxxxx; and Redruth, Cornwall, England........... 474 3,086 3,560
Other Operations to be Disposed Of--primarily plant and
office facilities with principal facilities located in
Savannah, Georgia......................................... 0 0 0
Corporate--office facilities in Englewood, Colorado; and
Chicago, Illinois......................................... 4 16 20

All properties used in operations are owned or leased and are suitable and
adequate for Katy's operations. It is estimated that approximately 95% of
these properties are being utilized.

ITEM 3. LEGAL PROCEEDINGS

Except as set forth below, no cases or legal proceedings are pending against
Katy, other than ordinary routine litigation incidental to Katy and its
businesses and other non-material cases and proceedings.

1. Environmental Claims

(a) Administrative Order on Consent--X.X. Xxxxx Wood Preserving Company
("XX Xxxxx") and Katy Industries, Inc., U.S. EPA Docket No. RCRA-VI-
7003-93-02 and Texas Water Commission Administrative Enforcement
Action.

(b) Notice of Claim--Medford, Oregon.

The X.X. Xxxxx case, matter (a) above, originated in the 1980's when the
United States and the State of Texas, through the Texas Water Commission
("TWC"), initiated environmental enforcement actions against X.X. Xxxxx
alleging that certain conditions on the X.X. Xxxxx property (the "Property")
violated environmental laws. Following such enforcement actions, X.X. Xxxxx
engaged in a series of cleanup activities on the X.X. Xxxxx property and
implemented a groundwater monitoring program.

In 1993, TWC referred the entire matter to the United States Environmental
Protection Agency ("USEPA"), which initiated a Unilateral Administrative Order
Proceeding under Section 7003 of the Resource Conservation and Recovery Act
("RCRA") against X.X. Xxxxx and Katy. The proceeding requires certain actions
at the site and certain off-site areas, as well as development and
implementation of additional cleanup activities to mitigate off-site releases.
In December 1995, X.X. Xxxxx, Katy and USEPA agreed to resolve the proceeding
through an Administrative Order on Consent under Section 7003 of RCRA.
Pursuant to the Order, X.X. Xxxxx is currently implementing a cleanup to
mitigate off-site releases.

Since 1990, the Company has spent in excess of $6.9 million undertaking
cleanup and compliance activities in connection with this matter and has
established a reserve, in excess of $2.0 million before taxes, for future

such activities. The Company believes that the amount reserved will be
adequate; however, total cleanup and compliance costs cannot be determined at
this time.

Concerning matter (b) above, by letter dated August 20, 1993, a claim was
asserted by Balteau Standard, Inc. ("Balteau") against Katy concerning PCB
contamination at the Medford, Oregon facility of the former Standard
Transformer division of American Gage and Machine Company. Balteau demanded
that Katy accept financial responsibility for investigation and cleanup costs
incurred as a result of the PCB contamination. Katy and Balteau agreed to
share such costs. Pursuant to such agreement, Katy paid 65% of the first $2.0
million of such costs and agreed to pay 50% of such costs to the extent that
they exceed $2.45 million. Since it executed the cost sharing agreement, Katy
has paid approximately $1.5 million in cleanup costs. Katy believes the
cleanup plan has been successful and has requested that the Oregon Department
of Environmental Quality inspect and approve the remediation work. Katy has
received such approval with respect to a portion of the cleanup plan. Further
monitoring of groundwater and testing and cleanup of adjacent property may be
required before approval can be obtained with respect to the remainder of the
plan. Pending such approval, the liability of Katy and its subsidiary cannot
be determined at this time.

In addition to the claims specifically identified above, the Company and
certain of its current and former direct and indirect corporate predecessors,
subsidiaries and divisions have been identified by USEPA, state environmental
agencies and private parties as potentially responsible parties at a number of
waste disposal sites under CERCLA or equivalent state laws, and, as such, may
be liable for the costs of cleanup and other remedial activities at these
sites. The costs involved in these matters are, by nature, difficult to
estimate and subject to substantial change as litigation or negotiations with
the United States, states and other parties proceed. While ultimate liability
with respect to these matters is not easily determinable, the Company has
recorded and accrued amounts that it deems reasonable for such prospective
liabilities and the Company believes that any additional liability with
respect to such matters will not be material.

2. Banco del Atlantico, X.X. x. Xxxxx Industries, Inc., et al., Civil Action
Xx. X-00-000 (X.X. Xxxxxxxx Xxxxx, Xxxxxxxx Xxxxxxxx of Texas).

In December 1996, Banco del Atlantico, a bank located in Mexico, filed a
lawsuit against Xxxxx, a subsidiary of the Company, and against certain past
and then present officers and directors and former owners of Xxxxx, alleging
that the defendants participated in a violation of the Racketeer Influenced
and Corrupt Organizations Act involving allegedly fraudulently obtained loans
from Mexican banks, including the plaintiff, and "money laundering" of the
proceeds of the illegal enterprise. All of the foregoing is alleged to have
occurred prior to the Company's purchase of Xxxxx. The plaintiff also alleges
that it made loans to an entity controlled by certain officers and directors
based upon fraudulent representations. The plaintiff seeks to hold Xxxxx
liable for its alleged damage under principles of respondeat superior and
successor liability. The plaintiff is claiming damages in excess of $24.0
million and is requesting treble damages under the statutes. The defendants
have filed a motion, which has not been ruled on, to dismiss this action on
jurisdictional grounds. Because the litigation is still in preliminary stages,
it is not possible at this time for the Company to determine an outcome or
reasonably estimate the range of potential exposure. The Company may have
recourse against the former owner of Xxxxx and others for, among other things,
violations of covenants, representations and warranties under the purchase
agreement through which the Company acquired Xxxxx, and under state, federal
and common law. In addition, the purchase price under the purchase agreement
may be subject to adjustment as a result of the claims made by Banco del
Atlantico. The extent or limit of any such recourse cannot be predicted at
this time.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the
fourth quarter of 2000.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Katy's common stock is traded on the New York Stock Exchange ("NYSE"). The
following table sets forth high and low sales prices for the common stock in
composite transactions as reported on the NYSE composite tape for the prior two
years and dividends declared during such periods.

Cash
Dividends
Period High Low Declared
------ --------- --------- ---------

2000
First Quarter............................... $11 5/8 $ 7 7/8 $.075
Second Quarter.............................. 14 8 3/8 .075
Third Quarter............................... 11 15/16 6 11/16 .075
Fourth Quarter.............................. 9 7/8 5 1/16 .075
1999
First Quarter............................... $17 5/16 $12 3/4 $.075
Second Quarter.............................. 17 5/8 12 3/4 .075
Third Quarter............................... 12 15/16 10 7/8 .075
Fourth Quarter.............................. 12 1/16 8 .075

Dividends are paid at the discretion of the Board of Directors. On March 30,
2001, the Company announced that its Board of Directors had determined to
suspend quarterly dividends.

As of March 19, 2001, there were approximately 2,532 total holders of the
Common Stock and there were 8,394,058 shares of Common Stock outstanding.

ITEM 6. SELECTED FINANCIAL DATA

Years Ended December 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ----------- ---------- ---------- ----------
(Thousands of Dollars, except per share data and
ratios)

Net sales............... $ 553,249 $ 565,941 $ 342,315 $ 286,023 $ 156,024
Net (loss) income
Continuing segments--
businesses to be
retained.............. $ (1,667) $ 10,441 $ 11,007 $ 9,435 $ 5,803
Unusual Items[a]....... (3,237) 1,848 -- 387 6,685
Operations to be
disposed of........... (554) (134) 2,075 (179) 275
---------- ----------- ---------- ---------- ----------
Continuing
operations............ (5,458) 12,155 13,082 9,643 12,763
Discontinued
operations[b].......... -- (1,700) -- 1,959 953
---------- ----------- ---------- ---------- ----------
Net (loss) income.... $ (5,458) $ 10,455 $ 13,082 $ 11,602 $ 13,716
========== =========== ========== ========== ==========
(Loss) earnings per
share--Basic
Continuing segments.... $ (0.19) $ 1.25 $ 1.33 $ 1.14 $ 0.70
Unusual Items[a]....... (0.39) 0.22 -- 0.05 0.80
Operations to be
disposed of........... (0.07) (0.02) 0.25 (0.03) 0.03
---------- ----------- ---------- ---------- ----------
Continuing
operations............ (0.65) 1.45 1.58 1.16 1.53
Discontinued
operations[b].......... -- (0.20) -- 0.24 0.11
---------- ----------- ---------- ---------- ----------
(Loss) earnings per
common share........ $ (0.65) $ 1.25 $ 1.58 $ 1.40 $ 1.64
========== =========== ========== ========== ==========
(Loss) earnings per
share--Diluted
Continuing segments.... $ (0.19) $ 1.21 $ 1.30 $ 1.12 $ 0.70
Unusual Items[a]....... (0.39) .18 -- 0.05 0.80
Operations to be
disposed of........... (0.07) (0.01) 0.25 (0.02) 0.03
---------- ----------- ---------- ---------- ----------
Continuing
operations............ (0.65) 1.38 1.55 1.15 1.53
Discontinued
operations[b].......... -- (0.17) -- 0.23 0.11
---------- ----------- ---------- ---------- ----------
(Loss) earnings per
common share........ $ (0.65) $ 1.21 $ 1.55 $ 1.38 $ 1.64
========== =========== ========== ========== ==========
Total assets[c]......... $ 445,667 $ 491,836 $ 293,175 $ 237,160 $ 235,377
Total liabilities and
preferred interest..... 295,334 331,525 143,859 97,989 105,331
Stockholders' equity.... 150,333 160,311 149,316 139,171 130,046
Long-term debt,
excluding current
portion[c]............. 771 150,835 39,908 9,948 8,582
Current portion of long-
term debt.............. 133,067 67 72 -- 657
Depreciation and
amortization[c]........ 23,598 20,172 7,162 4,568 5,505
Capital expenditures.... 14,196 21,066 15,921 10,699 5,319
Working capital[c]...... (28,265) 120,893 100,971 103,252 107,571
Ratio of debt to
capitalization......... 42.2% 43.8% 21.1% 7.1% 6.6%
Stockholders' equity per
share.................. $ 17.91 $ 19.05 $ 17.91 $ 16.81 $ 15.78
Return on average
stockholders' equity... (2.9)% 7.9% 9.1% 8.6% 10.5%
Weighted average common
shares outstanding--
Basic.................. 8,403,701 8,366,178 8,289,915 8,272,836 8,339,189
Weighted average common
shares outstanding--
Diluted................ 8,403,701 10,015,238 8,443,591 8,405,131 8,384,504
Stockholders of record.. 2,232 2,230 2,170 2,220 2,670
Number of employees..... 3,509 3,834 2,472 1,907 2,049
Cash dividends declared
per common share....... $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30

--------
[a] Includes the following after-tax items for 2000: severance and other
restructuring of ($1,723), product recall costs of ($523), increase in
the LIFO inventory reserve of ($423), unusual inventory impairments of
($892), and proceeds from previously written-off notes and investments of
$324; 1999: collections on previously reserved notes of $520, increase to
LIFO inventory reserve of ($669), costs related to potential sale of
Electrical/Electronics and other restructuring of ($753) and a reversal
of income tax liabilities of $2,750; 1997: gain on sale of property of
$387; 1996: gain on sale of investments of $6,685.
[b] Loss from operations for Discontinued Operations has been recorded in the
line item Loss from operations of discontinued businesses (net of tax) on
the 1999 Consolidated Statement of Operations. See Note 5 to the
Consolidated Financial Statements.
[c] Total assets include $17,412 of net assets from Operations to be disposed
of for 2000, $16,635 of net assets from Operations to be Disposed Of for
1999, $31,962 of net assets from Discontinued Operations and Operations
to be Disposed Of for 1998, and $42,095 of net assets from Discontinued
Operations and Operations to be Disposed Of for 1997. Long-term debt
includes $9,948 from Operations to be Disposed Of for 1997. Depreciation
includes $116 from Operations to be disposed of for 2000; $459, $1,640
and $2,230 from Discontinued Operations and Operations to be Disposed Of
for 1999, 1998 and 1997 respectively. Working capital includes $975 and
$737 of net current assets from Operations to be disposed of for 2000 and
1999, respectively; $12,162 and $12,593 of net current assets from
Discontinued Operations and Operations to be Disposed Of for 1998 and
1997 respectively. See Note 5 to the Consolidated Financial Statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Results of Operations

For purposes of this discussion and analysis section, reference is made to
the table below and the Company's Consolidated Financial Statements (included
in Part II, Item 8). Katy has two principal operating groups:
Electrical/Electronics and Maintenance Products. Under Katy's Divestiture and
Reorganization Plan (the "Plan") announced during 1997, Katy has disposed of
its entire previously reported Machinery Manufacturing Group and, accordingly
that group has been reported as "Discontinued Operations" in the Consolidated
Financial Statements. The other businesses being disposed of comprise only a
portion of Katy's previously reported Distribution and Service Group and one
of Katy's equity investments. The operations of these businesses have been
reported as "Equity in income (loss) of operations to be disposed of" in the
Consolidated Statement of Operations. For purposes of discussion and analysis,
information for the Discontinued Operations and the Operations to be Disposed
Of is presented below.

The table below and the narrative that follows, summarize the key factors in
the year-to-year changes in operating results.

Years Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
(Thousands of dollars)

Electrical/Electronics Group
Net external sales................... $187,497 $204,180 $230,927
Net intercompany sales............... 64,793 59,992 32,103
Income from operations[a]............ 8,055 8,303 14,839
Operating margin..................... 4.3% 4.1% 6.4%
Identifiable assets.................. 111,476 133,890 126,362
Depreciation and amortization........ 2,800 2,557 1,652
Capital expenditures................. 1,709 3,434 7,348
Maintenance Products Group
Net external sales................... $365,752 $361,761 $111,388
Net intercompany sales............... 9,062 11,141 6,389
Income from operations[a]............ 10,298 29,458 8,401
Operating margin..................... 2.8% 8.1% 7.5%
Identifiable assets.................. 299,292 318,906 110,317
Depreciation and amortization........ 20,638 17,065 3,779
Capital expenditures................. 11,732 16,936 2,725
Operations to be Disposed Of
Net external sales................... $ 3,690 $ 3,900 $ 6,297
Net intercompany sales............... -- -- --
(Loss) from operations............... (880) (190) (3,262)
Operating (deficit).................. (23.8)% (4.9)% (7.3)%
Identifiable assets.................. 18,468 17,903 17,680
Equity Investment.................... 6,927 6,988 7,034
Depreciation and amortization........ 116 5 1,009
Capital expenditures................. 755 429 5,126
Discontinued Operations
Net external sales................... $ -- $ 10,025 $ 23,349
Net intercompany sales............... -- -- 146
Income (loss) from operations........ -- (191) 1,663
Operating margin..................... -- (1.9)% 7.1%
Identifiable assets.................. -- -- 16,975
Depreciation and amortization........ -- 454 631
Capital expenditures................. -- 80 547

Years Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(Thousands of dollars)

Corporate
Corporate expenses[a]................... $ 9,258 $ 9,990 $ 7,965
Identifiable assets..................... 17,488 22,405 24,535
Depreciation and amortization........... 44 91 91
Capital expenditures.................... -- 187 175
Company
Net external sales[b]................... $556,939 $579,866 $371,961
Net intercompany sales.................. 73,855 71,133 38,638
Income from operations[b]............... 8,215 27,390 13,676
Operating margin[b]..................... 1.5% 4.7% 4.4%
Identifiable assets[b].................. 446,724 493,104 295,869
Depreciation and amortization[b]........ 23,598 20,172 7,162
Capital expenditures.................... 14,196 21,066 15,921

--------
[a] Salaries and related costs for certain executive officers were included
in Maintenance Products and Electrical/Electronics in 1998, but have been
included in Corporate Expense in 2000 and 1999. These amounts were
approximately $1.3 million in 2000, $1.5 in 1999 and $1.4 in 1998.
[b] Company balances include amounts from both "Discontinued Operations" and
"Operations to be Disposed Of" in the consolidated financial statements
for 2000, 1999, and 1998. The (Loss) from operations for Discontinued
Operations has been recorded in the line item "Loss from operations of
discontinued businesses (net of tax)" on the 1999 Consolidated Statement
of Operations. See Note 5 to the Consolidated Financial Statements.

2000 Compared to 1999

The Electrical/Electronics Group's sales decreased $16.7 million or 8.2%
primarily due to decreased volumes in the consumer electric corded products
business, the electrical and electronic parts and accessories business, and
the non-powered hand-tool business, offset by increased volumes in the
precision metals business. Sales decreases in the consumer electric corded
products business occurred partially as a result of 1999 sales including final
sales to a single large customer that withdrew its commitment to purchase
Xxxxx products, as announced on November 4, 1999. Sales were also lower late
in 2000 compared to 1999 as a result of retail customers reducing orders and
inventory levels. Sales in the electronic component parts and accessories
business softened in 2000 to a certain extent due to operational problems
experienced primarily in 1999 as a result of the consolidation of GC
Electronics and Waldom Electronics, which in turn affected those divisions'
customer service.

The Group's operating income decreased $0.3 million or 3.0%. Operating
results were negatively impacted by unusual items of $1.7 million including:
$0.4 million in restructuring and severance charges at Xxxxx, a $0.8 million
product recall at Xxxxx and a $0.5 million inventory writedown at GC/Waldom.
The Group's 1999 operating income was negatively impacted by $0.6 million
restructuring charge, primarily for severance costs at Xxxxx. Excluding these
items operating income increased $0.8 million or 4.7%. Operating results,
excluding unusual items, were positively affected by significant reductions in
selling, general and administration costs at Xxxxx in 2000 as compared to
1999.

Identifiable assets for the Group decreased $22.4 million or 16.7% during
the year mainly as a result of lower working capital levels at Xxxxx, Xxxxx
Canada and GC Waldom, and lower levels of capital expenditures.

Sales from the Maintenance Products Group increased $4.0 million or 1.1%.
Sales remained relatively flat in 2000 as increased sales in the plastic
products business were offset by decreased sales in the floor pad and mop and
broom operations.

The Group's operating income decreased $19.2 million or 65.0%. Operating
results in 2000 were negatively impacted by unusual items of $2.8 million
including: $1.2 million in severance and restructuring charges, a $0.7 million
increase to its LIFO inventory reserve at Contico and an inventory write down
at Xxxxx of $0.9 million. The Group's 1999 operating income was negatively
impacted by a $1.0 million increase to its LIFO inventory reserve at Contico,
and a $0.3 million charge related to the restructuring of Contico's marketing
rep group. Excluding these items, operating income decreased by $17.7 million,
or 58%. Higher costs for plastic resins resulted in reduced margins in the
plastic maintenance and storage products business. The Company estimates that
resin costs negatively impacted year to date results versus prior year by
$10.0 million, demonstrating an inability to raise prices so as to pass along
increased raw material costs. Also contributing to the decreased operating
income levels were poor performance at the Company's mop and broom business,
which experienced systems and other operational problems throughout 2000.
Operating income was also lower, albeit to lesser extents, at the abrasive
products businesses and at the transparent stains business. Most of the
Company's consolidated foreign currency translation adjustment resulted from
the translation of Maintenance Products operations in Canada and the United
Kingdom.

Identifiable assets for the Group decreased $19.6 million or 6.2% primarily
as a result of lower working capital levels at Contico, Glit/Gemtex and Xxxxx
and lower levels of capital expenditures.

Sales from Operations to be Disposed Of remained relatively stable compared
to prior year decreasing $0.2 million or 5.4%.

The Group's operating income decreased $0.7 million or 363.2% primarily as a
result of increased maintenance costs coupled with fixed revenue contracts.

Identifiable assets for the Group remained relatively stable from the prior
year.

All of the companies included in Discontinued Operations had been disposed
of as of December 31, 1999.

Corporate expenses decreased $0.7 million or 7.3%. Operating results were
negatively impacted by $0.6 million in unusual items including: $0.9 million
in severance and restructuring charges, $0.2 million of costs associated with
the Recapitalization, offset by proceeds of $0.5 million related to a
previously written-off investment. Corporate expenses in 1999 were impacted by
an unusual charge of $0.3 million associated with the attempted sale of the
Electrical/Electronics group. Excluding these items, Corporate expenses
decreased $1.0 million or 11.9%. This decrease is attributable to reduced
headcount and other salary related expenditures.

Identifiable assets at Corporate decreased primarily as a result of lower
cash levels at year end.

Following is a discussion concerning other factors that affected the
Company's net income.

Interest expense increased $1.9 million or 14.7%, due primarily to higher
interest rates paid by the Company under its revolving credit agreement.
Interest income decreased $0.3 million as the Company maintained lower average
cash and cash equivalent balances during 2000 compared to 1999. Other, net in
2000 was income of $0.4 million versus income of $1.6 million in 1999. The
amounts in both years resulted from the Company receiving past due balances on
previously written-off notes and investments.

The Company incurred a net loss before taxes and distributions on preferred
interest of subsidiary of $5.7 million during 2000 as compared to net income
before taxes of $17.1 million during 1999. In summary, the most significant
factors contributing to the net loss in 2000 include: higher costs for plastic
resins, poor operating performance in the mop and broom business, severance
and other unusual charges detailed above, and higher interest costs incurred
on outstanding debt.

The income tax benefit in 2000 is $2.0 million for an effective tax rate of
35%. The provision for income taxes in 1999 was $3.2 or an effective tax rate
of 18.9%. The reduced 1999 effective tax rate resulted from the resolution of
specific income tax matters with the relevant tax authorities.

1999 Compared to 1998

The Electrical/Electronics Group's sales decreased $26.7 million or 12%
primarily due to decreased volumes in the consumer electric corded products
and electrical and electronic parts and accessories businesses, offset by
increased volumes associated with the Company's Xxxxx Canada acquisition in
May of 1998. Excluding this acquisition, the Group's sales decreased $39.3
million. These lower volumes were primarily a result of the loss of consumer
electric corded products business announced on November 4, 1998. As of that
date, Katy's largest single customer withdrew its commitment to purchase
electric corded products from Xxxxx, resulting in a loss of sales of
approximately $31.0 million. Another significant customer, Hechinger Company,
filed for Chapter 11 bankruptcy in mid-1999. Sales to this customer were lower
by $7.6 million in 1999 compared to 1998.

The Group's operating income decreased $6.5 million or 44% mainly as a
result of decreased volumes and higher selling, general and administrative
costs as a percentage of sales, offset slightly by the increased operating
income associated with the Xxxxx Canada acquisition in May of 1998. Excluding
the acquisition, operating income decreased $8.3 million. A pre-tax
restructuring charge of $0.6 million relating primarily to severance costs for
the elimination of 22 positions in the Electrical/Electronics businesses, and
competitive market pressures in the electrical and electronic components
business contributed to the decrease. Results are also negatively impacted by
costs and operational considerations related to the consolidation of GC
Electronics and Waldom Electronics during the later half of the year.

Identifiable assets for the Group increased slightly during the year mainly
as a result of higher working capital levels at Xxxxx and Xxxxx Canada.

Sales from the Maintenance Products Group increased $250.4 million or 225%
primarily as a result of the Contico acquisition in January of 1999, the Disco
acquisition in May of 1998 and the Xxxxx acquisition in August of 1998.
Excluding these acquisitions, the Group's sales increased $5.7 million or 7%
primarily due to increased volumes in the Group's coated abrasive and stain
businesses.

The Group's operating income increased $21.1 million or 251%. Excluding the
acquisitions mentioned above, operating income increased $2.6 million. The
increase was primarily a result of the increased volumes and the slightly
higher margins in the stain and coated abrasives businesses. The higher
margins resulted from the introduction of new products and a favorable product
mix.

Identifiable assets for the Group increased during the year mainly as a
result of the previously announced acquisition of Contico in January of 1999.

Sales from Operations to be Disposed of decreased $2.4 million or 38%,
mainly as a result of decreased volumes associated with the disposal of the
refrigeration and cold storage facilities business in June of 1998. Excluding
the disposition, sales remained relatively stable compared to the prior year.

The Group's operating income increased $3.1 million or 94% primarily as a
result of an impairment recorded at the waste-to-energy facility during the
fourth quarter of 1998.

Identifiable assets for the Group remained relatively stable from the prior
year.

Sales from Discontinued Operations decreased $13.3 million or 57% primarily
as a result of the disposition of Bach Xxxxxxx, Ltd., in January of 1999,
Xxxxx Machines, Inc., in May of 1999, and Xxxxxx Machinery, Inc., in September
of 1999. All of the companies included in Discontinued Operations had been
disposed of as of December 31, 1999. See Note 3 to the Consolidated Financial
Statements.

The Group's operating loss decreased $1.9 million or 112% primarily as a
result of the dispositions described above.

Corporate expenses increased $2.0 million or 25%. This increase was
primarily a result of allocating certain employees salaries and related costs
to the corporate segment for the year ended December 31, 1999. Corporate
expenses also included $0.3 million of costs associated with the potential
sale of the Electrical/Electronics segment.

Identifiable assets at Corporate decreased primarily as a result of lower
cash levels at year end.

Although the results of these operating groups can be significantly affected
by the strength of the general economy, the Company believes that it has
positioned itself well in segments that can be expanded both externally
through acquisitions and internally through new products, operational
improvements and increased market penetrations.

Following is a discussion concerning other factors that affected the
Company's net income.

Gross profit from continuing operations increased $76.0 million or 77% as
gross margin percentages increased to 31% from 29% in 1998. The increase in
gross profit is primarily a result of the Contico acquisition in January of
1999. Gross margins in 1999 were negatively impacted by $1.0 million as a
result of the use of LIFO inventory accounting for its Contico subsidiary
acquired in January of 1999. The LIFO method is not used by any other
subsidiary and was not used by Katy in 1998 or 1997. The increased expense due
to LIFO accounting resulted from price increases for the thermoplastic resins,
a significant raw material in the Contico production process. Selling, general
and administrative expenses increased $63.5 million or 76% in 1999 compared to
the prior year. Selling, general and administrative expenses increased as a
percentage of sales to 26% in 1999 from 24% for the same period in 1998. The
increase was primarily a result of the increased amortization of goodwill and
other intangibles associated with the acquisitions during 1998 and the first
part of 1999 combined with the restructuring charge, costs related to the
potential sale of the Electrical/Electronics Group and costs to restructure
Contico's outside sales force.

Interest expense increased substantially for 1999 compared to 1998, as a
result of increased interest expense associated with bank borrowings to fund
the Company's acquisitions. Interest income decreased slightly due to the
Company maintaining lower average cash and cash equivalent balances during
1999 compared to 1998. Other, net in 1999 was income of $1.6 million versus
income of $1.5 million in 1998. The amounts in both years resulted from the
Company receiving past due balances on previously written-off notes and
investments.

Income before provision for income taxes decreased to $17.1 million in 1999
from $19.8 million in 1998. In addition to the factors mentioned previously,
other items affecting income in 1998 were the gain on sale of the Company's
cold storage facility of $6.1 million, which was partially offset by the
impairment loss resulting from the reduction in the fair value of the waste-
to-energy facility of $2.8 recorded in "Equity in income (loss) of operations
to be disposed of" on the Consolidated Statement of Operations. Excluding
these items, the income from continuing operations before income taxes
increased $0.6 million, primarily as a result of increased operating income
from the Maintenance Products Group, offset partially by decreased operating
income in the Electrical/Electronics Group.

Provision for income taxes in 1999 was $3.2 million or an effective tax rate
of 18.9% and $6.7 million or an effective tax rate of 34% in 1998. The
decrease in the 1999 effective tax rate resulted from the reversal of income
tax reserves as a result of the expiration of the relevant statute of
limitations with respect to certain income tax returns, or the resolution of
specific income tax matters with the relevant tax authorities.

Liquidity and Capital Resources

Cash and cash equivalents decreased 82% to $1.8 million on December 31,
2000, from $10.0 million on December 31, 1999. This decrease was the result of
the Company reducing its debt obligation at year end. Current ratios were 0.88
to 1.00 and 2.03 to 1.00 at December 31, 2000 and 1999, respectively. Working
capital decreased to a deficit of $28.3 million on December 31, 2000, from
$121 million on December 31, 1999. This

decrease is due mainly to the current classification of obligations under the
unsecured revolving credit agreement (the "Credit Agreement"), and also to
reduced cash, accounts receivable and inventory levels in both the Maintenance
Products and Electrical/Electronics groups. Katy expects to commit
approximately $20.6 million for capital projects in 2001.

At December 31, 2000, Katy had short-term indebtedness of $133.1 million,
due in December 2001, substantially all of which was outstanding under the
Credit Agreement. The company also had $0.8 million of long-term indebtedness
related to a mortgage on a certain property owned by the Company. Total debt
was 42.2% of total capitalization at December 31, 2000. The Company had $150.0
million outstanding under the Credit Agreement as of March 26, 2001. See Note
8 to Consolidated Financial Statements for further discussion. Interest
accrues at a rate equal to LIBOR plus a given number of basis points,
depending upon certain factors affecting the interest pricing grid per the
Credit Agreement. The Company is currently paying approximately LIBOR plus 2%
(8.66% at December 31, 2000). Rates in 2000 ranged from 7.42%-8.75%.
Obligations under the Credit Agreement are expected to be refinanced as
described below.

On October 27, 2000, the Company amended the Credit Agreement. As amended,
the Credit Agreement provides for borrowings of up to $16.8 million under its
Facility A commitment expiring June 30, 2001 and $161 million under its
Facility B commitment expiring December 11, 2001 As a part the amendment, the
Company agreed to grant the lenders under the Credit Agreement a security
interest in all of its and its subsidiaries' assets on March 31, 2001, if
certain events had not occurred before that date. A security interest would
not be required to be granted if (1) on or before February 28, 2001, a letter
of intent (satisfactory to the bank group) existed for the sale of (i) the
Company as a whole or (ii) one or more of its material subsidiaries if the
Company demonstrates that following such sale the Company would be in
compliance with a specified leverage ratio, or (2) the Company is in
compliance with certain covenants at pre-amendment ratio levels. The Company
was not able to meet the requirements to avoid granting security interest and,
accordingly, has granted security interests on the assets of the Company and
its subsidiaries to the bank group. The security interests include liens on
all tangible assets of U.S. operations, including mortgages on owned real
property and leaseholds, as well as stock pledges from foreign subsidiaries.
Concurrent with the granting of security interests in Company assets, the bank
group has agreed to waive compliance with covenant ratio levels established in
the October 27 amendment for the quarter ended March 31, 2001, and which
extend to June 30, 2001. This action is included in a Waiver and Fourth
Amendment to the Credit Agreement, dated as of March 30, 2001.

On March 30, 2001, Katy announced that the Company had reached a definitive
agreement with KKTY Holdings Company L.P. ("KKTY"), an affiliate of Kohlberg
Investors IV, L.P. for the recapitalization of the Company (the
"Recapitalization"). To effectuate the Recapitalization, KKTY would purchase
from Katy not less than 400,000 shares of newly issued preferred stock, $100
par value per share (the "Convertible Preferred Stock"), convertible into not
less than 5,000,000 common shares, for an aggregate purchase price of $40.0
million.

Katy expects to utilize funds from three sources to refinance Katy's
existing obligations under the Credit Agreement: 1) $30,000,000 of the
proceeds from the issuance of the Convertible Preferred Stock, 2) a $150
million five year credit facility (the "New Credit Facility"), which would
include a Term Loan Facility (the "Term Loan") and a Revolving Credit
Facility, for which KKTY has entered into a commitment letter with Bankers
Trust Company has been entered, and which is contingent upon, among other
things, closing the sale of the Convertible Preferred Stock, and 3) the sale
of Xxxxxxxx Metals, L.P., ("Xxxxxxxx"), a wholly owned subsidiary, for at
least $20.0 million, net of retained liabilities. Katy has entered into a non-
binding letter of intent with a potential buyer for a sale of substantially
all of the assets of Xxxxxxxx.

In connection with the Recapitalization, the Company has entered into an
agreement with the holder of the preferred interest in its Contico
International, LLC subsidiary to redeem at a discount approximately half of
such interest, which in total has a stated value at December 31, 2000 of $32.9
million. Katy will utilize $9.9 million of the proceeds from the issuance of
the Convertible Preferred Stock for this purpose. The holder will retain

approximately 50% of the preferred interest, or a stated value of $16.4
million. Consummation of this redemption is conditioned on consummation of the
Recapitalization.

The Term Loan is expected to have a final maturity date of five years after
the closing of the transaction and be in an original principal amount of $40.0
million. Quarterly amortization is expected to be required in aggregate annual
amounts of $8.0 million. The Revolving Credit Facility is expected to have a
final maturity date of five years after the closing date and be in an original
amount of up to $110 million (subject to certain borrowing base limits). All
extensions of credit to the Company would be secured by a first priority
perfected security interest in and lien upon the capital stock of each
material domestic subsidiary (66% of the capital stock of each material
foreign subsidiary), and all present and future material assets and properties
of the Company. Availability of loans and letters of credit under the
Revolving Credit Facility would be subject to a borrowing base determined by
eligible inventory and accounts receivable. Customary financial covenants
would apply. The obligation of Bankers Trust to provide such financing, which
runs to KKTY and not to the Company, is subject to a number of conditions
precedent, including, without limitation, the consummation of the sale of
Xxxxxxxx, the approval by the shareholders of the authorization and issuance
of the convertible preferred stock, and the absence of any material adverse
change in the business of the Company or in the financing and credit facility
syndication markets. Bankers Trust also reserves the right unilaterally to
adjust the terms of the credit facility, including the maturity, to the extent
necessary to achieve syndication. There can be no assurance that such
financing will be available on terms the Company finds attractive, or at all.

Consummation of the Recapitalization is subject to a number of conditions,
including: absence of a material adverse change in financial markets that
results in KKTY not obtaining funding under its commitment letter with Bankers
Trust; the shareholders electing KKTY's designees, amending Katy's certificate
of incorporation to authorize the issue of the Convertible Preferred Stock and
to classify Katy's Board of Directors and authorizing the issuance and sale of
the Convertible Preferred Stock to KKTY; and Katy consummating the sale of its
Xxxxxxxx subsidiary for at least $20.0 million, net of retained liabilities.

The infusion of $40.0 million of preferred equity capital under the
Recapitalization, along with proceeds from the sale of Xxxxxxxx, will
significantly de-leverage the Company. These factors, along with continued
control of capital expenditures and working capital management, are expected
to allow Katy to maintain normal business operations. If the Recapitalization
is not consummated, Katy could experience a number of negative consequences,
including, but not limited to, default on the Credit Agreement. In the event
the Recapitalization is not consummated, Katy intends to go forward with the
sale of Xxxxxxxx, as well as with the sale of Xxxxxxx Tools ("Xxxxxxx"), and
possibly other Company assets and operating divisions and seek to refinance
its existing credit agreement on a secured basis so as to provide additional
time in which to restructure its operations. Management believes that, in the
current market environment, a substantial risk exists that, if the
Recapitalization is not consummated on a timely basis the Company will be
unable to obtain further waivers of the defaults under the Credit Agreement in
the future and that the Company will be unable to obtain, on reasonable terms
or at all, financing necessary to replace its current credit facility.

Restructuring Efforts and Severance Charges

During the third and fourth quarters of 2000, the Company implemented a
workforce reduction that reduced headcount by approximately 90. Employees
affected were primarily in general and administrative functions, with the
largest number of affected employees coming from the Maintenance Products
Segment.

The workforce reduction included severance and related costs for certain
employees. Total severance and related costs was $2.4 million before taxes,
which are included as selling, general and administrative expenses in

the consolidated statements of operations. Approximately 56% of these costs
were paid during the final two quarters of 2000. The remaining costs are
expected to be paid through 2009.

In June 1999, the Company announced a restructuring plan for its
Electrical/Electronics businesses as a result of weaker than expected sales
performance and lower margins. The restructuring plan included (i) making
substantial cost reductions in these operations, (ii) intensifying the
marketing and product development efforts initiated earlier in the year; and,
(iii) accelerating the consolidation of operations within the segment begun
earlier in the second quarter.

The cost of the 1999 restructuring, which included severance costs related
to the elimination of 22 management employees, resulted in a pre-tax charge to
earnings in the second quarter of 1999 of approximately $0.6 million.
Additionally, plant personnel levels were reduced in excess of 100 persons and
24 unfilled administrative positions were eliminated.

Severance expenses are included in selling, general and administrative
expenses line item in the Consolidated Statements of Operations. As of
December 31, 2000 accrued severance totaled $1.1 million which will be paid
through the year 2009. The table below summarizes this future obligation:

(Thousands
of
Dollars)

2001.......................................................... 584
2002.......................................................... 180
2003.......................................................... 180
2004.......................................................... 55
2005.......................................................... 55
Thereafter.................................................... 22
-----
Total payments.............................................. 1,076
=====

Outlook for 2001

Net sales are expected to increase modestly in 2001 over 2000 (excluding the
impact of lost sales as a result of the anticipated sales of Xxxxxxxx and
Xxxxxxx), due mainly to expected sales increases in the Maintenance Products
Group, especially at Contico. The Company has a significant concentration of
customers in the mass-market retail, discount, and do-it-yourself market
channels. The Company's ability to maintain and increase its sales levels
depends in part on its ability to retain and improve relationships with these
customers. The Company faces the continuing challenge of recovering costs
increases for items such as raw materials given the market power of these
customers.

Cost of goods sold are expected to continue to be negatively impacted in
2001 by higher costs for polyethylene, polypropylene, and other thermoplastic
resins (based on price levels in early 2001) that are used in the Company's
production processes, especially at Contico. Given that Contico's resin use
approximates just over 100 million pounds annually, this commodity price risk
impacts gross margin by approximately $1.0 million annually for each $0.01
change in the price of plastic resins. It is anticipated that resin prices
affecting cost of goods sold will be consistent or slightly favorable in 2001
compared to 2000 levels. Katy has not employed any hedging techniques in the
past, and has no immediate plans to do so in the future, regarding this
commodity market risk. Prices for copper, a significant raw material in the
Electrical/Electronics Group, may also increase in 2001. The Company
anticipates mitigating these costs by creating efficiencies in and
improvements to its production processes.

Selling, general and administrative costs are expected to improve as a
percentage of sales from 2000 levels. Certain cost reduction efforts are being
implemented during the first quarter of 2001 at Xxxxx, including the closing
of facilities and reduction of administrative and executive staff. The Company
is also pursuing its strategy of developing the Katy Maintenance Group
("KMG"). This process involves bundling certain products of

Continental (janitorial/sanitation business of Contico), Xxxxx and Glit for
customers in the janitorial/sanitation markets. The new organization would
allow customers to order certain products from the three companies using a
single purchase order, and billing and collection would be consolidated as
well. Katy is beginning the process during the first half of 2001 of
transferring most back-office functions of Xxxxx from Atlanta to St. Louis,
the headquarters of Contico/Continental. In addition to administrative
efficiencies, the Company believes that combining sales and marketing efforts
of the three entities will allow Katy a unique marketing opportunity to have
improved delivery of both products and customer service. Katy does not expect
significant financial benefits from this project in 2001, but believes it to
be a key to future profitability and success of the Company. It should be
noted that the Company anticipates unusual charges during 2001 for both the
Xxxxx and KMG efforts, including severance, other plant closure costs, asset
impairments, and systems development costs.

Interest expense will be affected by debt levels and current rates of
interest. Assuming the current Credit Agreement were to remain intact,
interest expense is expected to be lower in 2001 than in 2000, due mainly to
lower expected interest rates, with debt levels remaining at reasonable levels
through continued management of working capital and proceeds from the sale of
certain Company assets, including Xxxxxxxx Precision Metals. If the
recapitalization were to occur, interest expense would be significantly lower
as a result of lower debt levels due to infusions of cash, excluding the
impact of writing off previously capitalized costs associated with the Credit
Agreement.

The effective tax rate for 2001 is not expected to differ significantly from
the federal statutory rate.

Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995

This report contains "forward-looking statements" within the meaning of the
federal securities laws. The forward-looking statements include, among others,
statements concerning the Company's outlook for 2001, the possible
recapitalization of the Company, cost reduction strategies and their results,
the Company's expectations for funding its 2001 capital expenditures and
operations and other statements of expectations, beliefs, future plans and
strategies, anticipated events or trends, and similar expressions concerning
matters that are not historical facts. Words such as "expects", "will",
"believes", "anticipates" and the like indicate the presence of forward-
looking statements. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ dramatically from
those expressed in or implied by the statements.

To improve its financial performance, the Company must reduce its cost
structure and improve its production efficiency, improve its management of
working capital, and grow its existing base of retail and distribution
customers. The most important factors that could influence the achievement of
these goals, and cause actual results to differ materially from those
expressed in the forward-looking statements, include, but are not limited to
the following:

-- The Company's inability to complete the Recapitalization plan discussed
in the Liquidity and Capital Resources of this section. which is subject
to a number of conditions and contingencies not within the Company's
control.

-- The Company's inability to meet covenants associated with its current
Credit Agreement.

-- The Company's inability to refinance its current Credit Agreement on
attractive terms or at all.

-- The Company's inability to sell certain assets to raise cash and de-
leverage its financial condition.

-- Increases in the cost of, or in some cases continuation of the current
price levels of, plastic resins, copper, paper board packaging and other
raw materials.

-- The Company's inability to reduce manufacturing costs.

-- The inability of the Company to achieve product price increases,
especially as they relate to potentially higher raw material costs.

-- The potential impact of losing lines of business at large retail outlets
in the discount and do-it-yourself markets.

-- Competition from foreign competitors.

-- The potential impact of new distribution channels, such as e-commerce,
negatively impacting the Company and its existing channels.

-- The potential impact of rising interest rates on the Company's LIBOR-
based credit facility.

-- Labor issues, including union activities that require an increase in
production costs or lead to a strike, thus impairing production and
decreasing sales.

-- Changes in significant laws and government regulations affecting
environmental compliance and income taxes.

These and other risks and uncertainties affecting the Company are discussed
in greater detail in this report and in the Company's other filings with the
Securities and Exchange Commission.

New Accounting Pronouncements

In February 2001, the FASB issued a limited revision exposure draft of
proposed Statement of Financial Accounting Standard "Business Combinations and
Intangible Assets--Accounting for Goodwill." The proposed Statement would
establish a new accounting standard for goodwill acquired in a business
combination. It would continue to require recognition of goodwill as an asset
but would not permit amortization of goodwill as currently required by APB
Opinion No. 17, "Intangible Assets." Furthermore, certain intangible assets
that are not separable from goodwill will also not be amortized.

This proposed Statement would establish a new method of testing goodwill for
impairment. It would require that goodwill be separately tested for impairment
using the fair-value-based approach.

Entities would be required to initially apply the provisions of this
proposed Statement as of the beginning of the first fiscal quarter following
issuance of the final Statement. Those provisions would apply not only to
goodwill arising from acquisitions completed after the issuance date of the
final Statement but also to the unamortized balance of goodwill at the date of
adoption.

The Company has not fully evaluated the impact upon future operating results
from the proposed standard, however it does not believe adoption of this
standard will materially affect these results.

In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Xxxxxxxx Xx. 000, "Xxxxxxx Xxxxxxxxxxx" ("XXX 101"). SAB 101
provides interpretive guidance on the recognition, presentation and disclosure
of revenue in financial statements. The Company was required to determine the
impact of SAB 101 no later than the end of the fourth quarter of fiscal 2000.
The Company has determined that SAB 101 does not have a material impact on its
financial position or results of operations.

In September 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires that all
derivatives be recognized as either assets or liabilities in the statement of
financial position and requires that those assets and liabilities be measured
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and its resulting designation.
In September 1999, the FASB issued statement No. 137, which delays the
required implementation of Statement No. 133 to years beginning after June 15,
2000. The Company does not enter into hedging activities, therefore, the
adoption of SFAS 133 did not have a material impact on the Company's financial
statements.

Environmental and Other Contingencies

The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency, state environmental agencies
and private parties as potentially responsible parties ("PRPs") at a number of
hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") or 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.
Under the federal Superfund statute, parties could be held jointly and
severally liable, thus subjecting them to potential individual liability for
the entire cost of cleanup at the site. 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 recorded and accrued for indicated environmental liabilities in
the aggregate amount of approximately $3.1 million at December 31, 2000. The
ultimate cost will depend on a number of factors and the amount currently
accrued represents management's best current estimate of the total cost to be
incurred. The Company expects this amount to be substantially paid over the
next one to four years.

The most significant environmental matters in which the Company is currently
involved are as follows:

1. In 1993, the United States Environmental Protection Agency ("USEPA")
initiated a Unilateral Administrative Order Proceeding under Section 7003
of the Resource Conservation and Recovery Act ("RCRA") against X.X. Xxxxx
and Katy. The proceeding requires certain actions at the X.X. Xxxxx site
and certain off-site areas, as well as development and implementation of
additional cleanup activities to mitigate off-site releases. In December
1995, X.X. Xxxxx, Katy and USEPA agreed to resolve the proceeding through
an Administrative Order on Consent under Section 7003 of RCRA. Pursuant to
the Order, X.X. Xxxxx is currently implementing a cleanup to mitigate off-
site releases.

2. During 1995, the Company reached agreement with the Oregon Department
of Environmental Quality ("ODEQ") as to a cleanup plan for PCB
contamination at the Medford, Oregon facility of the former Standard
Transformer division of American Gage. The agreement required the Company
to pay $1.3 million of the first $2.0 million in cleanup costs. Those funds
were expended in 1998. Another former occupant of the site, Balteau
Standard, Inc. was responsible for the remaining $0.7 million of the first
$2.0 million and the next $0.45 million in cleanup costs above the $2.0
million. The parties are now sharing equally in cleanup costs. Katy
believes the cleanup plan has been successful and has requested that the
ODEQ inspect and approve the remediation work. Katy has received such
approval with respect to a portion of the cleanup plan. Further monitoring
of groundwater and testing and cleanup of adjacent property may be required
before approval can be obtained with respect to the remainder of the plan.
Pending such approval, the liability of Katy and its subsidiary cannot be
determined at this time.

3. In December 1996, Banco del Atlantico, a bank located in Mexico, filed
a lawsuit against Xxxxx, a subsidiary of the Company, and against certain
past and then present officers and directors and former owners of Xxxxx,
alleging that the defendants participated in a violation of the Racketeer
Influenced and Corrupt Organizations Act involving allegedly fraudulently
obtained loans from Mexican banks, including the plaintiff, and "money
laundering" of the proceeds of the illegal enterprise. All of the foregoing
is alleged to have occurred prior to the Company's purchase of Xxxxx. The
plaintiff also alleges that it made loans to an entity controlled by
certain officers and directors based upon fraudulent representations. The
plaintiff seeks to hold Xxxxx liable for its alleged damage under
principles of respondeat superior and successor liability. The plaintiff is
claiming damages in excess of $24.0 million and is requesting treble
damages under the statutes. The defendants have filed a motion, which has
not been ruled on, to dismiss this action on jurisdictional grounds.
Because the litigation is still in preliminary stages, it is not possible
at this time for the Company to determine an outcome or reasonably estimate
the range of potential exposure. The Company may have recourse against the
former owner of Xxxxx and others for, among other things, violations of
covenants, representations and warranties under the purchase agreement
through which the Company acquired Xxxxx, and under state, federal and
common law. In addition, the purchase price under

the purchase agreement may be subject to adjustment as a result of the
claims made by Banco del Atlantico. The extent or limit of any such
recourse cannot be predicted at this time.

Katy also has a number of product liability and workers' compensation claims
pending against it and its subsidiaries. Many of these claims are proceeding
through the litigation process and the final outcome will not be known until a
settlement is reached with the claimant or the case is adjudicated. It can
take up to 10 years from the date of the injury to reach a final outcome for
such claims. 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,
which are developed using actuarial techniques. Such accruals are developed
using currently available claim information, and represent management's best
estimates. The ultimate cost of any individual claim can vary based upon,
among other factors, the nature of the injury, the duration of the disability
period, the length of the claim period, the jurisdiction of the claim and the
nature of the final outcome.

Although management believes that these actions individually and in the
aggregate are not likely to have a material adverse effect on the Company,
further costs could be significant and will be recorded as a charge to
operations when such costs become probable and reasonably estimable.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk associated with changes in interest
rates relates primarily to its debt obligations and temporary cash
investments. The Company currently does not use derivative financial
instruments relating to either of these exposures. The Company's debt
obligations are generally indexed from short-term LIBOR rates, and its
temporary cash investments earn rates of interest available on securities with
maturities of three months or less.

The holder of the preferred interest in Contico has a put option which
allows, at certain times beginning on January 8, 2001, or upon the occurrence
of certain events, the preferred interest to be exchangeable for Katy common
stock. The holder of the preferred interest also has a put option which allows
the holder to require the Company to purchase the preferred interest for cash
upon a Change in Control (as defined in the Agreement governing the option).
The holder of the preferred interest has acknowledged that consummation of the
Recapitalization will not constitute such a Change in Control and has agreed
with Katy to redeem at a discount approximately half of such interest. Katy
will utilize $9.9 million of the proceeds from the issuance of the Convertible
Preferred Stock for these purposes. The holder will retain approximately 50%
of the preferred interest, or a stated value of $16.4 million. Consummation of
this redemption is conditioned on consummation of the Recapitalization. Also,
subject to the Recapitalization occurring, the Agreement governing the put
option will be amended to, among other things, change the circumstances in
which the holder of the preferred interest can exercise its put option and the
consideration payable upon such exercise.

Expected Maturity Dates
-----------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total Fair Value
-------- ---- ---- ---- ---- ---------- -------- ----------
(Thousands of Dollars)

ASSETS
Temporary cash
investments
Fixed rate............. $ 158 $-- $-- $-- $-- $ -- $ 158 $ 158
Average interest rate.. 4.5% -- -- -- -- -- 4.5%
LONG-TERM DEBT
Fixed rate debt......... $ 67 $ 72 $699 $-- $-- $ -- $ 838 $ 838
Average interest rate.. 7.14% 7.14% 7.14% 7.14% -- -- 7.14% --
Variable rate debt...... $133,000 $-- $-- $-- $-- $ -- $133,000 $133,000
Average interest rate.. 8.04% 8.04% 8.04% 8.04% -- -- 8.04%
PREFERRED INTEREST OF
SUBSIDIARY
Fixed rate obligation... $ -- $-- $-- $-- $-- $32,900 $ 32,900 $ 32,900
Average interest rate.. 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT REPORT

Katy Industries, Inc. management is responsible for the fair presentation
and consistency of all financial data included in this Annual Report in
accordance with generally accepted accounting principles. Where necessary, the
data reflect management's best estimates and judgements.

Management also is responsible for maintaining an internal control structure
with the objective of providing reasonable assurance that Katy's assets are
safeguarded against material loss from unauthorized use or disposition and
that authorized transactions are properly recorded to permit the preparation
of accurate financial data. Cost-benefit judgements are an important
consideration in this regard. The effectiveness of internal controls is
maintained by: (1) personnel selection and training; (2) division of
responsibilities; (3) establishment and communication of policies; and (4)
ongoing internal review programs and audits. Management believes that Katy's
system of internal controls is effective and adequate to accomplish the above
described objectives.

/s/ Xxxxxx X. Xxxxxxx
_____________________________________
Xxxxxx X. Xxxxxxx
President and Chief Executive
Officer

/s/ Xxxxxxx X. Xxxxxxxxx
_____________________________________
Xxxxxxx X. Xxxxxxxxx
Vice President, Finance and Chief
Financial Officer

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO KATY INDUSTRIES, INC.:

We have audited the accompanying consolidated balance sheets of KATY
INDUSTRIES, INC., (a Delaware corporation) and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Katy Industries, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.

XXXXXX XXXXXXXX LLP

Denver, Colorado
March 30, 2001

KATY INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
As of December 31, 2000 and 1999
(Thousands of Dollars)

2000 1999
-------- --------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 1,810 $ 9,988
Accounts receivable, trade, net of allowance for doubtful
accounts of $1,478 and $1,120........................... 84,896 95,153
Notes and other receivables.............................. 524 1,896
Inventories.............................................. 103,068 117,400
Deferred income taxes.................................... 7,544 8,497
Other current assets..................................... 5,245 4,121
Net current assets of operations to be disposed of....... 941 737
-------- --------
Total current assets.................................. 204,028 237,792
-------- --------
OTHER ASSETS:
Notes receivable, net of allowance for doubtful notes of
$1,000 and $1,000....................................... 1,554 2,062
Cost in excess of net assets acquired, net of accumulated
amortization of $9,398 and $6,734....................... 39,500 40,037
Intangibles, net of accumulated amortization............. 47,214 52,491
Other.................................................... 5,346 4,769
Net noncurrent assets of operations to be disposed of.... 16,471 15,898
-------- --------
Total other assets.................................... 110,085 115,257
-------- --------
PROPERTY AND EQUIPMENT
Land and improvements.................................... 3,789 4,077
Buildings and improvements............................... 23,273 24,074
Machinery and equipment.................................. 166,414 156,485
-------- --------
193,476 184,636
Less--Accumulated depreciation........................... (61,922) (45,849)
-------- --------
Net property and equipment............................ 131,554 138,787
-------- --------
Total assets.......................................... $445,667 $491,836
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 53,553 $ 56,874
Accrued compensation..................................... 6,038 3,902
Accrued expenses......................................... 35,483 52,538
Accrued interest and taxes............................... 3,523 2,887
Current maturities, long-term debt....................... 133,067 67
Dividends payable........................................ 629 631
-------- --------
Total current liabilities............................. 232,293 116,899
LONG-TERM DEBT, less current maturities................... 771 150,835
OTHER LIABILITIES......................................... 7,609 7,359
EXCESS OF ACQUIRED NET ASSETS OVER COST, net of
accumulated amortization of $6,725 and $5,022............ 1,792 3,495
DEFERRED INCOME TAXES..................................... 19,969 20,037
Total liabilities..................................... 262,434 298,625
-------- --------
COMMITMENTS AND CONTINGENCIES--Notes 8, 14 and 17
PREFERRED INTEREST OF SUBSIDIARY.......................... 32,900 32,900
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized 25,000,000 shares;
issued 9,822,204 shares................................. 9,822 9,822
Additional paid-in capital............................... 51,127 51,127
Accumulated other comprehensive income................... (2,757) (434)
Other adjustments........................................ (518) (1,010)
Retained earnings........................................ 112,697 120,689
Treasury stock, at cost, 1,427,446 and 1,408,346 shares,
respectively............................................ (20,038) (19,883)
-------- --------
Total stockholders' equity............................ 150,333 160,311
-------- --------
Total liabilities and stockholders equity............. $445,667 $491,836
======== ========

See Notes to Consolidated Financial Statements.

KATY INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2000, 1999 and 1998
(Thousands of Dollars, Except Per Share Amounts)

2000 1999 1998
--------- --------- --------

Net sales..................................... $ 553,249 $ 565,941 $342,315
Cost of goods sold............................ 399,315 391,382 243,751
--------- --------- --------
Gross profit.................................. 153,934 174,559 98,564
Selling, general and administrative expenses.. (144,839) (146,788) (83,289)
--------- --------- --------
Operating income.............................. 9,095 27,771 15,275
Equity in (loss) income of operations to be
disposed of.................................. (853) (206) 3,144
Interest expense.............................. (14,851) (12,950) (1,214)
Interest income............................... 475 815 1,093
Other, net.................................... 365 1,620 1,523
--------- --------- --------
(Loss) income before provision for income
taxes and distributions on preferred interest
of subsidiary................................ (5,769) 17,050 19,821
Benefit from (provision) for income taxes..... 2,022 (3,217) (6,739)
--------- --------- --------
(Loss) income from operations before
distributions on preferred interest.......... (3,747) 13,833 13,082
Distributions on preferred interest of
subsidiary (net of tax)...................... (1,711) (1,678) --
--------- --------- --------
(Loss) income from continuing operations...... (5,458) 12,155 13,082
Discontinued operations (Loss) from operations
of discontinued businesses (net of tax)...... -- (1,700) --
--------- --------- --------
Net (loss) income............................. $ (5,458) $ 10,455 $ 13,082
========= ========= ========
(Loss) earnings per share of common stock-
Basic (Loss) income from continuing
operations................................... $ (0.65) $ 1.45 $ 1.58
Discontinued operations....................... -- (.20) --
--------- --------- --------
Net (loss) income............................. $ (0.65) $ 1.25 $ 1.58
========= ========= ========
(Loss) earnings per share of common stock-
Diluted (Loss) income from continuing
operations................................... $ (0.65) $ 1.38 $ 1.55
Discontinued operations....................... -- (.17) --
--------- --------- --------
Net (loss) income............................. $ (0.65) $ 1.21 $ 1.55
========= ========= ========

See Notes to Consolidated Financial Statements.

KATY INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Thousands of dollars, except per share data)

Common Stock
---------------- Additional Other Accumulated
Number of Par Paid-in Comprehensive Other Retained Treasury Comprehensive
Shares Value Capital Income (Loss) Adjustments Earnings Stock Income (Loss)
--------- ------ ---------- ------------- ----------- -------- -------- -------------

Balance, January 1,
1998................... 9,822,204 $9,822 $51,127 $(1,462) $ (814) $102,194 $(21,696) --
Net income.............. -- -- -- -- -- 13,082 -- $13,082
Foreign currency
translation
adjustments............ -- -- -- (847) -- -- -- (847)
-------
Comprehensive income.... $12,235
=======
Common stock dividends.. -- -- -- -- -- (2,492) --
Issuance of shares under
Stock Option Plan...... -- -- (54) -- -- -- 274
Other issuance of
shares................. -- -- 170 -- (488) -- 717
Purchase of Treasury
Shares................. -- -- -- -- -- -- (217)
--------- ------ ------- ------- ------- -------- --------
Balance, December 31,
1998................... 9,822,204 9,822 51,243 (2,309) (1,302) 112,784 (20,922)
Net income.............. -- -- -- -- -- 10,455 -- $10,455
Foreign currency
translation
adjustments............ -- -- -- 1,875 -- -- -- 1,875
Comprehensive income.... $12,330
=======
Common stock dividends.. -- -- -- -- -- (2,514) --
Issuance of shares under
Stock Option Plan...... -- -- (37) -- -- -- 289
Other issuance of
shares................. -- -- (79) -- 292 (36) 988
Purchase of Treasury
Shares................. -- -- -- -- -- -- (238)
--------- ------ ------- ------- ------- -------- --------
Balance, December 31,
1999................... 9,822,204 9,822 51,127 (434) (1,010) 120,689 (19,883)
Net (loss).............. -- -- -- -- -- (5,458) -- $(5,458)
Foreign currency
translation
adjustments............ -- -- -- (2,323) -- -- (2,323)
-------
Comprehensive income.... -- -- -- -- -- -- -- $(7,781)
=======
Common stock dividends.. -- -- -- -- -- (2,520) --
Issuance of shares under
Stock Option Plan...... -- -- -- -- -- -- 63
Other issuance of
shares................. -- -- -- -- 492 (14) 44
Purchase of Treasury
Shares................. -- -- -- -- -- -- (262)
--------- ------ ------- ------- ------- -------- --------
Balance, December 31,
2000................... 9,822,204 $9,822 $51,127 $(2,757) $ (518) $112,697 $(20,038)
========= ====== ======= ======= ======= ======== ========

See Notes to Consolidated Financial Statements.

KATY INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
(Thousands of Dollars)

2000 1999 1998
-------- --------- --------

Cash flows from operating activities:
Net (loss) income.............................. $ (5,458) $ 10,455 $ 13,082
Depreciation and amortization.................. 23,598 20,172 7,162
(Gain) loss on sale of assets.................. (408) 1,754 (2,864)
Equity in (income) loss of unconsolidated
affiliates.................................... 61 46 (534)
Deferred income taxes.......................... 885 2,118 1,117
Changes in assets and liabilities, net of
acquisition/disposition of subsidiaries:
Accounts receivables......................... 10,248 (8,201) 7,890
Inventories.................................. 14,332 (9,978) 463
Other current assets......................... 212 1,268 (636)
Accounts payable............................. (3,384) 13,467 (1,828)
Accrued liabilities.......................... (14,595) 9,362 (223)
Other, net................................... (1,247) (2,546) (1,091)
-------- --------- --------
Net cash flows provided by operating
activities................................ 24,244 37,917 22,538
-------- --------- --------
Cash flows from investing activities:
Proceeds from sale of assets................... 904 210 482
Collections of notes receivable and receivable
from sale of business......................... 581 684 710
Proceeds from sale of subsidiary............... -- 10,501 12,237
Payments for purchase of subsidiaries, net of
cash acquired................................. -- (140,088) (71,091)
Capital expenditures........................... (14,196) (21,066) (11,314)
-------- --------- --------
Net cash flows used in investing
activities................................ (12,711) (149,759) (68,976)
-------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net
of repayments................................. (17,064) 110,855 38,735
Payments of dividends.......................... (2,520) (2,508) (2,492)
Purchase of treasury shares.................... (262) (238) (217)
Other.......................................... 75 530 --
-------- --------- --------
Net cash flows (used in) provided by
financing activities...................... (19,771) 108,639 36,026
-------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents.................................... 54 (37) (5)
Net decrease in cash and cash equivalents....... (8,184) (3,240) (10,417)
Cash and cash equivalents at beginning of year.. 10,643 13,883 24,300
-------- --------- --------
Cash and cash equivalents at end of year........ 2,459 10,643 13,883
Less--Cash of discontinued operations and
operations to be disposed of................... (649) (655) (985)
-------- --------- --------
Cash and cash equivalents of continuing
operations..................................... $ 1,810 $ 9,988 $ 12,898
======== ========= ========

See Notes to Consolidated Financial Statements.

KATY INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2000, 1999 and 1998
(Thousands of Dollars)

NOTE 1 ORGANIZATION OF THE BUSINESS

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Consolidation Policy--The consolidated financial statements include the
accounts of Katy Industries, Inc. and subsidiaries in which it has a greater
than a 50% interest, collectively "Katy" or the "Company". All significant
intercompany accounts, profits and transactions have been eliminated in
consolidation. Investments in affiliates that are not majority-owned and where
the Company does not exercise significant influence are reported using the
equity method.

As part of the continuous evaluation of its operations, Katy has acquired
and disposed of a number of its operating units in recent years. Those which
affected the Consolidated Financial Statements for the years ended December
31, 2000, 1999, and 1998 are discussed in Note 4.

There are no restrictions on the payment of dividends by unconsolidated
subsidiaries to Katy. Katy's consolidated retained earnings as of December 31,
2000 include $6.2 million of undistributed earnings of 50% or less owned
investments accounted for by the equity method. No dividends have been paid by
any of these unconsolidated affiliates to Katy.

Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

Cash and Cash Equivalents--Cash equivalents consist of highly liquid
investments with original maturities of three months or less and total $0.2
million and $5.4 million as of December 31, 2000 and 1999, respectively, which
approximates their fair value. The Company places its temporary cash
investments in quality financial institutions. As such, the Company believes
no significant concentration of credit risk exists with respect to these
investments.

Supplemental Cash Flow Information--Noncash investing and financing
activities are disclosed in Notes 2, 8 and 11. Cash paid and (received) during
the year for interest and income taxes is as follows:

2000 1999 1998
------- ------- ------
(Thousands of dollars)

Interest........................................... $15,065 $10,121 $1,064
======= ======= ======
Income taxes....................................... $(3,850) $ 111 $6,910
======= ======= ======

Research and Development Costs--Research and development costs are expensed
as incurred.

Advertising Costs--Advertising costs are expensed as incurred. Advertising
costs expensed in 2000, 1999 and 1998 were $10.0 million, $9.5 million and
$5.7 million respectively.

Inventories--Inventories are stated at the lower of cost or market. At
December 31, 2000, approximately 34% of Katy's inventories were accounted for
using the last-in, first-out (LIFO) method, while the remaining inventories
were accounted for using the first-in, first-out (FIFO) method. Current cost,
as determined using the FIFO method, exceeded LIFO cost by $1.7 million and
$1.0 million at December 31, 2000 and 1999, respectively. The components of
inventories are:

December 31,
-----------------
2000 1999
-------- --------
(Thousands of
dollars)

Raw materials............................................ $ 38,736 $ 37,878
Work in process.......................................... 3,269 5,911
Finished goods........................................... 61,063 73,611
-------- --------
$103,068 $117,400
======== ========

Cost in Excess of Net Assets Acquired--In connection with certain
acquisitions, the Company recorded an intangible asset for the cost of the
acquisition in excess of the fair value of the net assets acquired. This
intangible asset is being amortized using the straight-line method over
periods ranging from 10 to 20 years.

Excess of Acquired Net Assets Over Cost--In connection with the acquisition
of Xxxxx Industries, Inc., ("Xxxxx") the Company recorded negative goodwill
for the excess of the fair value of the net assets acquired over the cost of
the acquisition. Negative goodwill is being amortized using the straight-line
method over a period of five years.

Property--Property and equipment are stated at cost and depreciated over
their estimated useful lives: buildings (10-40 years) generally using the
straight-line method; machinery and equipment (3-20 years) and leased machines
(lease period) using straight-line, accelerated or composite methods; and
leasehold improvements using the straight-line method over the remaining lease
period.

Impairment of Assets--Long-lived assets are reviewed for impairment if
events or circumstances indicate the carrying amount of these assets may not
be recoverable. If this review indicates that the carrying value of these
assets will not be recoverable, based on future net cash flows from the use or
disposition of the asset, the carrying value is reduced to fair value (see
Note 12). Management does not believe an impairment of long-lived assets is
necessary as of December 31, 2000.

Accrued Expenses--The components of accrued expenses are:

December 31,
---------------
2000 1999
------- -------
(Thousands of
dollars)

Accrued insurance......................................... $ 6,030 $ 6,010
Accrued environmental costs............................... 3,091 4,150
Other accrued expenses.................................... 26,362 42,378
------- -------
$35,483 $52,538
======= =======

Foreign Currency Translation--The results of the Company's self-sustaining
foreign subsidiaries are translated to U.S. Dollars using the current-rate
method. Assets and liabilities are translated at the year end spot exchange
rate, revenue and expenses at average exchange rates and equity transactions
at historical exchange rates. Exchange differences arising on translation are
recorded as a component of other accumulated comprehensive income.

Fair Value of Financial Instruments--Where the fair values of Katy's
financial instrument assets and liabilities differ from their carrying value
or Katy is unable to establish the fair value without incurring excessive
costs, appropriate disclosures have been given in the Notes to Consolidated
Financial Statements. All other financial instrument assets and liabilities
not specifically addressed are believed to be carried at their fair value in
the accompanying Consolidated Balance Sheets.

New Accounting Pronouncements--In February 2001, the Financial Accounting
Standards Board ("FASB") issued a limited revision exposure draft of proposed
Statement of Financial Accounting Standard ("SFAS") "Business Combinations and
Intangible Assets--Accounting for Goodwill." The proposed Statement would
establish a new accounting standard for goodwill acquired in a business
combination. It would continue to require recognition of goodwill as an asset
but would not permit amortization of goodwill as currently required by
Accounting Principles Board ("APB") Opinion No. 17, "Intangible Assets."
Furthermore, certain intangible assets that are not separable from goodwill
will also not be amortized.

This proposed Statement would establish a new method of testing goodwill for
impairment. It would require that goodwill be separately tested for impairment
using the fair-value-based approach. Entities would be required to initially
apply the provisions of this proposed Statement as of the beginning of the
first fiscal quarter following issuance of the final Statement. Those
provisions would apply not only to goodwill arising from acquisitions
completed after the issuance date of the final Statement but also to the
unamortized balance of goodwill at the date of adoption. The Company has not
fully evaluated the impact upon future operating results from the proposed
standard, however it does not believe adoption of this standard will
materially affect the results of operations.

In September 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires that all
derivatives be recognized as either assets or liabilities in the statement of
financial position and requires that those assets and liabilities be measured
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and its resulting designation.
In September 1999, the FASB issued statement No. 137, which delayed the
required implementation of SFAS No. 133 to years beginning after June 15,
2000. The Company does not enter into derivative or hedging activities,
therefore, the adoption of SFAS 133 will not have an impact on the Company's
financial statements.

Revenue Recognition--Sales are recognized upon shipment of products to
customers or when services are performed.

Reclassifications--Certain amounts from prior years have been reclassified
to conform to the 2000 financial statement presentation.

NOTE 3. PROPOSED RECAPITALIZATION

On March 30, 2001, Katy announced that the Company had reached a definitive
agreement with KKTY Holdings Company, LLC. ("KKTY"), an affiliate of Kohlberg
Investors IV, L.P. for the recapitalization of the Company (the
"Recapitalization"). To effectuate the Recapitalization, KKTY would purchase
from Katy not less than 400,000 shares of newly issued preferred stock, $100
par value per share (the "Convertible Preferred Stock"), convertible into not
less than 5,000,000 common shares, for an aggregate purchase price of $40.0
million.

The Convertible Preferred Stock would be convertible at the option of the
holder at any time after the earlier of 1) the fifth anniversary of the
closing date of the Recapitalization, 2) board approval of a merger,
consolidation or other business combination involving a change in capital of
the Company, sale of all or substantially all of the assets, or liquidation of
the Company or 3) a contested election for directors of the Company nominated
by KKTY. Each preferred share would be convertible into 12.5 shares of common
stock, and the conversion price would be $8.00 for every share of common stock
to be issued. The preferred shares would be 1) non-voting, 2) non-redeemable,
except in whole, but not in part, at the Company's option not earlier than the
20th anniversary of the closing date of the Recapitalization, 3) would not
participate in dividend distributions, 4) would have no preemptive rights with
respect to any other securities or instruments issued by the Company and 5)
would have customary piggy back registration rights in the event of a
registration of common shares by Katy. The Convertible Preferred Stock would
have a liquidation preference of $100.00 per share before any distribution
could be made to common shareholders.

Under the Recapitalization, KKTY would also commence a tender offer (the
"Offer") to purchase 2,500,000 outstanding shares of Katy common stock, at
$8.00 per common share, inclusive of the associated common stock rights (the
"Rights") issued pursuant to the Rights Agreement, dated as of January 13,
1995, as amended. KKTY will in no event acquire more than 29.9% of the
outstanding voting securities of Katy in the offer. The obligation of KKTY to
purchase shares tendered under the Offer would be subject to pro rata
acceptance of common shares tendered if the total number exceeds 2,500,000.
The initial expiration of the Offer, terms of which will be detailed in a
proxy statement to be mailed to shareholders, would be the later of 1) the day
after the date of the annual meeting of shareholders, or 2) the 20th business
day after the Offer commencement date. KKTY can extend the Offer for an
additional 20 days (and must extend the Offer at Katy's request if certain
conditions are satisfied). However, in no event shall the Offer be extended
beyond June 30, 2001.

Katy expects to utilize funds from three sources to refinance Katy's
existing obligations under its current revolving credit agreement (the "Credit
Agreement"): 1) $30.0 million of proceeds from the issuance of the Convertible
Preferred Stock, 2) a $150.0 million five year credit facility (the "New
Credit Facility"), which would include a Term Loan Facility (the "Term Loan")
and a Revolving Credit Facility, for which KKTY has entered into a commitment
letter with Bankers Trust Company, which is contingent upon, among other
things, closing the sale of the Convertible Preferred Stock, and 3) the sale
of Xxxxxxxx Metals, L.P., ("Xxxxxxxx"), a wholly owned subsidiary, for at
least $20.0 million, net of retained liabilities. Katy has entered into a non-
binding letter of intent with a potential buyer for a sale of substantially
all of the assets of Xxxxxxxx.

including the maturity, to the extent necessary to achieve syndication. There
can be no assurance that such financing will be available on terms the Company
finds attractive or at all.

In connection with the Recapitalization, the Company has entered into an
agreement with the holder of the preferred interest in its Contico
International, LLC subsidiary to redeem at a discount approximately half of
such interest, which has in total a stated value at December 31, 2000 of $32.9
million. Katy will utilize $9.9 million of the proceeds from the issuance of
the Convertible Preferred Stock for this purpose. The holder will retain
approximately 50% of the preferred interest, or a stated value of $16.4
million. Consummation of this redemption is conditioned on consummation of the
Recapitalization.

Consummation of the Recapitalization is subject to a number of conditions,
including: absence of a material adverse change in financial markets that
results in KKTY not obtaining funding under its commitment letter with Bankers
Trust; the shareholders electing KKTY's designees, amending Katy's certificate
of incorporation to authorize the issue of the Convertible Preferred Stock and
to classify Katy's Board of Director, and authorizing the issuance and sale of
the Convertible Preferred Stock to KKTY; and Katy consummating the sale of its
Xxxxxxxx subsidiary for at least $20.0 million, net of retained liabilities.

NOTE 4. ACQUISITIONS AND DISPOSITIONS

Acquisitions

On January 8, 1999, the Company purchased all of the common membership
interest (the "Common Interest") in Contico International, L.L.C.,
("Contico"), the successor to the janitorial, consumer products and industrial
packaging businesses of Contico International, Inc., now known as Newcastle
Industries, Inc., ("Newcastle"). Newcastle had previously contributed
substantially all its assets and certain liabilities to Contico and entered
into leases with Contico for certain real property used in the business and
retained by Newcastle. The purchase price for the Common Interest was
approximately $132.1 million. The payment of the purchase price was financed
by the Company's unsecured revolving credit agreement from Bank of America.
Newcastle has retained a preferred membership interest in Contico (the
"Preferred Interest"), having a stated value of $32.9 million, which yields an
8% annual return on its stated value while outstanding (see Note 10). Contico,
based in St. Louis, Missouri, manufactures and distributes janitorial
equipment and supplies, consumer storage, home and automotive products, as
well as food service equipment and supplies. The acquisition has been
accounted for under the purchase method. The accounts of this acquisition have
been included in the Company's Consolidated Financial Statements from the
acquisition date. The estimated cost in excess of net assets acquired of
approximately $7.0 million, subject to additional purchase accounting
adjustments, has been recorded as "Cost in excess of net assets acquired" in
the Consolidated Balance Sheets and is being amortized on a straight line
basis over 20 years. In addition, Katy has recorded intangible assets of
approximately $28.0 million, consisting of customer lists, trademarks and
tradenames. These intangible assets are being amortized over periods of 20
years. The following unaudited pro forma information reflects the pro forma
results of operations for the Company giving effect to the Contico acquisition
as if the Contico acquisition occurred on January 1, 1998. The unaudited pro
forma results include the unaudited historical operating results of Newcastle
for the one-week ended January 8, 1999 and the twelve months ended December
31, 1998. The Company's historical information presented below excludes net
loss of $(1.8) million or $(0.18) per share (diluted) from Discontinued
Operations and Operations to be Disposed Of for December 31, 1999. The
Company's historical information presented below excludes net income of $2.1
million or $0.25 per share (diluted) from Discontinued Operations and other
Operations to be Disposed Of for December 31, 1998. Pro forma results may not
be indicative of future results.

Year Ended Year Ended
December 31, 1999 December 31 ,1998
------------------- -------------------
Katy Pro Katy Pro
Historical Forma Historical Forma
---------- -------- ---------- --------
(Thousands of Dollars, Except Per Share
Data)

Net sales........................... $565,941 $569,981 $342,315 $567,990
Income from operations.............. $ 27,771 $ 28,159 $ 15,275 $ 35,486
Net income.......................... $ 12,289 $ 12,381 $ 11,007 $ 15,768
Earnings per share--Basic........... $ 1.47 $ 1.48 $ 1.33 $ 1.90
Earnings per share--Diluted......... $ 1.39 $ 1.40 $ 1.30 $ 1.74

On December 31, 1998, the Company acquired the assets of the Bay State
Gritcloth division of Tyrolit North America, Inc. ("Baystate"). Baystate
manufactures an industrial product line of specialty abrasives and has annual
sales of approximately $4.0 million. The acquisition has been accounted for
under the purchase method. The accounts of this acquisition have been included
in the Company's Consolidated Financial Statements from the acquisition date.
The estimated aggregate purchase price for this division was approximately
$4.0 million. The estimated cost in excess of net assets acquired of
approximately $2.0 million, has been recorded as "Cost in excess of net assets
acquired" in the Consolidated Balance Sheets and is being amortized on a
straight line basis over 20 years.

On August 11, 1998, the Company purchased substantially all of the assets of
The Xxxxx Companies, Inc. The Company operates the business through its Xxxxx
Products, Inc. subsidiary ("Xxxxx"). Xxxxx is a manufacturer and distributor
of a wide variety of professional cleaning products including mops, brooms and
plastic cleaning products. The acquisition has been accounted for under the
purchase method. The accounts of this acquisition have been included in the
Company's Consolidated Financial Statements from the acquisition date. The
estimated aggregate purchase price for the Xxxxx business was approximately
$50.0 million. The estimated cost in excess of net assets acquired of
approximately $24.0 million, has been recorded as "Cost in excess of net
assets acquired" in the Consolidated Balance Sheets and is being amortized on
a straight line basis over 20 years. In addition, Katy has recorded intangible
assets of approximately $14.9 million, consisting of customer lists,
trademarks and tradenames, and accumulated work force. These intangible assets
are being amortized over periods ranging from 7 1/2 to 20 years.

On May 21, 1998, the Company purchased substantially all of the assets of
the Consumer Electrical Division of Noma Industries, Limited. The Company
operates the business through its Xxxxx Industries (Canada), Inc. subsidiary
("Xxxxx Canada"). Xxxxx Canada is a North American leader in the design,
manufacturing and marketing of a wide variety of consumer corded products
including low voltage garden lighting, extension cords, multiple outlet and
surge strips, specialty cord products, automotive products and electronic
timers. On May 11, 1998, the Company purchased substantially all of the assets
of Disco, Inc.

The Company operates the business through its Glit/Disco, Inc. subsidiary
("Disco"). Disco is a manufacturer and distributor of cleaning and specialty
products sold to the restaurant/food service industry. Both acquisitions have
been accounted for under the purchase method. The accounts of these
acquisitions have been included in the Company's Consolidated Financial
Statements from the acquisition date.

The estimated aggregate purchase price for the Xxxxx Canada and Disco
businesses was approximately $17.1 million. The estimated costs in excess of
the net assets acquired of approximately $0.7 has been recorded as "Cost in
excess of net assets acquired" in the Consolidated Balance Sheets and is being
amortized on a straight line basis over 20 years.

Dispositions

During 1999, Katy completed the sales of the businesses classified as
Discontinued Operations. Katy has recorded a "Loss from Discontinued
Operations" on the 1999 Consolidated Statement of Operations. The sales are
summarized below:

On December 27, 1999, the Airtronics division of American Gage & Machine
Company ("Airtronics") was sold for $2.3 million, including a note for $0.5
million, due in six years, and $0.9 million in deferred payments based upon
the Airtronics business' future sales. On September 24, 1999, the assets of
Xxxxxx Machinery Inc., ("Xxxxxx") were sold for approximately $5.4 million,
including a mortgage note of $1.0 million, due in five years, and an estimated
$1.5 million in deferred payments based on the future sales of the Xxxxxx
business. On May 7, 1999, the Company completed the divestiture of Xxxxx
Machines, Inc. ("Xxxxx") for approximately $3.7 million. On January 25, 1999,
the Company sold the operating assets of Bach Xxxxxxx, Ltd. for approximately
$0.6 million. The Company retained ownership of Bach Xxxxxxx, Ltd.'s building
and leases it to the buyer. With respect to all of the foregoing divestitures,
the purchaser assumed certain liabilities of the seller.

On June 11, 1998, the Company completed its divestiture of CEGF for
approximately $12.2 million. The net pre-tax book gain of $6.1 million had
been recorded and included as "Equity in (loss) income of operations to be
disposed of" on the accompanying Consolidated Statement of Operations for the
year ended December 31, 1998.

NOTE 5. DISCONTINUED OPERATIONS AND OPERATIONS TO BE DISPOSED OF

On December 31, 1997, the Board of Directors approved a plan to dispose of
the Company's previously reported Machinery Manufacturing segment. The
businesses included as "Discontinued Operations" are Airtronics, Beehive,
Xxxx-Xxxxxxx, Ltd., Xxxxx, and Xxxxxx. The divestiture of Beehive was
completed in July of 1997, the sale of Bach Xxxxxxx, Ltd. closed on January
25, 1999, Xxxxx was sold on May 7, 1999, Xxxxxx was sold on September 24, 1999
and Airtronics was sold on December 27, 1999.

The historical operating results have been segregated as "Discontinued
Operations" on the accompanying Consolidated Statements of Operations for all
periods presented. Discontinued Operations have not been segregated on the
Consolidated Statements of Cash Flows. As all of these businesses have been
divested and the gains and losses from the sale of these companies combined
with the deferred income can now be determined with certainty, Katy has
recorded a "Loss from Discontinued Operations" on the 1999 Consolidated
Statement of Operations. Selected financial data for the Discontinued
Operations is summarized as follows:

For the Year Ended
December 31,
---------------------
2000 1999 1998
---- ------- -------
(Thousands of
Dollars,
Except Per Share
Data)

Net sales............................................. $-- $10,025 $23,349
Loss before income taxes.............................. $-- $(1,722) $ --
Income tax benefit.................................... -- (22) --
---- ------- -------
Net loss.............................................. $-- $(1,700) $ --
==== ======= =======
Net loss per share--Basic............................. $-- $ (0.20) $ --
==== ======= =======
Net loss per share--Diluted........................... $-- $ (0.17) $ --
==== ======= =======

In connection with the previously mentioned divestiture plan, the Board of
Directors also approved the disposal of a portion of the Company's previously
reported Distribution and Service segment and one of the Company's equity
investments. These businesses are reported as "Operations to be Disposed Of"
and include CEGF, Savannah Energy Systems Company ("XXXXX") and the Company's
equity investment in Xxxxxxx Holding Company, Inc. ("Xxxxxxx"). The Company
believes that Xxxxxxx and XXXXX will be fully divested during the year ending
December 31, 2001.

The historical operating results of "Operations to be Disposed Of" have been
segregated as "Equity in (loss) income of operations to be disposed of" on the
accompanying Consolidated Statements of Operations for all periods presented.
The related assets and liabilities have been separately identified on the
Consolidated Balance Sheets as "Net current assets or Net noncurrent assets of
operations to be disposed of". The operating financial data for the year ended
December 31, 1998 includes a net pre-tax gain of $6.1 million offset partially
by a pre-tax impairment of $2.8 million relating to the reduction in the book
value of XXXXX (see Note 12).

Selected financial data for Operations to be Disposed Of, is summarized as
follows:

For the Year Ended
December 31,
----------------------
2000 1999 1998
------ ------ ------
(Thousands of
Dollars,
Except Per Share
Data)

Net sales............................................ $3,690 $3,900 $6,297
(Loss) income before income taxes.................... $ (992) $ (206) $3,144
Income tax (benefit) expense......................... (350) (72) 1,069
------ ------ ------
Net (loss) income.................................... $ (642) $ (134) $2,075
====== ====== ======
Net (loss) income per share--Basic................... $(0.07) $(0.02) $ 0.25
====== ====== ======
Net (loss) income per share--Diluted................. $(0.07) $(0.01) $ 0.25
====== ====== ======

Net assets held for sale for "Operations to be Disposed Of" are valued in
accordance with SFAS No. 121, "Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," lower of cost or estimated proceeds less cost
to sell, as follows:

December 31,
----------------
2000 1999
------- -------
(Thousands of
Dollars)

Current assets............................................ $ 1,997 $ 2,005
Current liabilities....................................... (1,056) (1,268)
------- -------
Net current assets of operations to be disposed of...... $ 941 $ 737
======= =======
Noncurrent assets......................................... $16,471 $15,898
Noncurrent liabilities.................................... -- --
------- -------
Net noncurrent assets of operations to be disposed of... $16,471 $15,898
======= =======

NOTE 6. EARNINGS PER SHARE

The Company's diluted earnings per share were calculated using the treasury
stock method in accordance with the SFAS No. 128, "Earnings Per Share." The
basic and diluted earnings per share calculations are as follows:

For the Year Ended
December 31,
-------------------------
2000 1999 1998
------- ------- -------
(In Thousands,
Except Per Share Data)

Basic EPS:
(Loss) income from continuing operations......... $(5,458) $12,155 $13,082
(Loss) from discontinued operations.............. -- (1,700) --
------- ------- -------
Net (Loss) income............................... $(5,458) $10,455 $13,082
======= ======= =======
Shares--Basic..................................... 8,404 8,366 8,290
Per share amount--Basic:
Continuing operations............................ $ (0.65) $ 1.45 $ 1.58
Discontinued operations.......................... -- (0.20) --
------- ------- -------
Total--Basic.................................... $ (0.65) $ 1.25 $ 1.58
======= ======= =======
Effect of potentially dilutive securities:
Options.......................................... -- 82 152
Preferred interest............................... -- 1,567 --
Diluted EPS:
(Loss) income from continuing operations......... $(5,458) $12,155 $13,082
======= ======= =======
Preferred interest, net of tax................... -- 1,678 --
(Loss) from discontinued operations.............. -- (1,700) --
------- ------- -------
Net (Loss) income............................... $(5,458) $12,133 $13,082
======= ======= =======
Shares--Diluted................................... 8,404 10,015 8,442
Per share amount--Diluted:
Continuing operations............................ $ (0.65) $ 1.38 $ 1.55
Discontinued operations.......................... -- (0.17) --
------- ------- -------
Total--Diluted.................................. $ (0.65) $ 1.21 $ 1.55
======= ======= =======

Rights to purchase one common share of stock for $35 for each common share
of stock held were not included in the computation of diluted EPS because the
rights are not exercisable and rights' exercise price was greater than the
average price of the common shares (see Note 11).

NOTE 7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Xxxxxxx Holding Company, Inc.

At December 31, 2000, the Company owns 30,000 shares of common stock, a 43%
interest, of Xxxxxxx, which consists of several subsidiaries engaged in the
business of harvesting shrimp off the coast of South and Central America and
shrimp farming in Nicaragua. As of December 31, 2000 and 1999 the investment
balance was $6,927 and $6,988, respectively. The investment is currently
classified as Noncurrent assets of Operations to be Disposed of in the
consolidated financial statements (See Note 5).

NOTE 8. DEBT

On December 11, 1998, the Company amended and restated its unsecured
revolving credit agreement (the "Credit Agreement") agented by Bank of
America, with LaSalle National Bank acting as the managing agent.

The Credit Agreement provided for borrowings of up to $215.0 million. On March
22, 2000, the Company amended ("Second Amendment") this agreement and lowered
the borrowing level to $185.0 million.

On October 27, 2000, the Company further amended the Credit Agreement. The
Credit Agreement provides for borrowings of up to $16.8 million under its
Facility A commitment expiring June 30, 2001 and $161 million under its
Facility B commitment expiring December 11, 2001. As part of the amendment,
the Company agreed to grant the lenders under the Credit Agreement a security
interest in all of its and its subsidiaries' assets on March 31, 2001, if
certain events had not occurred before that date. A security interest would
not be required to be granted if (1) on or before February 28, 2001, a letter
of intent (satisfactory to the bank group) existed for the sale of (i) the
Company as a whole or (ii) one or more of its material subsidiaries if the
Company demonstrates that following such sale the Company would be in
compliance with a specified leverage ratio, or (2) the Company is in
compliance with certain covenants at pre-amendment ratio levels. The Company
was not able to meet the requirements to avoid granting security interest and,
accordingly, has granted security interests on the assets of the Company and
its subsidiaries to the bank group. The security interests include liens on
all tangible assets of U.S. operations, including mortgages on owned real
property and leaseholds, as well as stock pledges from foreign subsidiaries.
Concurrent with the granting of security interests in Company assets, the bank
group has agreed to waive compliance with covenant ratio levels established in
the October 27, 2000 amendment for the quarter ended March 31, 2001, and which
extend to June 30, 2001. This action is included in a waiver and Fourth
Amendment to the Credit Agreement, dated as of March 30, 2001.

As discussed in Note 3, Katy has entered into an agreement for the
Recapitalization. If the Recapitalization occurs, the borrowings under the
Credit Agreement will be repaid, and Katy will incur new borrowings in the
form of a secured term loan and a revolving line of credit, agented by Bankers
Trust. The Term Loan is expected to have a final maturity date of five years
after the closing of the Recapitalization and to be in an original principal
amount of $40.0 million. Quarterly amortization is expected to be required in
aggregate annual amounts of $8.0 million. The Revolving Credit Facility is
expected to have a final maturity date of five years after the closing date
and be in an original amount of up to $110.0 million (subject to certain
borrowing base limits). All extensions of credit to the Company would be
secured by a first priority perfected security interest in and lien upon the
capital stock of each material domestic subsidiary (66% of the capital stock
of each material foreign subsidiary), and all present and future material
assets and properties of the Company. Availability of loans and letters of
credit under the Revolving Credit Facility would be subject to a borrowing
base determined by eligible inventory and accounts receivable. Customary
financial covenants would apply. The obligation of Bankers Trust to provide
such financing, which runs to KKTY and not to the Company, is subject to a
number of conditions precedent, including, without limitation, the
consummation of the sale of Xxxxxxxx, the approval by the shareholders of the
authorization and issuance of the convertible preferred stock, and the absence
of any material adverse change in the business of the Company or in the
financing and credit facility syndication markets. Bankers Trust also reserves
the right unilaterally to adjust the terms of the credit facility, including
the maturity, to the extent necessary to achieve syndication. There can be no
assurance that such financing will be available on terms the Company finds
attractive or at all.

The infusion of $40.0 million of preferred equity capital under the
Recapitalization, along with proceeds from the sale of Xxxxxxxx, will
significantly de-leverage the Company. If the Recapitalization is not
completed, Katy could experience a number of negative consequences, including,
but not limited to, default on the Credit Agreement. In the event the
Recapitalization is not consummated, Katy intends to go forward with the sale
of Xxxxxxxx, as well as with the sale of Xxxxxxx Tools, and possibly other
Company assets and operating divisions and seek to refinance its existing
credit agreement on a secured basis so as to provide additional time in which
to restructure its operations. Management believes that, in the current market
environment, a substantial risk exists that, if the Recapitalization is not
consummated on a timely basis, the Company will be unable to obtain further
waivers of defaults under its current credit facility in the future and that
the Company will be unable to obtain, on reasonable terms or at all, financing
necessary to replace its current credit facility.

Letters of credit totaling $2.2 million were outstanding at December 31,
2000.

2000 1999
Debt at December 31 includes: --------- --------
(Thousands of
Dollars)

Revolving loans payable, interest at various LIBOR
Rates (7.41%-8.75%), due through 2002, unsecured... $ 133,000 $150,000
Real estate and chattel mortgages, with interest at
fixed rates (7.14%), due through 2013.............. 838 902
Less current maturities........................... (133,067) (67)
--------- --------
$ 771 $150,835
========= ========

Aggregate scheduled maturities of debt are as follows (thousands of dollars):

2001.............................................................. $133,067
2002.............................................................. 72
2003.............................................................. 699
--------
Total........................................................... $133,838
========

All of the debt under the Credit Agreement is re-priced to current rates at
frequent intervals. Therefore, its fair value approximates its carrying value
at December 31, 2000.

NOTE 9. RETIREMENT BENEFIT PLANS

Pension and Other Postretirement Plans

Several domestic subsidiaries have pension plans covering substantially all
of their employees. These plans are noncontributory, defined benefit pension
plans. The benefits to be paid under these plans are generally based on
employees' retirement age and years of service. The companies' funding
policies, subject to the minimum funding requirements of the applicable U.S.
or foreign employee benefit and tax laws, are to contribute such amounts as
determined on an actuarial basis to provide the plans with assets sufficient
to meet the benefit obligations. Plan assets consist primarily of fixed income
investments, corporate equities and government securities. The Company also
provides certain health care and life insurance benefits for some of its
retired employees.

Pension
Benefits Other Benefits
--------------- ----------------
2000 1999 2000 1999
------ ------- ------- -------
(Thousands of dollars)

Change in benefit obligation:
Benefit obligation at beginning of year... $1,861 $ 3,530 $ 1,420 $ 2,064
Service cost.............................. 121 157 13 16
Interest cost............................. 139 105 181 97
Actuarial (gain)/loss..................... 17 74 1078 (676)
Effect of sale............................ -- (1,737) (14) (14)
Benefits paid............................. (150) (268) (250) (67)
------ ------- ------- -------
Benefit obligation at end of year........... 1,988 1,861 2,428 1,420
Change in plan assets:
Fair value of plan assets at beginning of
year..................................... 2,145 4,049 -- --
Actuarial return on plan assets........... 33 296 -- --
Employer contribution..................... 90 135 264 67
Effect of sale............................ -- (2,067) -- --
Benefits paid............................. (150) (268) (264) (67)
------ ------- ------- -------
Fair value of plan asset at end of year..... 2,118 2,145 -- --
Reconciliation of prepaid (accrued) benefit
cost:
Funded status............................. 131 284 (2,428) (1,420)
Unrecognized net actuarial (gain)/loss.... 565 436 31 (1,047)
Unrecognized prior service cost........... -- -- 19 24
Unrecognized net transition
asset/(obligation)....................... 44 52 -- --
------ ------- ------- -------
Prepaid/(Accrued) benefit cost.............. 740 772 (2,378) (2,443)
Components of net periodic benefit cost:
Service cost.............................. 121 157 13 16
Interest cost............................. 139 105 181 97
Expected return on plan assets............ (171) (102) -- --
Amortization of net transition asset...... 8 (6) -- --
Amortization of prior service cost........ -- -- 5 5
Amortization of net gain/(loss)........... 26 23 -- (91)
Curtailment/settlement recognition........ -- (343) -- --
------ ------- ------- -------
Net periodic benefit cost................... $ 123 $ (166) $ 199 $ 27
====== ======= ======= =======
Assumptions as of December 31:
Discount rates............................ 7-7.5% 7-7.5% 7% 7%
Expected return on plan assets............ 7-7.5% 7.5-8% 0% 0%
Assumed rates of compensation increases... 0-5% 0-5% -- --
Impact of one-percent increase in health
care trend rate:
Increase in accumulated postretirement
benefit obligation....................... $ 81 $ 176
Increase in service cost and interest
cost..................................... $ -- $ 5
Impact of one-percent decrease in health
care trend rate:
Decrease in accumulated postretirement
benefit obligation....................... $ 65 $ 143
Decrease in service cost and interest
cost..................................... $ -- $ 4

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 2000 was 5% decreasing to
4.5% in 2001, after which it remains constant.

In addition to the plans described above, in 1993 the Company's Board of
Directors approved a retirement compensation program for certain officers and
employees of the Company and a retirement compensation arrangement for the
Company's then Chairman and Chief Executive Officer. The Board approved a
total of $3.5 million to fund such plans. This amount represented the best
estimate of the obligation that vested immediately upon Board approval and is
to be paid for services rendered to date. The Company had $2.2 million accrued
at December 31, 2000 for this obligation.

401(k) Plans

The Company offers its employees the opportunity to voluntarily participate
in one of six 401(k) plans administered by the Company or one of its
subsidiaries. The Company makes matching and other contributions in accordance
with the provisions of the plans and, under certain provisions, at the
discretion of the Company. The Company made annual matching and other
contributions of $0.7 million, $0.8 million and $0.6 million in 2000, 1999 and
1998, respectively.

NOTE 10. PREFERRED INTEREST OF SUBSIDIARY

Upon the Company's purchase of the Common Interest of Contico on January 8,
1999, Newcastle retained a Preferred Interest in Contico, represented by 329
preferred units, each with a stated value of $100,000, for an aggregate stated
value of $32.9 million. The Preferred Interest yields an 8% cumulative annual
return on its stated value while outstanding, payable in cash. The holder of
the Preferred Interest has a put option which allows, at certain times
beginning on January 8, 2001, or upon the occurrence of certain events, each
preferred unit to be exchangeable for 4,762 shares of Katy common stock. Upon
the exercise of the put, Katy has the option to settle in cash, in lieu of
delivering Katy common stock, in an amount equal to the then market value of
Katy common stock multiplied by the number of shares implied by the exchange.
Conversely, at any time on or after January 2, 2012, Xxxx xxx exercise a call
option, requiring holders of the Preferred Interest to sell their units to
Katy at the stated value. On the exercise of a put or call option, Katy must
also pay to the preferred holder in cash, the accrued and unpaid Priority
Return and profits allocated to the units being purchased by Katy.

The fair value of the Preferred Interest is impacted by two factors: the
rate of interest paid on the stated amount, and the market price of Katy's
common stock. During 2000, market rates for similar instruments increased,
which would have the effect of reducing the fair value of the Preferred
Interest. Also during 2000, the value of Katy's common stock fell, which would
also cause the fair value of the Preferred Interest to decrease. Upon exercise
of the put option, the holder would receive 1,566,698 shares of Katy common
stock, implying a value when divided into the stated value of $21.00 per
share. Katy's stock closed at $17.00 on January 8, 1999, the date of the
Contico acquisition, and closed at $6.00 at December 31, 2000.

In connection with the Recapitalization, the Company has entered into an
agreement with the holder of the preferred interest in its Contico subsidiary
to redeem at a discount approximately half a portion of such interest. Katy
will utilize $9.9 million of the proceeds from the issuance of the Convertible
Preferred Stock to redeem 165 of the 329 preferred units outstanding for a
purchase price of $60,000 per unit. The holder will retain approximately 50%
of the preferred interest, or a stated value of $16.4 million. Consummation of
this redemption is conditioned on consummation of the Recapitalization.

In addition, the holder of the preferred interest has a right to require the
Company, upon a Change in Control, to purchase the preferred interest for cash
equal to stated value (or to exchange the preferred holder's units for shares
of Katy common stock), plus accrued but unpaid Priority Return and profits
allocated to units. The holder of the preferred interest has acknowledged that
consummation of the Recapitalization would not constitute such a Change in
Control and has agreed with Katy to redeem at a discount approximately half of
such interest, as described in the preceding paragraph. Also, subject to the
Recapitalization occurring, the

Agreement governing the put option will be amended to among other things
change the circumstances in which the holder of the preferred interest can
exercise its put option and the consideration payable upon such exercise.

NOTE 11. STOCKHOLDERS' EQUITY

Share Repurchase

On February 26, 2000, the Company's Board of Directors authorized management
to spend up to $5.0 million over a twelve month period for the repurchase of
Katy common stock in the open market. During this twelve month period, the
Company repurchased 24,800 shares of Katy common stock at a total cost of
$262,000 and an average stock price of $10.49.

On May 19, 1998, Katy's Board of Directors authorized the Company to
repurchase an additional 250,000 common shares, bringing the total authorized
shares to 1,150,000 since 1995. Katy repurchased 15,200, 12,000 and 38,000 of
its common shares during the years ended December 31, 1999, 1998 and 1997, at
a total cost of $238,000, $217,000 and $566,000, respectively. As of December
31, 1999, the repurchase program had been completed.

Stockholder Rights Plan

In January 1995, the Board of Directors adopted a Stockholder Rights Plan
and distributed one right for each outstanding share of the Company's common
stock. Each right entitles the stockholder to acquire one share of the
Company's common stock at an exercise price of $35, subject to adjustment. The
rights are not and will not become exercisable unless certain change of
control events occur. As of December 31, 2000, there are 8,394,758 rights
outstanding, of which none are exercisable.

Stock Purchase Plan for Key Employees and Directors

In 1994, the Board of Directors approved the Stock Purchase Plan for Key
Employees and Directors ("Stock Purchase Plan"). Under the Stock Purchase
Plan, shares of the Company's common stock, held in the treasury, were
reserved for issuance at a purchase price equal to 65% (50% in certain cases)
of the market value of the shares as determined based upon the offering period
established by the Compensation Committee of the Board of Directors. As of
December 31, 2000, 83,000 common shares had been issued at prices ranging from
$6.17 to $8.02 per share. There has been no activity in this plan since 1996,
and the Plan has been terminated during 2000.

Proceeds from the sale of these shares consisted of cash or notes receivable
due on demand but no later than sixty months from date of purchase with an
interest rate equal to the Federal Short-Term Funds Rate. The Company is
holding the shares as collateral for all notes receivable. Further, these
shares cannot be sold until 24 months from the date of purchase provided the
notes have been repaid. Notes receivable from plan participants are included
in the Consolidated Balance Sheets under the caption "Accumulated other
adjustments".

Restricted Stock Grant

During 2000, 1999 and 1998, the Company issued restricted stock grants in
the amount of 3,000, 45,100 and 37,800 shares, respectively, to certain key
employees of the Company. These stock grants vest over a three-year period, of
which 25% vested immediately upon distribution. As a result of these
transactions, the Company has recognized compensation expense for 2000, 1999
and 1998 in the amount of $391,000, $539,000 and $162,000, respectively.

Director Stock Grant

During 2000, 1999 and 1998, the Company granted all non employee Directors
500 shares of Company common stock as part of their compensation. The total
grant to the Directors for the years ended December 31, 2000, 1999 and 1998
was 4,000, 4,500 and 4,000 shares, respectively.

Stock Options and Stock Appreciation Rights

At the 1998 Annual Meeting, the Company's stockholders approved the 1997
Long-Term Incentive Plan (the "1997 Incentive Plan"), authorizing the issuance
of up to 875,000 shares of Company common stock pursuant to the grant or
exercise of stock options, including incentive stock options, nonqualified
stock options, stock appreciation rights ("SARs"), restricted stock,
performance units or shares and other incentive awards. The Compensation
Committee of the Board of Directors administers the Incentive Plan and
determines to whom awards may be granted, the type of award as well as the
number of shares of Company common stock to be covered by each award, and the
terms and conditions of such awards. The exercise price of stock options
granted under the 1997 Incentive Plan cannot be less than 100 percent of the
fair market of such stock on the date of grant. The restricted stock grants in
1999 and 1998 referred to above were made under the 1997 Incentive Plan.
Related to the 1997 Incentive Plan, the Company granted SARs as described
below.

Two hundred four thousand and seventy-three (204,473) SARs become
exercisable at any time after the earliest that (a) up to and including July
22, 2001, the Company's average closing stock price over a 45 calendar day
period has equaled or exceeded $39.125 per share; or (b) up to and including
January 22, 2005, the Company's average closing stock price over a 45 calendar
day period has equaled or exceeded $53.80 per share. In addition, in the event
that goal (a) above is met, only 50% of the SARs thus vested will be
immediately exercisable, with, 25% exercisable upon the first anniversary of
the performance vesting date, and 25% exercisable upon the second anniversary
of the performance vesting date. In addition, 163,579 SARs become exercisable
at such time up to and including January 22, 2005, the Company's average
closing stock price over a 45-calendar day period has equaled or exceeded
$53.80 per share. All SARs which have met the performance goals above, as the
case may be, will expire December 9, 2007. As a result of the underlying stock
price, no compensation expense was recorded in 2000 or 1999 related to these
SARs.

The 1997 Incentive Plan also provides that in the event of the Change in
Control of the Company, as defined below, (i) any SARs and stock options
outstanding as of the date of the Change in Control which are neither
exercisable or vested will become fully exercisable and vested (the payment
received upon the exercise of the SARs shall be equal to the excess of the
fair market value of a share of the Company's Common Stock on the date of
exercise over the grant date price multiplied by the number of SARs
exercised); (ii) the restrictions applicable to restricted stock will lapse
and such restricted stock will become free of all restrictions and fully
vested; and (iii) all performance units or shares will be considered to be
fully earned and any other restrictions will lapse, and such performance units
or shares will be settled in cash or stock, as applicable, within 30 days
following the effective date of the Change in Control. For purposes of
subsection (iii), the payout of awards subject to performance goals will be a
pro rata portion of all targeted award opportunities associated with such
awards based on the number of complete and partial calendar months with the
performance period which had elapsed as of the effective date of the Change in
Control. The Compensation Committee will also have the authority, subject to
the limitations set forth in the 1997 Incentive Plan, to make any
modifications to awards as determined by the Compensation Committee to be
appropriate before the effective date of the Change in Control.

For purposes of the 1997 Incentive Plan, "Change in Control" of the Company
means, and shall be deemed to have occurred upon, any of the following events:
(a) any person (other than those persons in control of the Company as of the
effective date of the 1997 Incentive Plan, a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company)
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 30 percent or more of the combined voting power of the
Company's then outstanding securities; or (b) during any period of two (2)
consecutive years (not including any period prior to the effective date), the
individuals who at the beginning of such period constitute the Board of
Directors (and any new director, whose election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was so approved), cease for any reason to
constitute a majority thereof; or (c) the stockholders of the Company approve:
(i) a plan of complete liquidation of the Company; or (ii) an agreement for
the sale or disposition of all or substantially all

the Company's assets; or (iii) a merger, consolidation, or reorganization of
the Company with or involving any other corporation, other than a merger,
consolidation, or reorganization that would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent at
least 50 percent of the combined voting power of the voting securities of the
Company (or such surviving entity) outstanding immediately after such merger,
consolidation, or reorganization. It is not anticipated that the
Recapitalization will result in such a change in control.

At the 1995 Annual Meeting, the Company's stockholders approved the Long-
Term Incentive Plan (the "1995 Incentive Plan") authorizing the issuance of up
to 500,000 shares of Company common stock pursuant to the grant or exercise of
stock options, including incentive stock options, nonqualified stock options,
SARs, restricted stock, performance units or shares and other incentive awards
to executives and certain key employees. The Compensation Committee of the
Board of Directors administers the 1995 Incentive Plan and determines to whom
awards may be granted, the type of award as well as the number of shares of
Company common stock to be covered by each award and the terms and conditions
of such awards. The exercise of stock options granted under the 1995 Incentive
Plan cannot be less than 100 percent of the fair market value of such stock on
the date of grant. Stock options granted pursuant to the 1995 Incentive Plan
generally vest in four equal annual installments from the date of grant and
generally expire 10 years after the date of grant. In the event of a Change in
Control of the Company, awards granted under the 1995 Incentive Plan are
subject to substantially similar provisions to those described under the 1997
Incentive Plan. The definition of Change in Control of the Company under the
1995 Incentive Plan is substantially similar to the definition described under
the 1997 Incentive Plan. The Compensation Committee has only granted awards of
stock options under the 1995 Incentive Plan.

At the 1995 Annual Meeting, the Company's stockholders approved the Non-
Employee Directors Stock Option Plan (the "Directors' Plan") authorizing the
issuance of up to 200,000 shares of Company common stock pursuant to the grant
or exercise of nonqualified stock options to outside directors. The Board of
Directors administers the Directors' Plan. The exercise price of stock options
granted under the Directors' Plan is equal to the fair market value of the
Company's common stock on the date of grant. Stock options granted pursuant to
the Directors' Plan are immediately vested in full on the date of grant and
generally expire 10 years after the date of grant.

The following table summarizes option activity under each of the 1997
Incentive Plan, 1995 Incentive Plan and the Directors' Plan:

Weighted
Average Weighted
Remaining Average
Exercise Contractual Exercise
Options Price Life Price
------- ------------ ----------- --------

Outstanding at December 31,
1997........................... 483,400 $8.50-19.56 8.5 years $11.99
Granted........................ 16,000 $18.13 $18.13
Exercised...................... (19,436) $8.50-13.19 $11.31
Canceled....................... (8,864) $8.50-19.56 $12.74
-------
Outstanding at December 31,
1998........................... 471,100 $8.50-19.56 7.6 years $12.21
Granted........................ 222,100 $9.88-17.00 $13.65
Exercised...................... (20,650) $8.50-13.19 $12.22
Canceled....................... (16,700) $13.19-19.56 $14.40
-------
Outstanding at December 31,
1999........................... 655,850 $8.50-19.56 7.6 years $12.64
Granted........................ 166,000 $9.63-10.50 $10.33
Exercised...................... (4,500) $8.50-9.25 $ 9.00
Canceled....................... (53,550) $8.50-19.56 $13.86
-------
Outstanding at December 31,
2000........................... 763,800 $8.50-19.56 7.2 years $12.07
=======
Vested and Exercisable at
December 31, 2000.............. 479,700 $12.27
=======

The following table summarizes information about stock options outstanding
at December 31, 2000:

Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of ExercisePrices at 12/31/00 Life Price at 12/31/00 Price
----------------------- ----------- ----------- --------- ----------- ---------

$ 8.50- 9.88............ 252,800 6.47 $ 9.32 175,200 $ 9.09
$12.69-13.57............ 368,200 7.5 11.96 228,200 13.02
$16.13-17.00............ 118,300 7.9 16.90 54,175 16.78
$18.13-19.56............ 24,500 7.25 18.74 22,125 18.66
------- ---- ------ ------- ------
763,800 7.19 $12.07 479,700 $12.27
======= ==== ====== ======= ======

The Company applies APB No. 25, "Accounting for Stock Issued to Employees"
and related Interpretations in accounting for stock options. SFAS No. 123,
"Accounting for Stock-Based Compensation" was issued and, if fully adopted by
the Company, would change the method for recognition of expense related to
option grants to employees. Under SFAS No. 123, cost is based upon the fair
value of each option at the date of grant using an option-pricing model that
takes into account as of the grant date the exercise price and expected life
of the option, the current price of the underlying stock and its expected
volatility, expected dividends on the stock and the risk-free interest rate
for the expected term of the option. Had compensation cost been determined
based on the fair value method of SFAS No. 123, the Company's net income
(loss) and earnings (loss) per share would have been reduced to the pro forma
amounts indicated below. The weighted average fair values of options granted
in 2000, 1999 and 1998 and were $5.02, $7.19 and $5.67 respectively.

The fair value of each option grant is estimated on the date of grant using
the binomial option-pricing model with the following assumptions: dividend
yield of 3.16%, 2.25% and 1.65% for the periods 2000, 1999, and 1998
respectively; expected volatility ranging from 17.8% to 47.1% for all grants,
risk-free interest rates ranging from of 4.66% to 6.92% for all grants; and
expected lives of five years for all grants.

2000 1999 1998
------- ------- -------
(In Thousands, Except
Per
Share Data)

Net (loss) income as reported.................... $(5,458) $10,455 $13,082
======= ======= =======
Net (loss) income--pro forma..................... $(5,970) $ 9,993 $12,762
======= ======= =======
(Loss) earnings per share as reported--Basic..... $ (0.65) $ 1.25 $ 1.58
======= ======= =======
(Loss) earnings per share--pro forma--Basic...... $ (0.71) $ 1.19 $ 1.54
======= ======= =======
(Loss) earnings per share as reported--Diluted... $ (0.65) $ 1.21 $ 1.55
======= ======= =======
(Loss) earnings per share--pro forma--Diluted.... $ (0.71) $ 1.17 $ 1.52
======= ======= =======

The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.

NOTE 12. WASTE-TO-ENERGY FACILITY

The Company owns a waste-to-energy facility, XXXXX, in Savannah, Georgia.
XXXXX is under contract with the Resource Recovery Development Authority ("the
Authority") of the City of Savannah ("the City") to receive and dispose of the
City's solid waste through 2007. The contract provides for minimum levels of
XXXXX'x disposal fee income to be used to retire the $50.7 million of
industrial revenue bonds issued by the Authority of the City to finance
construction of the plant.

In substance, the City desired a solid waste disposal and resource recovery
facility, issued bonds to finance construction of the facility, and contracted
XXXXX to construct, operate and maintain the facility. In return for its

services, it was intended that the Company would receive a reasonable profit
on the facility upon the termination of the various agreements. XXXXX is
obligated to perform under the various agreements. XXXXX is therefore merely
the operator of the facility and has not recorded the cost of the facility or
the obligations related to its construction in its Consolidated Financial
Statements.

Under terms of the contract, XXXXX made contributions to the Authority
totaling $9.2 million. In consideration for these contributions, the waste-to-
energy facility will revert to the Company, subject to collateral agreements
under the bond indentures, when the service agreement expires. The Company is
not required to make any additional payments to the Authority. XXXXX has made
capital expenditures to improve the operating facility which have been
accounted for as deferred expenses. Deferred expenses, net of impairment, are
being amortized through 2007 (see Note 5).

During 1998, Katy evaluated the carrying value of XXXXX. Continued operating
and cash flow losses combined with the efforts to dispose of XXXXX led to the
Company's determination to conduct such review. Accordingly, during the fourth
quarter of 1998, Katy adjusted the carrying value of XXXXX'x long-lived assets
to their estimated fair value, resulting in a pre-tax impairment of $2.8
million. The estimated fair value was based upon comparable asset values and
anticipated future cash flows discounted at a rate commensurate with the risk
involved.

XXXXX is one of the "Operations to be Disposed Of" included in the
previously reported Divestiture and Reorganization Plan. XXXXX'x historical
operating results have been segregated as "Equity in (loss) income of
operations to be disposed of" on the accompanying Consolidated Statements of
Operations for the years ended December 31, 2000, 1999 and 1998. During and
prior to the first quarter of 2001, Katy engaged in discussions with third
parties regarding potential arrangements that would allow Katy to turn over
operation of the facility to one of the aforementioned parties.

NOTE 13. INCOME TAXES

The domestic and foreign components of income (loss) before income taxes,
exclusive of distribution on preferred interest in subsidiary, are:

2000 1999 1998
------- ------- -------
(Thousands of Dollars)

Domestic
Continuing........................................ $(8,459) $14,075 $19,179
Discontinued...................................... -- 2,087 --
------- ------- -------
Total domestic..................................... $(8,459) $16,162 $19,179
======= ======= =======
Foreign
Continuing........................................ $ 2,690 $ 2,975 $ 642
Discontinued...................................... -- (3,809) --
------- ------- -------
Total foreign...................................... $ 2,690 $ (834) $ 642
======= ======= =======
Total worldwide.................................... $(5,769) $15,328 $19,821
======= ======= =======

The components of the net (benefit) provision for income taxes are:

2000 1999 1998
------- ------- ------
(Thousands of Dollars)

Continuing operations:
Current:
Federal.......................................... $(4,899) $(2,108) $4,240
State............................................ 168 228 590
Foreign.......................................... 624 1,761 285
------- ------- ------
Total.......................................... $(4,107) $ (119) $5,115
======= ======= ======
Deferred:
Federal.......................................... $ 326 1,369 1,585
State............................................ 368 758 171
Foreign.......................................... 470 306 (132)
------- ------- ------
Total.......................................... 1,164 2,433 1,624
------- ------- ------
Total continuing operations....................... $(2,943) $ 2,314 $6,739
======= ======= ======
Discontinued operations:
Federal.......................................... $ -- $ 730 $ --
State............................................ -- 33 --
Foreign.......................................... -- (785) --
------- ------- ------
Total.......................................... -- (22) --
------- ------- ------
Net (benefit from) provision for income taxes...... $(2,943) $ 2,292 $6,739
======= ======= ======

The total income tax provision for continuing operations differed from the
amount computed by applying the statutory federal income tax rate to pre-tax
income from continuing operations. The computed amount and the differences for
the years ended December 31, 2000, 1999 and 1998 were as follows:

2000 1999 1998
------- ------ ------
(Thousands of
Dollars)

(Benefit) provision for income taxes at statutory
rate.............................................. $(2,019) $5,968 $6,937
Revision of prior years' tax estimates............. 206 (2,750) --
State income taxes, net of federal benefit......... 477 906 476
Foreign tax rate differential...................... (43) (40) 10
Amortization of negative goodwill.................. (596) (596) (596)
Benefit of net operating loss carry-forwards....... -- -- (66)
Other, net......................................... (47) (271) (22)
------- ------ ------
(Benefit) provision for income taxes from
continuing operations........................... $(2,022) $3,217 $6,739
Distribution on preferred interest of subsidiary... (921) (903)
------- ------ ------
Net (benefit) provision for income taxes from
continuing operations........................... $(2,943) $2,314 $6,739
======= ====== ======

The tax effects of significant items comprising the Company's net deferred
tax liability as of December 31, 2000 and 1999 are as follows:

2000 1999
------- -------
(Thousands of
Dollars)

Deferred tax liabilities:
Difference between book and tax basis of property......... $12,550 $ 5,605
Waste-to-energy facility.................................. 17,079 17,598
Inventory costs........................................... 1,658 1,070
Undistributed earnings of equity investees................ 1,531 1,538
------- -------
$32,818 $25,811
------- -------
Deferred tax assets:
Allowance for doubtful receivables........................ 1,429 1,501
Accrued expenses and other items.......................... 10,888 11,285
Operating loss carry-forwards--domestic................... 9,017 2,499
Operating loss carry-forwards--foreign.................... 663 1,503
Tax credit carry-forwards................................. 2,502 686
------- -------
$24,499 $17,474
Less valuation allowance.................................. (4,106) (3,203)
------- -------
$20,393 $14,271
------- -------
Net deferred income tax liability........................ $12,425 $11,540
======= =======

The caption entitled "Revision of prior years' tax estimates," as shown in
the table above, includes amounts for the reversal of reserves which the
Company no longer believes are necessary, other changes in prior year tax
estimates and changes in valuation allowances with respect to deferred income
tax assets.

The Company has approximately $16.6 million of United States federal net
operating loss carry-forwards which will expire in 2020 if not utilized prior
to that time. The remainder of the Company's domestic and foreign net
operating loss carry-forwards primarily relate to certain U.S. operating
subsidiaries, including XXXXX, and the Company's Canadian operations,
respectively, and primarily can only be used to offset income from these
operations. The Company's Canadian subsidiaries have Canadian net operating
loss carry-forwards of approximately $1.8 million at December 31, 2000 that
expire in the years 2002 through 2007. XXXXX has state net operating loss
carry-forwards of $49.8 million at December 31, 2000 that expire in the years
2003 through 2019. The tax credit carry-forwards relate to United States
federal minimum tax credits of $1.0 million that have no expiration date,
general business credits of $77,000 that expire in 2020, and foreign tax
credit carryovers of $1.5 million that expire in the years 2002 through 2005.

The valuation allowance relates to domestic state and foreign net operating
loss carry-forwards of XXXXX and the Company's Canadian operations,
respectively, the tax benefits from which may not be realized. The valuation
allowance also relates to foreign tax credits from the Company's foreign
operations, the tax benefits from which may not be realized. The valuation
allowance increased $0.9 million during the year ended December 31, 2000, due
to uncertainties as to the Company's ability to timely utilize its available
foreign tax credits.

NOTE 14. LEASE OBLIGATIONS:

The Company has entered into noncancelable leases for manufacturing and data
processing equipment and real property with lease terms of up to ten years.
Future minimum lease payments as of December 31, 2000 are as follows:

(Thousands of Dollars)

2001............................................... $11,980
2002............................................... 11,145
2003............................................... 10,765
2004............................................... 10,015
2005............................................... 8,692
Later years........................................ 19,898
-------
Total minimum payments........................... $72,495
=======

Rental expense for 2000, 1999 and 1998 for operating leases was $13.3
million, $13.2 million and $5.1 million, respectively.

NOTE 15. RELATED PARTY TRANSACTIONS:

In connection with the Contico acquisition on January 8, 1999, Katy entered
into building leases with Newcastle. Newcastle is majority-owned by Xxxxxx X.
Xxxxxx, who was appointed to Katy's Board of Directors on January 8, 1999, and
who resigned as a director in September 2000. Also, several additional
properties utilized by Contico are leased directly from Xxxxxx X. Xxxxxx.
Rental expense for these properties approximates market rates. Related party
rental expense for the year ending December 31, 2000 was approximately $1.5
million.

The Company paid Newcastle $2.6 million of preferred dividends for the year
ended December 31, 2000 (see Note 10).

NOTE 16. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION:

The Company is a manufacturer and distributor of a variety of industrial and
consumer products, including sanitary maintenance supplies, coated abrasives,
stains, electrical and electronic components, and nonpowered hand tools.
Principal markets are in the United States, Canada, and Europe and include the
sanitary maintenance, restaurant supply, retail, electronic, automotive, and
computer markets. These activities are grouped into two industry segments:
Electrical/Electronics and Maintenance Products. During 2000, Katy had several
large customers in the mass merchant/discount/home improvement retail markets.
One customer, Wal Mart/Sam's Club, accounted for 13% of consolidated net sales
while two other customers approached 10% of net sales. A significant loss of
business at any of these retail outlets would have an adverse impact on the
Company's results. In 1998, Katy had one major customer in its
Electrical/Electronics segment that accounted for approximately $46.7 million
or 14% of the Company's consolidated annual sales. On November 4, 1998, the
Company announced that this major customer withdrew its commitment to purchase
electric corded products from Xxxxx near the end of 1998.

The table below and the narrative that follows, summarize the key factors in
the year-to-year changes in operating results.

Years Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
(Thousands of dollars)

Electronics Group
Net external sales...... $187,497 $204,180 $230,927
Net intercompany sales.. 64,793 59,992 32,103
Income from
operations[a].......... 8,055 8,303 14,839
Operating margin........ 4.3% 4.1% 6.4%
Identifiable assets..... 111,476 133,890 126,362
Depreciation and
amortization........... 2,800 2,557 1,652
Capital expenditures.... 1,709 3,434 7,348
Maintenance Products
Group
Net external sales...... $365,752 $361,761 $111,388
Net intercompany sales.. 9,062 11,141 6,389
Income from
operations[a].......... 10,298 29,458 8,401
Operating margin........ 2.8% 8.1% 7.5%
Identifiable assets..... 299,292 318,906 110,317
Depreciation and
amortization........... 20,638 17,065 3,779
Capital expenditures.... 11,732 16,936 2,725
Operations to be Disposed
Of
Net external sales...... $ 3,690 $ 3,900 $ 6,297
Net intercompany sales.. -- -- --
(Loss) from operations.. (880) (190) (3,262)
Operating (deficit)..... (23.8)% (4.9)% (7.3)%
Identifiable assets..... 20,638 17,903 17,680
Equity investment....... 6,927 6,988 7,034
Depreciation and
amortization........... 116 5 1,009
Capital expenditures.... 755 429 5,126
Discontinued Operations
Net external sales...... $ -- $ 10,025 $ 23,349
Net intercompany sales.. -- -- 146
Income (loss) from
operations............. -- (191) 1,663
Operating margin
(deficit).............. -- (1.9)% 7.1%
Identifiable assets..... -- -- 16,975
Depreciation and
amortization........... -- 454 631
Capital expenditures.... -- 80 547
Corporate
Corporate expenses[a]... $ 9,258 $ 9,990 $ 7,965
Identifiable assets..... 17,488 22,405 24,535
Depreciation and
amortization........... 44 91 91
Capital expenditures.... -- 187 175
Company
Net external sales[b]... $556,939 $579,866 $371,961
Net intercompany sales.. 73,855 71,133 38,638
Income from
operations[b].......... 8,215 27,390 13,676
Operating margin[b]..... 1.5% 4.7% 4.4%
Identifiable assets[b].. 446,724 493,104 295,869
Depreciation and
amortization[b]........ 23,598 20,172 7,162
Capital expenditures.... 14,196 21,066 15,921

--------
[a] Salaries and related costs for certain executive officers were included
in Maintenance Products and Electrical/Electronics in 1998, but have been
included in Corporate Expense in 2000 and 1999. These amounts were
approximately $1.3 million in 2000, $1.5 million in 1999 and $1.4 million
in 1998.
[b] Company balances include amounts from both "Discontinued Operations" and
"Operations to be Disposed Of" in the consolidated financial statements
for 2000, 1999, and 1998. The "Income (loss) from operations" for
"Discontinued Operations" has been recorded in the line item "(Loss) from
operations of discontinued businesses (net of tax)" on the 1999
Consolidated Statement of Operations.

The Company follows accounting principles generally accepted in the United
States in preparing its segment information. The following tables reconcile
the Company's total revenues, operating income and assets to the Company's
Consolidated Statements of Operations and Consolidated Balance Sheets.

2000 1999 1998
-------- -------- --------
(Thousands of Dollars)

Revenues
Total revenues for reportable segments...... $630,794 $650,999 $410,599
Elimination of inter-company revenues....... (73,855) (71,133) (38,638)
Revenues included in Equity in (income) loss
of operations to be disposed of............. (3,690) (3,900) (6,297)
Revenues included in discontinued
operations................................. -- (10,025) (23,349)
-------- -------- --------
Total consolidated revenues................. $553,249 $565,941 $342,315
======== ======== ========
Operating Income
Total operating income for reportable
segments................................... $ 8,215 $ 27,390 $ 13,676
Operating loss included in Equity in loss of
operations to be disposed of............... 880 190 462
Loss from impairment of assets.............. -- -- 2,800
Operating (income) loss included in
discontinued operations.................... -- 191 (1,663)
-------- -------- --------
Total consolidated operating income......... $ 9,095 $ 27,771 $ 15,275
======== ======== ========
Total Assets
Total assets for reportable segments........ $446,724 $493,104
Liabilities included in Net current and Net
noncurrent
assets of operations to be disposed of...... (1,057) (1,268)
-------- --------
Total consolidated assets.................... $445,667 $491,836
======== ========

Export sales of products, primarily to Canada, Mexico, Europe, and the Far
East, were $16.6 million, $17.9 million and $19.6 million, in 2000, 1999 and
1998, respectively.

The Company operates businesses in the United States and foreign countries.
The operations for 2000, 1999 and 1998 of businesses within major geographic
areas are summarized as follows:

United Canada/ Far East
States Mexico Europe & Other Consolidated
-------- ------- ------- -------- ------------
(Thousands of Dollars)

2000:
Sales to unaffiliated
customers..................... $464,491 $52,538 $31,285 $4,935 $553,249
======== ======= ======= ====== ========
Operating income............... $ 4,074 $ 3,262 $ 856 $ 903 $ 9,095
======== ======= ======= ====== ========
Identifiable assets............ $396,003 $24,908 $24,678 $ 78 $445,667
======== ======= ======= ====== ========
1999:
Sales to unaffiliated
customers..................... $478,105 $52,957 $31,002 $3,877 $565,941
======== ======= ======= ====== ========
Operating income............... $ 20,670 $ 3,881 $ 2,834 $ 386 $ 27,771
======== ======= ======= ====== ========
Identifiable assets............ $441,054 $29,055 $21,727 $ -- $491,836
======== ======= ======= ====== ========
1998:
Sales to unaffiliated
customers..................... $298,572 $35,876 $ 5,246 $2,621 $342,315
======== ======= ======= ====== ========
Operating income............... $ 12,539 $ 1,852 $ 626 $ 258 $ 15,275
======== ======= ======= ====== ========
Identifiable assets............ $261,309 $31,866 $ -- $ -- $293,175
======== ======= ======= ====== ========

Net sales for each geographic area include sales of products produced in
that area and sold to unaffiliated customers, as reported in the Consolidated
Statements of Operations.

NOTE 17. CONTINGENT LIABILITIES

In December 1996, Banco del Atlantico, a bank located in Mexico, filed a
lawsuit against Xxxxx, and certain past and then present officers and
directors and former owners of Xxxxx, alleging that the defendants
participated in a violation of the Racketeer Influenced and Corrupt
Organizations Act involving allegedly fraudulently obtained loans from Mexican
banks, including the plaintiff, and "money laundering" of the proceeds of the
illegal enterprise. All of the foregoing is alleged to have occurred prior to
the Company's purchase of Xxxxx. The plaintiff also alleges that it made loans
to an entity controlled by certain officers and directors based upon
fraudulent representations. The plaintiff seeks to hold Xxxxx liable for its
alleged damage under principles of respondeat superior and successor
liability. The plaintiff is claiming damages in excess of $24.0 million and is
requesting treble damages under the statutes. The defendants have filed a
motion, which has not been ruled on, to dismiss this action on jurisdictional
grounds. Because the litigation is still in preliminary stages, it is not
possible at this time for the Company to determine an outcome or reasonably
estimate the range of potential exposure. The Company may have recourse
against the former owner of Xxxxx and others for, among other things,
violations of covenants, representations and warranties under the purchase
agreement through which the Company acquired Xxxxx, and under state, federal
and common law. In addition, the purchase price under the purchase agreement
may be subject to adjustment as a result of the claims made by Banco del
Atlantico. The extent or limit of any such recourse cannot be predicted at
this time.

The most significant environmental matters in which the Company is currently
involved are as follows:

1. In 1993, the United States Environmental Protection Agency ("USEPA")
initiated a Unilateral Administrative Order Proceeding under Section 7003
of the Resource Conservation and Recovery Act

("RCRA") against X.X. Xxxxx and Katy. The proceeding requires certain
actions at the X.X. Xxxxx site and certain off-site areas, as well as
development and implementation of additional cleanup activities to mitigate
off-site releases. In December 1995, X.X. Xxxxx, Katy and USEPA agreed to
resolve the proceeding through an Administrative Order on Consent under
Section 7003 of RCRA. Pursuant to the Order, X.X. Xxxxx is currently
implementing a cleanup to mitigate off-site releases.

2. During 1995, the Company reached agreement with the Oregon Department
of Environmental Quality ("ODEQ") as to a cleanup plan for PCB
contamination at the Medford, Oregon facility of the former Standard
Transformer division of American Gage. The agreement required the Company
to pay $1.3 million of the first $2.0 million in cleanup costs. Those funds
were expended in 1998. Another former occupant of the site, Balteau
Standard, Inc. was responsible for the remaining $0.7 million of the first
$2.0 million and the next $0.5 million in cleanup costs above the $2.0
million. The parties are now sharing equally in cleanup costs. Katy
believes the cleanup plan has been successful and has requested that the
ODEQ inspect and approve the remediation work. Katy has received such
approval with respect to a portion of the cleanup plan. Further monitoring
of groundwater and testing and cleanup of adjacent property may be required
before approval can be obtained with respect to the remainder of the plan.
Pending such approval, the liability of Katy and its subsidiary cannot be
determined at this time.

NOTE 18: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

Quarterly results of operations have been affected by unusual or
infrequently occurring items as discussed below.

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
-------- -------- -------- --------
(Thousands of Dollars, Except Per
Share Data)

2000
Net sales.............................. $134,008 $134,485 $144,973 $139,783
======== ======== ======== ========
Gross profit........................... $ 41,771 $ 38,288 $ 38,808 $ 35,067
======== ======== ======== ========
Income (loss) from continuing
operations............................ $ 645 $ (1,282) $ (2,546) $ (2,275)
Discontinued operations................ -- -- -- --
-------- -------- -------- --------
Net income (loss)...................... $ 645 $ (1,282) $ (2,546) $ (2,275)
======== ======== ======== ========
Earnings (loss) per share--Basic
Continuing operations................. $ 0.08 $ (0.15) $ (0.30) $ (0.28)
Discontinued operations............... -- -- -- --
-------- -------- -------- --------
Net income............................ $ 0.08 $ (0.15) $ (0.30) $ (0.28)
======== ======== ======== ========
Earnings (loss) per share--Diluted
Continuing operations................. $ 0.07 $ (0.15) $ (0.30) $ (0.28)
Discontinued operations............... -- -- -- --
-------- -------- -------- --------
Net income (loss)..................... $ 0.07 $ (0.15) $ ( 0.30) $ (0.28)
======== ======== ======== ========

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
1999 -------- -------- -------- --------

Net sales.............................. $126,429 $129,394 $145,548 $164,570
======== ======== ======== ========
Gross profit........................... $ 40,144 $ 41,300 $ 46,570 $ 46,545
======== ======== ======== ========
Income from continuing operations...... $ 1,490 $ 198 $ 4,308 $ 6,159
Discontinued operations................ -- -- -- (1,700)
-------- -------- -------- --------
Net income............................. $ 1,490 $ 198 $ 4,308 $ 4,459
======== ======== ======== ========
Earnings per share--Basic
Continuing operations................. $ 0.18 $ 0.02 $ 0.52 $ 0.73
Discontinued operations............... -- -- -- (0.20)
-------- -------- -------- --------
Net income............................ $ 0.18 $ 0.02 $ 0.52 $ 0.53
======== ======== ======== ========
Earnings per share--Diluted
Continuing operations................. $ 0.18 $ 0.02 $ 0.48 $ 0.66
Discontinued operations............... -- -- -- (0.17)
-------- -------- -------- --------
Net income............................ $ 0.18 $ 0.02 $ 0.48 $ 0.49
======== ======== ======== ========

During the fourth quarter 2000, the Company recorded a pretax charge of $1.1
million in unusual items. These items include, $0.5 million of restructuring
charges (see Note 19), a ($0.3) million reduction in the Contico LIFO
inventory reserve, the receipt of ($0.5) million of previously reserved note
receivables and inventory impairments of $0.5 million and $0.9 million at GC
Waldom and Xxxxx respectively.

During the third quarter 2000, the Company recorded a pretax charge of $3.9
million in unusual items. These items include $2.2 million in restructuring
charges primarily at Corporate and its Maintenance segment, (see Note 19), an
$0.8 million product recall at Xxxxx and a $0.9 million increase to its LIFO
inventory reserve at Contico.

During the fourth quarter of 1999, the Company recorded a pre-tax gain of
$0.8 million from the collection of previously reserved notes, a pre-tax
charge of $1.0 million to increase the LIFO inventory reserve and a pre-tax
charge of $0.6 million relating to the potential sale of
Electrical/Electronics segment and other restructuring. During the second
quarter, a $0.6 million restructuring charge was recorded relating to the
elimination of 22 management positions in the Electrical/Electronics Segment
(see Note 19). In addition, the Company reversed $2.8 million of income tax
liabilities in the fourth quarter of 1999 as a result of the closure for audit
purposes of certain tax years (see Note 13).

NOTE 19. RESTRUCTURING CHARGE

The workforce reduction included severance and related costs for certain
employees. Total severance and related costs were $2.5 million pre-tax, which
are included as selling, general and administrative expenses in the
consolidated statements of operations. Approximately 56% of these costs were
paid through the end of the fourth quarter of 2000.

During the second quarter of 1999, the Company undertook a restructuring of
the Electrical/Electronics businesses, which included severance and related
costs for certain employees. Approximately 22 employees accepted severance
packages. Total severance and related costs were $0.6 million, which are
included in selling, general and administrative costs on the Consolidated
Statement of Operations. All of these costs were paid through the end of the
fourth quarter of 1999.

(Thousands of Dollars)

2001.............................................. 584
2002.............................................. 180
2003.............................................. 180
2004.............................................. 55
2005.............................................. 55
Thereafter........................................ 22
-----
Total payments.................................. 1,076
=====

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

Not applicable

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the directors of Katy is incorporated herein by
reference to the information set forth under the section entitled "Election of
Directors" in the 2001 Proxy Statement.

Information regarding executive officers of Katy is incorporated herein by
reference to the information set forth under the section entitled "Information
Concerning Directors and Executive Officers" in the 2001 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding compensation of executive officers is incorporated
herein by reference to the information set forth under the section entitled
"Executive Compensation" in the 2001 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding beneficial ownership of stock by certain beneficial
owners and by management of Katy is incorporated by reference to the
information set forth under the section "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the 2001 Proxy
Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions with
management is incorporated herein by reference to the information set forth
under the section entitled "Executive Compensation" in the 2001 Proxy
Statement.

PART IV

ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K

(a) 1. Financial Statement Schedules

The financial statement schedule filed with this report is listed on the
"Index to Financial Statement Schedules."

2. Exhibits

The exhibits filed with this report are listed on the "Exhibit Index."

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Dated: March 30, 2001 Katy Industries, Inc.
Registrant

/s/ Xxxxxx X. Xxxxxxx
_____________________________________
Xxxxxx X. Xxxxxxx
President and Chief Executive
Officer

POWER OF ATTORNEY

Each person signing below appoints Xxxxxx X. Xxxxxxx and Xxxxxxx X.
Xxxxxxxxx, or either of them, his attorneys-in-fact for him in any and all
capacities, with power of substitution, to sign any amendments to this report,
and to file the same with any exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of this 17th day of March, 2000.

Signature Title
--------- -----

/s/ Xxxxx Xxxxxx Chairman of the Board and Director
___________________________________________
Xxxxx Xxxxxx

/s/ Xxxxxx X. Xxxxxxx President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Xxxxxx X. Xxxxxxx

/s/ Xxxxxxx X. Xxxxxxxxx Vice President, Finance and Chief Financial
___________________________________________ Officer (Principal Financial and
Xxxxxxx X. Xxxxxxxxx Accounting Officer)

/s/ Xxxxxx X. Xxxxxx Executive Vice President,
___________________________________________ Electrical/Electronics, General Counsel
Xxxxxx X. Xxxxxx and Director

/s/ Xxxxxxx X. Xxxxxxx Director
___________________________________________
Xxxxxxx X. Xxxxxxx

/s/ Xxxxxx X. Xxxxxxx Director
___________________________________________
Xxxxxx X. Xxxxxxx

Signature Title
--------- -----

/s/ Xxxxxxx X. Xxxxxxx, Xx. Director
___________________________________________
Xxxxxxx X. Xxxxxxx, Xx.

/s/ Xxxxxxx X. Xxxxxxx Director
___________________________________________
Xxxxxxx X. Xxxxxxx

/s/ Xxxxx X. Xxxxxxxx Director
___________________________________________
Xxxxx X. Xxxxxxxx

INDEX TO FINANCIAL STATEMENT SCHEDULES

Page
----

Independent Accountants' Reports on Supplemental Schedule.................. 61
Schedule II--Valuation and Qualifying Accounts............................. 62
Index of Exhibits.......................................................... 63

All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the Consolidated
Financial Statements of Katy or the Notes thereto.

INDEPENDENT ACCOUNTANTS' REPORT ON SUPPLEMENTAL SCHEDULE

TO KATY INDUSTRIES, INC.:

We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Katy Industries, Inc. as of December
31, 2000 and 1999, and for the three years in the period then ended included
in this Form 10-K and have issued our report thereon dated March 30, 2001. Our
audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental schedule
listed in Item 14 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.

XXXXXX XXXXXXXX LLP

Denver, Colorado
March 30, 2001

KATY INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2000, 1999 and 1998
(Thousands of Dollars)

Balance at Additions Write-offs Balance
Beginning Charged to to the Other at End
Description of Year Expense Reserve Adjustments of Year
----------- ---------- ---------- ---------- ----------- -------

Year ended December 31,
2000:
Reserve for doubtful
accounts:
Trade receivables...... $1,120 $847 $(543) $ 54 $1,478
Current notes and other
accounts receivable... 0 -- -- -- 0
Long-term notes
receivable............ 1,000 -- -- -- 1,000
------ ---- ----- ------- ------
$2,120 $847 $(543) $ 54 $2,478
====== ==== ===== ======= ======
Year ended December 31,
1999:
Reserve for doubtful
accounts:
Trade receivables...... $ 963 $463 $(942) $ 636[a] $1,120
Current notes and other
accounts receivable... 198 -- -- (198)[a] 0
Long-term notes
receivable............ 2,452 -- -- (1,452)[a] 1,000
------ ---- ----- ------- ------
$3,613 $463 $(942) $(1,014) $2,120
====== ==== ===== ======= ======
Year ended December 31,
1998:
Reserve for doubtful
accounts:
Trade receivables...... $ 857 $382 $(106) $ (170)[a] $ 963
Current notes and other
accounts receivable... 410 -- -- 48[b] 198
(260)[a]
Long-term notes
receivable............ 2,500 -- -- (48)[b] 2,452
------ ---- ----- ------- ------
$3,767 $382 $(106) $ (430) $3,613
====== ==== ===== ======= ======

--------
[a] Doubtful accounts and credit memos written-off against the reserve and/or
collections of previously written-off accounts.
[b] Amount reclassed from "Long-term notes receivable" to "Current notes and
other accounts receivable".
[c] In accordance with the divestiture plan, beginning balances for 1997
reflect the exclusion of the reserves for discontinued operations.
[d] Amount reclassed from the "Trade receivables" to "Current notes and other
accounts receivable".
[e] Amount included in "Net current assets of other operations to be disposed
of" line item in the current year and in the "Accounts receivable, trade"
line item in the prior year.

KATY INDUSTRIES, INC.

INDEX OF EXHIBITS
December 31, 2000

Exhibit
Number Exhibit Title Page
------- ------------- ----

3.1 Certificate of Incorporation (incorporated by reference to *
Katy's Form 10-K for year ended December 31, 1987, filed March
29, 1988).

3.2 By-Laws (incorporated by reference to Katy's Form 8-K filed *
February 15, 1996).

4.1 Rights Agreement dated as of January 13, 1995 between Katy and *
Xxxxxx Trust and Savings Bank as Rights Agent (incorporated by
reference to Katy's Form 8-K filed January 24, 1995).

4.1a Amendment dated as of October 31, 1996 to the Rights Agreement *
dated as of January 13, 1995 between Katy and Xxxxxx Trust and
Savings Bank as Rights Agent (incorporated by reference to
Katy's Form 8-K filed November 8, 1996).

4.1b Amendment dated as of January 8, 1999 to the Rights Agreement *
dated as of January 13, 1995 between Katy and LaSalle National
Bank as Rights Agent (incorporated by reference to Katy's Form
8-K filed January 15, 1999).

10.1 Katy's Industries, Inc. 1994 Key Employee and Director Stock *
Purchase Plan (incorporated by reference to Katy's Registration
Statement on Form S-8 filed September 28, 1994, Reg. No.
33-55647).

10.2 Katy Industries, Inc. Long-Term Incentive Plan (incorporated by *
reference to Katy's Registration Statement on Form S-8 filed
June 21, 1995, Reg. No. 33-60443).

10.3 Katy Industries, Inc. Non-Employee Director Stock Option Plan *
(incorporated by reference to Katy's Registration Statement on
Form S-8 filed June 21, 1995, Reg. No. 33-60449).

10.4 Katy Industries, Inc. Supplemental Retirement and Deferral Plan *
effective as of June 1, 1995.

10.5 Katy Industries, Inc. Directors' Deferred Compensation Plan *
effective as of June 1, 1995.

10.6 Katy Industries, Inc. Form of Compensation and Benefits *
Assurance Agreement (covering Tier I employees: Xxxx X. Xxxxx,
Xx., Xxxxx X. Xxxxxxxx, Xxxxxx X. Xxxxxx and Xxxxxx X.
Xxxxxxx).

10.7 Katy Industries, Inc. Form of Compensation and Benefits *
Assurance Agreement (covering Tier II employees: Xxxxxxx X.
Xxxxxxx, Xxxxx X. More and Xxxxxxx X. Xxxxxxxxx).

10.8 Amended and Restated Credit Agreement dated as of December 11, *
1998, filed as Exhibit 4 in 1998 10-K.

10.4 First Amendment to Amended and Restated Credit Agreement dated *
as of November 18, 1999, filed as Exhibit 4.1 to Form 10-Q for
the period ended September 30, 2000.

10.10 Second Amendment to Amended and Restated Credit Agreement dated *
as of March 22, 2000, filed as Exhibit 4.2 to Form 10-Q for the
period ended September 30, 2000.

10.11 Waiver and Third Amendment to Amended and Restated Credit *
Agreement dated as of October 27, 2000, filed as Exhibit 4.3 to
Form 10-Q for the period ended September 30, 2000.

21 Subsidiaries of registrant *

23 Independent Auditors' Consent *

--------
* Indicates incorporated by reference.

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Table of Contents

FORM 10-K

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