KATY INDUSTRIES INC - 10-K Annual Report

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Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended: December 31, 1993 Commission file No. 1-5558

Katy Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1277589
(State of Incorporation) (IRS Employer Identification Number)
853 Dundee Avenue, Elgin, Illinois 60120
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (312) 379-1121

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

Title of each class Name of each exchange on which registered

Common Stock, $1.00 par value New York Stock Exchange

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

Indicate by check mark 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 mark 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, computed by reference to the closing
price in the New York Stock Exchange consolidated reporting system on
March 23, 1994 was approximately $109,000,000. On that date 9,017,387
shares of Common Stock, $1.00 par value, were outstanding, the only
class of the registrant's common stock.

Documents Incorporated By Reference

1. Syratech Corporation's Annual Report on Form 10-K filed with the
United States Securities and Exchange Commission - Part II
2. Proxy Statement for the 1994 Annual Meeting of Stockholders of
Katy Industries, Inc. - Part III

Exhibit index appears on page 71. Report consists of 77 pages

TABLE OF CONTENTS

PART I
Page

Item 1. Business

(a) General Development of Business...............................3
(b) Financial Information About Industry Segments.................3
(c) Narrative Description of Business.............................3
Industrial Machinery Group.................................3
Industrial Components Group................................4
Consumer Products Group....................................4
Investments................................................4
Distribution...............................................5
Raw Materials..............................................6
Employees..................................................6
Environmental Policies and Controls........................6
Licenses, Patents and Trademarks...........................6
Research and Development Costs.............................6
(d) Financial Information About Foreign and Domestic Operations
and Export Sales...........................................6
Item 2. Properties....................................................7
Item 3. Legal Proceedings.............................................8
Item 4. Submission of Matters to a Vote of Security Holders..........18

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................18
Item 6. Selected Financial Data......................................19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................20
Item 8. Financial Statements and Supplementary Data................. 31
Item 9. Changes in and Disagreements with Independent Auditors
on Accounting and Financial Disclosure................... 31

PART III

Item 10. Directors and Executive Officers of the Registrant.......... 32
Item 11. Executive Compensation...................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................... 32
Item 13. Certain Relationships and Related Transactions.............. 32

PART IV

Item 14. Financial Statements, Schedules, Exhibits and Reports on
Form 8-K................................................. 32
Signatures............................................................. 74

PART I.

Item 1. BUSINESS

(a) General Development of Business

Katy Industries, Inc. ("Katy" or the "Company") was organized as a
Delaware corporation in 1967, and carries on business through three
principal operating groups: Industrial Machinery, Industrial Components
and Consumer Products. Katy also has a substantial investment portfolio.
Each Katy subsidiary has its own management and the head of each
subsidiary is responsible for the business and affairs of that company.
Nevertheless, each enterprise operates within a framework of broad
policies and corporate goals established by Katy's corporate staff, which
is responsible for overall planning, financial management, acquisitions,
dispositions and other related administrative and corporate matters.

For information concerning dispositions and acquisitions of certain
operating units reference is made to Management's Discussion and Analysis
of Financial Condition and Results of Operations in Item 7 and
Consolidated Financial Statements included in Item 8 of this report.

Management is in the process of reviewing each of its businesses to
determine the Company's focus for the future. Upon the conclusion of such
review, management may determine to sell certain companies and may augment
its remaining businesses with acquisitions. Such review has yet to be
completed and there have been no decisions regarding the disposition of
any companies. Should such sales occur, management anticipates that funds
from these sales would be used for general corporate purposes. Any
acquisitions would be funded through current cash balances and available
lines of credit.

(b) Financial Information About Industry Segments

Information required hereunder is incorporated by reference from Note
11 of the Notes to Consolidated Financial Statements.

(c) Narrative Description of Business

Set forth below is information about Katy's operating groups,
investments, and about Katy's business in general:

Industrial Machinery Group

This group's principal business is the manufacture and sale of
production machinery for the shoe-making industry and die-cutting
machinery. Other companies in this group manufacture and sell production
machinery for the food packaging, food processing and woodworking
industries, the manufacture of presses used in various industries and the
operation of a waste-to-energy facility. These Katy companies have a
number of competitors, some of which are larger and have greater financial
resources. Through this group Katy is able to service most of the
packaging requirements of the cookie and cracker industry. The companies
in this group do not experience a seasonal sales trend. The sale and
manufacture of production machinery for the shoe-making industry and die-
cutting machinery has accounted for 20%, 21% and 29% of Katy's net sales
in 1993, 1992 and 1991, respectively.

Net sales for these companies for the years ended December 31, 1993,
1992 and 1991 were $61,363,000, $67,383,000 and $77,317,000, respectively,
and the aggregate sales backlogs at December 31, 1993 and 1992 were
$15,889,000 and $16,024,000, respectively. The substantial decrease in
sales backlog from $26,944,000 in 1991 is primarily due to the lower
volume of sales of shoe-making machinery in Eastern Europe, a result of
the economic uncertainty in that area.

Industrial Components Group

In 1993 Katy sold its pump manufacturing business which has been this
group's principal business in past years. Other companies in this group
manufacture and sell components such as specialty metals, testing and
measuring instruments for the electrical and electronic markets and the
refitting of machinery for the oil, gas and petrochemical industries.
These Katy companies have a number of competitors, some of which are
larger and have greater financial resources. The companies in this group
do not experience a seasonal sales trend. Net sales for these companies
for the years ended December 31, 1993, 1992 and 1991 were $50,853,000,
$57,801,000 and $58,824,000, respectively, and the aggregate sales
backlogs at December 31, 1993 and 1992 were $8,377,000 and $10,204,000,
respectively. The reduction in sales and backlog in 1993 is caused
primarily by the sale of Katy's pump manufacturing business during the
year.

Consumer Products Group

The principal companies in the Consumer Products Group manufacture,
package and sell sanitary maintenance supplies and air filters and
electronic components. Another company manufactures paints and stains and
experiences a seasonal sales trend, which does not materially effect
Katy's financial position and results from operations. These Katy
companies have a number of competitors, some of which are larger and have
greater financial resources. Net sales for these companies for the years
ended December 31, 1993, 1992 and 1991 were $56,507,000, $51,893,000 and
$45,353,000, respectively, and the aggregate sales backlogs at December
31, 1993 and 1992 were $2,055,000 and $2,203,000, respectively.

Investments

Katy has investments, at equity, in three companies and investments,
at cost, in four other companies. The equity investees are engaged in:
the manufacture, importation and sale of tabletop and giftware products
and the manufacture and sale of casual furniture and accessories;
harvesting shrimp off the coast of South America and processing shrimp and
other seafoods for domestic and foreign markets; and the operation of two
cold storage facilities in the United States. The primary investment
carried at cost is engaged in an oil exploration joint venture in
Indonesia. During 1993 an investment in the operation of cold storage
facilities in Europe was sold. These companies have a number of
competitors, some of which are larger and have greater financial
resources. For additional information related to investments, reference
is made to Notes 4 and 5 of the Notes to Consolidated Financial Statements
in this report, which information is incorporated herein by reference.

Distribution

Katy companies extensively market their products domestically and
internationally, primarily through manufacturer's representatives. No
single agent represents more than one Katy operation. In addition, where
concentration of marketing permits, employee salesmen and staff sales
organizations are utilized.

Raw Materials

Katy 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 dislocations resulting from
possible shortages.

Employees

Katy employed approximately 1,506 persons as of December 31, 1993, 24
of whom were employed at Katy's home offices and approximately 206 of whom
were members of various unions. Katy's labor relations are generally
satisfactory and there have been no strikes in recent years which have
materially affected its operations. All regular employees are covered by
varying types of group health, accident and life insurance plans.

Environmental Policies and Controls

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 1994,
in accordance with terms agreed upon with the United States Environmental
Protection Agency. (See Part I, Item 3 (4) - Legal Proceedings)

Licenses, Patents and Trademarks

In 1987 Katy purchased the technology to manufacture waste-to-energy
facilities in North America from Seghers Engineering S.A. of Brussels,
Belgium. Katy believes that all other patents and licenses held by its
subsidiaries are not a significant competitive factor in the conduct of
its operations. The success of Katy's products has not depended on patent
and license protection, but rather on the quality of Katy's products,
proprietary technology, contract performance and the technical competence
and creative ability of Katy's personnel to develop and introduce saleable
products.

Research and Development Costs

Research and development costs are expensed as incurred and are not
material to Katy's operations.

(d) Financial Information About Foreign and Domestic Operations and
Export Sales

Information required hereunder is incorporated by reference from Note
11 of the Notes to Consolidated Financial Statements.
Item 2. PROPERTIES

As of December 31, 1993, Katy's total building floor area owned or
leased was 2,057,000 square feet, of which 1,314,000 square feet were
owned and 743,000 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 a
description of the location of the principal facilities.

Industry Segment Owned Leased Total
(in thousands of square feet)

Industrial Machinery -- primarily plant and
office facilities with principal facilities
located in Savannah, Georgia; Chicago, Illinois;
Wabash, Indiana; Danvers, Massachusetts;
York, Pennsylvania; Sandy, Utah;
Bischwiller, France; and Winzeln, Germany...... 526 599 1,125

Industrial Components -- primarily plant and
office facilities with principal facilities
located in Cary and Elgin, Illinois;
McPherson, Kansas; Lancaster, Pennsylvania;
Pampa, Texas; London, Ontario, Canada;
and Wadebridge, England,
United Kingdom................................ 289 32 321

Consumer Products -- primarily plant and
office facilities with principal facilities
located in Chicago, Illinois, Chico, California;
Wrens, Georgia; Pineville, North Carolina;
and York, South Carolina...................... 361 108 469

Corporate -- office facilities in Elgin, Illinois
and rental properties in Elk Grove Village,
Illinois and Elkhart, Indiana................. 138 4 142

1,314 743 2,057

All properties used in operations are owned or leased and are
suitable and adequate for Katy's operations. It is estimated that
approximately 94% of these properties are being utilized and are fully
productive. Properties not sold with the assets of companies sold are
being rented and amounted to 83,000 square feet at December 31, 1993.
These properties are included with corporate properties in the above
table. For information related to mortgages and leases on properties,
reference is made to Notes 6 and 10 of the Notes to Consolidated Financial
Statements in this report.
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. In Re Katy Industries, Inc. Shareholders Litigation, Civil Action No.
12612 (Chancery Court, New Castle County, Delaware); filed November 13,
1992.

Between June 29, 1992 and September 4, 1992, a total of nine
purported class action complaints were filed in the Court of Chancery of
the State of Delaware in and for New Castle County by purported
stockholders of Katy against various directors of Katy and, in some cases,
Katy challenging a June 1992 proposal by the family of Wallace E. Carroll,
former chairman of Katy, the holders in the aggregate of a majority of
Katy's outstanding common stock, to acquire the minority interest in the
Company through a merger with a family-owned company. The director
defendants include, among others, those members of the Carroll family who
serve as directors of Katy. These actions were subsequently consolidated
with the foregoing caption (the "Consolidated Complaint").

The Consolidated Complaint contains two separate counts. In Count I,
the plaintiffs allege, inter alia, that the Carroll family defendants,
aided by the other individual defendants, are engaged in an unlawful plan
to take Katy private in an allegedly unfair transaction in violation of
their fiduciary duties to the other stockholders of Katy. In connection
with Count I, the plaintiffs sought an injunction against the proposed
merger and damages if the merger were consummated, among other relief. In
Count II, a derivative count on behalf of Katy, the plaintiffs allege that
a 1988 assignment by Katy of a right to receive a percentage of revenues
from an oil and gas field in Indonesia to certain entities owned or
controlled by the Carroll family was without consideration and constituted
an illegal waste of Katy's assets. In connection with Count II, the
plaintiffs seek a rescission of such assignment and damages, among other
things.

On August 3, 1993, the parties to this action filed a Stipulation and
Agreement of Compromise, Settlement and Release, along with associated
documents, pursuant to which this action would have been settled.
Numerous objections to this settlement were filed by other alleged
stockholders of the Company. One objector to the settlement has sought an
award of attorneys' fees in the amount of $300,000 and an award of
expenses of $16,359.95 in connection with its objection to the settlement
and actions claimed to have been taken by the defendants in response to
that objection. On November 18, 1993, a hearing on the fairness of the
settlement was held and the court took the matter under advisement.

On December 2, 1993, the Carroll family entity that was party to the
merger agreement with the Company exercised its right to terminate the
merger agreement and advised the Court that this action was moot.

On February 24, 1994, the plaintiffs moved for leave to file a second
amended complaint in this action. The proposed complaint alleges that the
Carroll family defendants have breached their fiduciary duties to the
Company's stockholders by, among other things, (i) acquiring shares of the
Company's common stock in the open market in an alleged attempt to prevent
Pensler Capital Partner, I.L.P. from proceeding with its $28 per share
proposal to acquire the Company (discussed below), (ii) refusing to sell
their interest in the Company pursuant to the transaction proposed by
Pensler and announcing their intent to vote against the Pensler proposal
in an attempt to defeat it, and (iii) refusing in their capacities as Katy
directors to negotiate with Pensler or to agree to issue to Pensler an
option, discussed below, that would have diluted the family's interest in
the Company. The remaining director defendants are alleged to have
breached their fiduciary duties by allegedly advancing the interests of
the Carroll family and failing to agree to grant to Pensler the dilutive
option discussed below. The proposed complaint also makes the allegations
described above with respect to the transfer of oil and gas interests
discussed above. The proposed complaint seeks certification as a class
action, an injunction against actions designed to further entrench the
Carroll family's control of the Company, an order compelling the
defendants to take action to maximize stockholder value with respect to
any third party offers that are made for the Company, and damages. The
Company intends to deny, and it understands that the other defendants
intend to deny, all allegations of wrongdoing in the complaint. The
Company intends, and understands that the other defendants intend, to
defend the action vigorously.

Katy's liability, if any, with respect to this action cannot be
determined at this time.

2. Mendel, et. al. v. Carroll, et. al., Civil Action No. 13306
(Chancery Court, New Castle County, Delaware); filed December 22, 1993.

On December 22, 1993, a purported stockholder of the Company filed an
alleged class action complaint against the Company and its Board of
Directors in the Delaware Court of Chancery in and for New Castle County.
The complaint raises three counts. Count I alleges, among other things,
that the Company's Board of Directors has breached its fiduciary duties by
failing to maximize the value of the shares held by the Company's minority
shareholders, in connection with the Carroll family's June 1992 proposal
to acquire the minority interest in the Company, through the Board's
failure to dilute the Carroll family's interest to below a majority of the
outstanding shares. Count II alleges that the Carroll family has breached
its fiduciary duties to the minority stockholders of the Company by (i)
announcing that the Carroll family's interest in the Company was not for
sale and (ii) enforcing an agreement among Carroll family members that
required family members to offer their shares in the Company to other
family members before selling them to a third party. Count III challenges
the same assignment of certain oil and gas interests by the Company to
certain entities owned or controlled by the Carroll family described in
matter 1 above. The complaint seeks, among other things, (i) an order
enjoining defendants from refusing to maximize the value of the Company's
stock and damages in connection therewith, (ii) an order enjoining the
Carroll family from enforcing its agreement among family members described
above and from otherwise taking actions designed to reduce the demand for
the Company by other bidders, and (iii) an order rescinding the challenged
assignment of oil and gas interests. The Company denies, and understands
that the other defendants deny, the allegations of wrongdoing alleged in
the complaint. The Company intends, and understands that the other
defendants intend, to defend the action vigorously. This action was
consolidated with the action brought by Pensler Capital Partners, I.L.P.,
discussed in matter 3 below, for purposes of discovery and the preliminary
injunction motion discussed below.

Katy's liability, if any, with respect to this action cannot be
determined at this time.

3. Pensler Capital Partners, I.L.P., et. al. v. Katy Industries, Inc.,
et. al., Civil Action No. 13386 (Chancery Court, New Castle County,
Delaware); filed February 18, 1994.

On February 18, 1994, a purported derivative action was filed in the
Delaware Court of Chancery by Pensler Capital Partners, I.L.P. and others
("Pensler") against the Company and all members of the Company's Board of
Directors (the "Board"). The complaint alleges, among other things, that
the directors of the Company have breached their fiduciary duties to the
Company's stockholders through their alleged refusal to negotiate in good
faith with Pensler in connection with its proposal to acquire the Company
in a merger transaction in which holders of the Company's outstanding
common stock were to have received $28 per share in cash. The complaint
states that the Board's actions in this regard and others have been
dominated by the Carroll family, which holds, in the aggregate, a majority
of the Company's outstanding common stock. The complaint states that, for
a substantial period of time, the Board has engaged in a course of conduct
which has been intended to allow the Carroll family to acquire control of
the Company in one or more transactions that have not afforded the
minority stockholders of the Company a control premium for their shares in
the Company. The complaint seeks, among other things, (i) a declaration
that the Board has breached its fiduciary duties in connection with
Pensler's merger proposal, (ii) an order requiring the Board to negotiate
with Pensler in good faith, (iii) an order requiring the Board to issue to
Pensler an option to purchase 1.8 million shares of the Company's common
stock, which, when exercised, would reduce the holdings of the Carroll
family to less than a majority of the outstanding shares, (iv) an order
requiring the Board to issue to Pensler an option to acquire 582,000
shares of the Company's common stock that were allegedly improperly
acquired by the Company in June and September, 1991, and (v) an order
enjoining the payment by the Company of an extraordinary dividend and from
taking any other extraordinary action until such time as the effects of
the defendants' alleged unlawful actions have been dissipated. The
Company intends to, and understands that the defendant directors intend
to, deny all allegations of wrongdoing alleged in the complaint and to
vigorously defend the action. On March 17, 1994, the Court of Chancery
heard Pensler's motion for a mandatory preliminary injunction and took the
matter under advisement.

Katy's liability, if any, with respect ot this action cannot be
determined at this time.

4. Environmental Claims

(1) United States vs. Alvin Laskin, American Gage & Machine Company,
et al., Case No. C84-2035 (U. S. District Court, Northern
District of Ohio); filed November 21, 1984.

(2) United States vs. Midwest Solvent Recovery, Inc., et al. and
(Third Party Action) American Can Company et al. vs.
Accutronics, et al., Case No. 79-556 (U.S. District Court,
Northern District of Indiana). Third Party Complaint filed
January 17, 1985 (Size Control Company, a former division of a
subsidiary of Katy, is a third party defendant).

(3) Notice of Potential Liability, issued by the United States
Environmental Protection Agency to Size Control Company on March
9, 1988 concerning two separate sites, Ninth Avenue Dump and
U.S. Scrap, and subsequent Order issued on December 12, 1988
pursuant to Section 106 of the Comprehensive Environmental
Response Compensation and Liability Act concerning one of the
sites.

(4) United States vs. Harold Snyder, American Gage & Machine
Company, et al., Case No. 88-2376, (U.S. District Court,
Western District of Pennsylvania, Pittsburgh Division); filed
October 26, 1988.

(5) United States vs. Custom Leather Services, Inc., et al., Case
No. 91-3338 (U.S. District Court, Eastern District of
Pennsylvania); filed May 23, 1991.

(6) United States vs. W.J. Smith Wood Preserving Co., Civil No.
S-87-193 CA (U.S. District Court, Eastern District of Texas,
Sherman Division); and Texas Water Commission Administrative
Enforcement Action.

(7) Notice of Potential Liability, issued by United States
Environmental Protection Agency to LaBour Pump Company, a former
division of American Gage & Machine Company, a Katy subsidiary,
concerning Himco Dump site in Elkhart, Indiana.

(8) Notice of Potential Liability, issued by United States
Environmental Protection Agency to Katy concerning Double Eagle
Refining site in Oklahoma City, Oklahoma.

(9) Notice of Potential Liability, issued by United States
Environmental Protection Agency to Katy concerning
Galaxy/Spectron Refining site in Elkton, Maryland.

(10) Notice of Claim - Medford, Oregon.

(11) Demand for Indemnification - Northampton, Massachusetts.

(12) Demand for Indemnification - Southington, Connecticut.

(13) Notice of Potential Liability, issued by United States
Environmental Protection Agency to Katy concerning Old
Southington Landfill Site in Southington, Connecticut.

(14) Notice of Potential Liability, issued by Kansas Department of
Health and Environment to Panhandle Industrial Company, Inc.
concerning municipal landfill in McPherson, Kansas.

(15) Missouri Pacific Railroad Company v. Katy Industries, Inc.,
(United States District Court, Northern District of Illinois,
Eastern Division); filed August 6, 1993.

(16) Demand for Indemnification - Londonderry, New Hampshire.

(17) Request for De Minimus Buy-Out - Industrial Solvents Chemical
Company Site, Newberry Township, Pennsylvania.

(18) Request that Katy join Potentially Responsible Party Group -
Fuels and Chemicals Superfund Site, Coaling, Alabama.

In matters (1), (2), (3), (4), (5), (7), (8), (9), (12) and (13)
above, the United States is alleging, under the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA" or
"Superfund"), that various generators and/or transporters of hazardous
wastes are responsible for the clean-up of certain sites where there have
been releases or threatened releases of hazardous substances into the
environment. One or more Katy subsidiaries, or former subsidiaries, has
been identified as a potentially responsible party ("PRP") in these
matters. Under the federal Superfund statute, parties are held to be
jointly and severally liable, thus subjecting them to potential individual
liability for the entire cost of clean-up at the site. These costs are,
by nature, difficult to estimate and subject to substantial change as
litigation or negotiations with the United States, states, and other
parties proceed.

In the Laskin case, matter (1) above, the United States has dismissed
without prejudice Katy's subsidiary, American Gage & Machine Company
("American Gage"), as a party defendant; however, American Gage has not
been dismissed by the other third party claimants. Katy's subsidiary
continues to dispute liability.

In the Midwest Solvent case, matter (2) above, the United States
brought action to recover its costs in completing the initial clean-up of
two dump sites. A number of original defendants in the case filed a third
party complaint against Size Control Company, a former Katy subsidiary
("Size Control"), and other PRP's, for contribution. Size Control
disputed liability. A partial settlement agreement was entered into
pursuant to which the United States has been reimbursed for its initial
clean-up costs and pursuant to which Size Control paid approximately
$20,000. Size Control has entered into a settlement agreement, approved
by the court, in order to settle its liability in this matter. Pursuant
to this arrangement and assuming that projected clean-up costs are
accurate, Size Control will pay approximately $200,000 over ten years.

Concerning matter (3) above, Size Control elected to participate as
a settling party with respect to settlements negotiated for both sites.
Pursuant to this settlement and an Administrative Order on Consent between
it, other PRPs, and the United States Environmental Protection Agency
("USEPA"), Size Control has paid or agreed to pay a total of approximately
$20,000. No significant future costs are anticipated with respect to this
matter.

In the Harold Snyder case, matter (4) above, the United States sought
reimbursement from American Gage and eight other parties for more than
$600,000 in clean-up costs. American Gage has settled this matter and a
consent decree has been entered pursuant to which American Gage has paid
approximately $270,000. No future significant costs are anticipated with
respect to this matter.

In the Custom Leather case, matter (5) above, Katy and two of its
subsidiaries, Trans-Continental Leathers, Inc. ("TCL") and Hermann
Loewenstein, Inc. ("Loewenstein"), were named as defendants in a lawsuit
filed by the United States of America relating to an environmental
clean-up at the American Street Tannery in Philadelphia, Pennsylvania,
formerly owned by TCL. The first count sought cost recovery under CERCLA
against TCL and Loewenstein, and damages of approximately $1,200,000,
exclusive of fees and costs, were claimed. The second count sought civil
penalties and injunctive relief under CERCLA against TCL, Loewenstein and
Katy and, other than reference to the statutory $25,000 per day penalty
limitation, no specific damage amount was claimed.

Katy and its applicable subsidiaries have executed a consent decree
with USEPA, entered by the court on March 14, 1994, which settles all
claims asserted against such parties by USEPA in this case. Pursuant to
the settlement, the Company will pay $825,000 in April, 1994.

The W. J. Smith case, matter (6) above, was an enforcement action for
civil penalties and injunctive relief under the Federal Resource
Conservation and Recovery Act ("RCRA"). The United States had alleged
violations of RCRA based upon the alleged status of sludge drying beds of
W.J. Smith Wood Preserving Company, a Katy subsidiary ("W.J. Smith"), as
a hazardous waste management unit. A consent decree was entered in this
case on November 8, 1989. The consent decree provided for a $60,000 civil
penalty that was paid in December, 1989, clean closure of the sludge
drying beds, and installation of a new groundwater monitoring system.

The Texas Water Commission's ("TWC") administrative enforcement
action was settled with the entry of an Agreed Order (the "Order") on
January 20, 1988, whereby a civil penalty of $8,800 was assessed against
W.J. Smith, $3,300 of which was deferred so long as W.J. Smith complies
with the terms of the Order. The Order required W.J. Smith to: close an
earthen basin and the sludge drying beds; conduct soil and groundwater
contamination studies; and, if necessary, propose and implement a remedial
action plan. On September 27, 1990, the TWC issued a notice of solid
waste violations to W.J. Smith.
In 1993, TWC referred the entire matter to USEPA. On July 9, 1993,
USEPA Region 6 initiated a Unilateral Administrative Order Proceeding
under Section 7003 of RCRA against W.J. Smith 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. Pursuant to such order, W.J. Smith has
requested a formal hearing regarding the parameters of such emergency
actions and cleanup activities, which hearing has been postponed during
the pendency of negotiations with USEPA regarding such parameters. In the
interim, the Company is undertaking certain of the required actions.
Since 1990, the Company has spent in excess of $3,500,000 in
undertaking cleanup and compliance activities in connection with this
matter and has established a reserve, in excess of $4,000,000, for future
such activities. The Company is currently negotiating with USEPA
concerning additional actions to mitigate off-site releases. If the
Company's proposal is approved, the Company believes that the amount
reserved will be adequate. However, total cleanup and compliance costs
cannot be determined at this time.

Concerning matter (7) above, on April 20, 1989, USEPA issued a Notice
of Potential Liability to LaBour Pump Company ("LaBour"), a former
division of American Gage, and thirty-six other PRP's concerning the
Himco, Inc. dump site in Elkhart, Indiana. The notice stated that USEPA
was planning to spend public funds to perform a remedial investigation and
feasibility study ("RIFS") at the site unless such action was undertaken
by responsible parties, and identifies all recipients of the notice as
PRP's. The notice also requested further information. There was no
agreement among PRP's to perform the RIFS and, therefore, USEPA undertook
to perform it. USEPA recently issued another general notice with regard
to this site and Katy and its counsel are continuing to investigate this
matter. The liability of Katy's subsidiary cannot be determined at this
time.

Concerning matter (8) above, on September 26, 1989, USEPA issued a
Notice of Potential Liability to Katy and numerous other PRP's concerning
the Double Eagle Refinery site in Oklahoma City, Oklahoma. The notice
identifies all recipients as PRP's, demands reimbursement for $145,000 for
its costs and requests information. Katy has disputed any liability with
respect to this matter and Katy's liability, if any, cannot be determined
at this time.

Concerning matter (9) above, on March 19, 1990, USEPA issued a Notice
of Potential Liability to Hamilton Precision Metals ("Hamilton"), a
subsidiary of Bush Universal Inc. (a Katy subsidiary) and numerous other
PRP's concerning the second phase of a clean-up of the Galaxy/Spectron
Site in Elkton, Maryland. In September, 1991, Hamilton elected to
participate in such clean-up. To date, Hamilton has paid approximately
$1,600 in connection therewith. The future liability of Katy's
subsidiary cannot be determined at this time.

Concerning matter (10) 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. Balteau has demanded that
Katy accept financial responsibility for investigation and clean-up costs
incurred as a result of the PCB contamination. Balteau has notified the
State of Oregon that it intends to perform a voluntary cleanup, cost
estimates for which currently range between $2,000,000 and $6,000,000.
The Oregon Department of Environmental Quality has recently requested that
additional investigative activities be performed to support future
remedial activities. Katy and Balteau have agreed to share the costs
associated with this additional work. Katy has established a reserve in
connection with this matter. The liability of Katy and its subsidiary
cannot be determined at this time.

Concerning matter (11) above, on March 9, 1992, Katy received a
letter from Wallace International Silversmiths, Inc. ("Wallace")
requesting that Katy assume Wallace's defense in a case captioned
Katherine M. Georgianna v. Wallace International Silversmiths, Inc., Case
No. Civ. 91-11820N (U.S. District Court, District of Massachusetts); filed
July 9, 1991. Such request stems from certain agreements among Katy,
Wallace and other parties (the "Agreements"). The case at issue concerns
alleged dumping of hazardous waste on property located in Northampton,
Massachusetts, states claims under CERCLA and state law, and seeks
unspecified monetary damages. Katy does not believe that it has any
obligation to assume Wallace's defense in this matter and no material
developments have occurred with respect to this matter. Katy's liability,
if any, cannot be determined at this time.

Concerning matter (12) above, on July 9, 1992, Katy received a letter
from Syratech Corporation ("Syratech") requesting that Katy indemnify
Syratech for any liability incurred by it in connection with the
investigation and clean-up by USEPA of the Solvents Recovery Service of
New England Superfund Site in Southington, Connecticut (the "Southington
Site"). Such request stems from the Agreements. On April 22, 1993, USEPA
sent Katy a Notice of Potential Liability with regard to the Southington
Site, which indicated that, based on information provided to USEPA by
Syratech, Katy was responsible for all or a portion of the contamination
at the Southington Site that USEPA had previously attributed to Syratech.
The notice requested that Katy and Syratech provide USEPA with a joint
declaration apportioning liability for such contamination between them.
On May 21, 1993, Katy submitted an independent statement contesting
USEPA's notice and disputing certain transactions with the Southington
Site that USEPA had attributed to Katy and its subsidiaries. Thereafter,
USEPA sent additional information concerning alleged transactions with the
Southington Site. Katy and its counsel have evaluated the available
evidence and have determined that the volume of materials that USEPA has
sought to attribute to Katy and its subsidiaries is small in quantity. On
February 15, 1994, USEPA sent a letter to Katy and certain other PRP's
advising these parties of an opportunity to enter into a "de minimis"
settlement agreement with USEPA concerning alleged liability for cleanup
of the Southington Site. USEPA has advised the group of de minimis PRPs
that it will provide them with its proposed settlement offer sometime in
the next several weeks. Katy is awaiting receipt of the settlement offer.

Concerning matter (13) above, on January 21, 1994, USEPA sent a
Notice of Potential Liability to Katy advising Katy that it is potentially
liable under CERCLA and RCRA for the costs of remedial investigations and
remedial actions to clean up hazardous substances disposed at the Old
Southington Landfill Site in Southington, Connecticut. USEPA alleged that
Katy's former subsidiary, Wallace Silversmiths, sent hazardous substances
to Solvents Recovery Services of New England (see matter (12) above),
which, in turn, sent an unspecified amount of these materials to the Old
Southington Landfill Site for disposal. At this time, USEPA has not
produced any evidence concerning the alleged transactions. Accordingly,
Katy's liability with regard to this matter cannot be ascertained at this
time.

Concerning matter (14) above, on May 22, 1992, Panhandle Industrial
Company, Inc., a Katy subsidiary ("Panhandle"), received a notice from the
Kansas Department of Health and Environment stating that Panhandle may be
responsible under Kansas law for a portion of the clean-up costs relating
to a municipal landfill in McPherson, Kansas. Present clean-up cost
estimates for the landfill approximate $1,000,000. Panhandle, together
with other potentially responsible parties, are currently negotiating an
agreement to fund investigation and clean-up activities. Panhandle's
liability cannot be determined at this time.

In the Missouri Pacific case, matter (15) above, the Missouri Pacific
Railroad Company ("Missouri Pacific") filed a complaint against Katy in
the United States District Court for the Northern District of Illinois,
Eastern Division. In the complaint, Missouri Pacific alleges that Katy,
through its subsidiary, W.J. Smith, is liable for past and future cleanup
costs associated with a parcel of real estate in Denison, Texas which is
owned by Missouri Pacific (the "Parcel"). Investigations, completed in or
about 1991, disclosed creosote contamination, the cost of cleanup of
which, if required, could be substantial. The complaint contains four
counts: a private cost recovery claim under Section 107 of CERCLA; a
contribution claim under Section 113 of CERCLA; a claim seeking a
declaration that Katy is liable for past and future cleanup costs under a
June, 1986 agreement between the Union Pacific Railroad Company, Missouri
Pacific, the Missouri-Kansas-Texas Railroad Company and Katy Industries,
Inc.; and a claim for breach of the 1986 agreement. On October 29, 1993,
Katy filed its Answer, Affirmative and Other Defenses, and Counterclaims
against the plaintiff in this action, denying liability for past and
future cleanup costs associated with the Parcel and alleging six
counterclaims that seek (i) a declaration that the plaintiff is liable for
costs associated with the Parcel and (ii) cost recovery and contribution
associated with the Parcel and another parcel of real estate located in
Denison, Texas owned by W.J. Smith. This case is now in the discovery
phase. Katy's liability with respect to this case cannot be determined at
this time.

Concerning matter (16) above, in September of 1993, Katy received a
letter from counsel to Allard Industries, Inc. ("Allard") requesting that
Katy and its subsidiaries, American Gage and JEI Liquidating, Inc.,
indemnify Allard for any liability incurred by it in connection with a
case captioned Town of Londonderry v. Exxon Corporation, et al., Case No.
C-93-95-L (United States District Court, District of New Hampshire). Such
request stems from certain agreements among Katy, Allard and other
parties. The case at issue concerns the disposal and treatment of
hazardous wastes and substances at a landfill site in Londonderry, New
Hampshire (the "Londonderry Site"), states claims under CERCLA and state
law, and seeks, inter alia recovery of response costs with respect to the
Londonderry Site, declaratory judgment with respect to the defendants'
liability for future response costs and unspecified monetary damages.
Katy has advised Allard of its willingness to defend and indemnify Allard
subject to certain conditions, the details of which are being negotiated.
Katy and its counsel have not yet fully evaluated the underlying claims
and the liability of Katy and its subsidiaries with respect to this
matter, if any, cannot be determined at this time.

Concerning matter (17) above, on September 27, 1993, Katy subsidiary
B. M. Root Company ("Root") received a request that it make a payment in
settlement of Root's alleged liability with respect to environmental
cleanup of the Industrial Solvents Chemical Company Site in Newberry
Township, Pennsylvania (the "Industrial Solvents Site"). The PRPs for the
Industrial Solvents Site contended that Root sent a relatively small
amount of waste to such site and asked Root, and many other similarly
situated, small alleged users of the Industrial Solvents Site, to make a
contribution to cleanup costs amounting to approximately $11.00 per gallon
of waste sent to the Industrial Solvents Site. Root made such
contribution, referred to as a "de minimis buy-out," which amounted to
$8,846.

In exchange for the buy-out, which was calculated to include certain
premium charges, Root was released by the PRPs from any further cleanup
obligations. The PRPs also extended an indemnity to Root covering certain
potential claims against Root with respect to the Industrial Solvents
Site. Exclusions from the indemnity include toxic tort claims and actions
seeking recovery for damage to natural resources. The PRPs have advised
Katy's counsel that no toxic tort or natural resource damage claims have
been asserted against any PRP or "de minimis" party.

While Katy does not anticipate any significant future costs with
respect to this matter, because of the limitations on the indemnity
received from the PRPs, the future liability of Katy and its subsidiary,
if any, with respect to this matter cannot be determined at this time.

Concerning matter (18) above, in December, 1993, Katy received a
letter addressed to LaBour from Stephan K. Todd, Chairman-Fuels and
Chemicals CERCLA PRP Group. Mr. Todd contends that LaBour is a PRP at the
Site, and requests that LaBour join the Fuels and Chemicals PRP Group,
which would require payment of "administrative costs" in the amount of
$2,764.46, as well as a share of past and future remediation costs. The
extent of these costs is not known at this time. According to documents
provided by the PRP Group, LaBour sent approximately 1,200 to 1,500
gallons of a water and oil mix to the Fuels and Chemicals Superfund Site.
Katy and its counsel have not yet fully evaluated this matter and Katy's
liability with respect to this matter, if any, cannot be determined 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
1993.

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.

Cash
Dividends
Period High Low Declared

1993
First Quarter............. 25 3/8 20 3/8 $.0625
Second Quarter............ 25 1/2 25 1/8 .0625
Third Quarter............. 27 1/2 25 1/4 .0625
Fourth Quarter............ 28 1/8 25 .0625
1992
First Quarter............. 19 1/2 17 1/4 .0625
Second Quarter............ 20 7/8 16 1/4 .0625
Third Quarter............. 24 1/4 19 5/8 .0625
Fourth Quarter............ 23 3/4 20 1/4 .0625

As of March 11, 1994, there were 1,560 record holders of the Common
Stock. Katy's ability to pay dividends on its Common Stock is subject to
satisfaction of certain criteria in its Credit Agreement, effective
December 3, 1991, related to profitability, investments and indebtedness.
Reference is made to Note 6 of Notes to Consolidated Financial Statements
in this report.
Item 6. SELECTED FINANCIAL DATA

Years Ended December 31

1993 1992 1991 1990 1989

(Thousands of Dollars,
except per share data and ratios)

Net sales........................... $168,723 $177,077 $181,494 $214,371 $193,381
Income from continuing operations... 5,496 1,102 7,718 28,528 13,337
Primary earnings per common share* .60 .12 .82 4.08 1.80
Fully diluted earnings per
common share*.................... .60 .12 .82 2.96 1.38
Net income (loss)**.................( 1,540) 1,102 11,090 26,591 8,749
Cash flows from operations..........( 1,843) 22,390 7,631 25,566 ( 4,513)
Total assets........................ 330,225 314,661 319,974 323,977 310,911
Total liabilities................... 86,459 67,461 71,217 70,250 86,027
Stockholders' equity................ 243,766 247,200 248,757 253,727 224,884
Long-term debt...................... 4,289 5,942 8,458 9,150 13,329
Depreciation and amortization....... 5,716 5,709 8,747 4,450 3,632
Capital expenditures................ 4,278 5,504 10,210 12,902 5,980
Working capital..................... 175,075 135,965 136,633 125,483 106,538
Ratio of current assets to
current liabilities............... 4.48 3.80 3.71 3.48 2.61
Ratio of stockholders' equity
to total debt..................... 13.98 14.60 12.13 16.55 6.30
Stockholders' equity per share
(fully diluted basis)*............ 27.03 27.41 27.57 26.42 23.29
Return on average stockholders'
equity.............................( 0.62%) .44% 4.38% 10.85% 3.96%

Shares outstanding:
Class A preferred stock, Series A.. - - - - 18,060
Class B preferred stock,
$1.46 Series...................... - - - - 1,219,925
Common stock....................... 9,017,387 9,017,387 9,023,187 9,605,337 6,491,387
Number of stockholders.............. 1,560 1,741 1,914 2,005 2,242
Number of employees................. 1,506 1,972 2,078 2,285 2,250
Cash dividends declared per
common share....................... $.25 $.25 $.25 $.065 NONE

* See Note 1 of Notes to Consolidated Financial Statements. Per share amounts, on a
fully diluted basis, in 1990 and 1989, reflect the assumption of additional shares to be
issued upon conversion of convertible preferred stock, which was outstanding during those
years.

** Includes extraordinary gains of $3,372 and $559 in 1991 and 1990, respectively, loss
from discontinued operations of $5,618 in 1993 and the cumulative effect of changes in
accounting principle of $1,418 loss in 1993 and $1,291 income in 1990.

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

Financial Position and Cash Flow

At December 31, 1993 Katy had short and long-term indebtedness for
money borrowed of $17,443,000, of which $10,163,000 represented short-term
credit lines, primarily from banks in Germany in support of Katy's 75%
owned German Subsidiary. Total debt was 6.7% of total debt and equity at
December 31, 1993. Katy has a credit agreement with a consortium of two
banks in the aggregate principal amount of $15,000,000. The credit
agreement may be used for letters of credit and/or working capital.

Combined cash, cash equivalents, time deposits and marketable
securities increased $45,169,000 to $146,084,000 on December 31, 1993 from
$100,915,000 on December 31, 1992. The major reason for this increase was
proceeds from the sale of various assets; $18,001,000 from Union Pacific
Corporation (UP) stock, $10,953,000 from CEGF (France) and $9,937,000 from
the pump manufacturing group. Additionally Katy converted $24,526,000 of
notes receivable from Missouri Pacific Railroad into shares of common
stock of UP; of which 300,000 were sold in the above referenced
transaction, the remaining shares of UP stock are carried at a cost of
$15,795,000 at December 31, 1993 and have a market value of $31,223,000 at
that date. Other factors impacting cash flows included $4,982,000
reductions in inventory and accounts receivable balances, $4,278,000 in
capital expenditures and $6,825,000 in other cash from operations.

Current ratios were 4.48 to 1.00 and 3.80 to 1.00 at December 31,
1993 and 1992, respectively. Working capital increased $39,110,000 and
decreased $668,000 in 1993 and 1992, respectively. The increase in
working capital in 1993 resulted from the conversion of notes receivable
from Missouri Pacific Railroad Corporation into shares of common stock in
UP and its classification as a current asset at December 31, 1993.
Additionally, Katy sold 300,000 shares of UP common stock for $18,001,000
and its stock in C.E.G.F. (France) for $10,953,000 resulting in pre-tax
gains of $8,497,000 and $6,081,000, respectively. The combined effect of
these three transactions was to increase working capital by approximately
$33,000,000, net of income taxes. Additionally, Katy sold its pump
manufacturing group for net proceeds of $9,937,000, which funds are
included in cash and cash equivalents at December 31, 1993 and will be
used for general corporate purposes. These gains were offset by reduction
in accounts receivable and inventory (the result of the sale of the pump
group together with lower levels of sales) and an increase in accrued
expenses due to increased reserves for environmental liabilities and
product, casualty and other insurance liabilities. The decrease in
working capital in 1992 resulted from funds used for capital expenditures,
repayment of debt and investment and advances to subsidiaries and
affiliates offset by funds received from operations and reclassification
of the C.E.G.F. (France) investment.

Katy has authorized and expects to commit, approximately $4,000,000
for capital projects in 1994 and expects to meet its capital expenditure
requirements through the use of available cash and internally generated
funds. Katy believes that funds generated from its U.S. operations will
be sufficient to meet the Company's short and long-term liquidity needs in
the U.S.

In 1992, management began a restructuring of its 75% owned German
subsidiary. To date, this has resulted in substantial costs for the
termination of employees and the curtailment of manufacturing activities.
During 1993, this subsidiary entered into an accumulated deficit position.
Therefore, Katy is required to absorb 100% of current operating losses.
Such losses are being funded through short-term lines of credit in
Germany. It is anticipated that funds generated from operations of this
subsidiary, along with available bank credit agreements, will fund future
operations and that no further investment from the U.S. will be required.
However, the subsidiary is continuing to realize losses from operations
and no assurances as to the ability of this subsidiary to finance its
operations independently can be given. Additional funds provided by or
guaranteed by Katy may be required to fund its operations. To date, Katy
has guaranteed DM 5,000,000 of this subsidiary's debt, and has
established a DM 5,000,000 Letter of Credit in favor of a German Bank
for additional financing needs of this subsidiary.

Katy periodically evaluates its investments in marketable securities
and from time to time has sold such investments.

The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by
the U.S. Environmental Protection Agency and certain 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") and
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. The means of determining
allocation among PRPs is generally set forth in a written agreement
entered into by the PRPs at a particular site. An allocation share
assigned to a PRP is often based on the PRP's volumetric contribution of
waste to a site. The Company is also involved in remedial response and
voluntary environmental clean-up at a number of other sites which are not
currently the subject of any legal proceedings under Superfund, including
certain of its current and formerly owned manufacturing facilities. 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 $7,500,000, in addition to $1,000,000 accrued and paid in
1993. The Company expects this amount to be paid over the next one to
four years.

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

1. The United States had alleged violations of the Resource,
Conservation and Recovery Act "RCRA" based upon the alleged
status of sludge drying beds of W. J. Smith Wood Preserving
Company, a Katy subsidiary ("W. J. Smith"), as a hazardous
waste management unit. Since 1990, the Company has spent
in excess of $3,500,000 in undertaking cleanup and
compliance activities in connection with this matter and
has established a reserve, in excess of $4,000,000, for
future such activities. The Company is currently
negotiating with United States Environmental Protection
Agency (USEPA) concerning additional actions to mitigate
off-site releases. If the Company's proposal is approved,
the Company believes that the amount reserved will be
adequate. However, total cleanup and compliance costs
cannot be finally determined until such approval is
received.

2. 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. Balteau has demanded that Katy accept
financial responsibility for investigation and clean-up
costs incurred as a result of the PCB contamination.
Balteau has notified the State of Oregon that it intends to
perform a voluntary cleanup, cost estimates for which
currently range between $2,000,000 and $6,000,000. The
Oregon Department of Environmental Quality has recently
requested that additional investigative activities be
performed to support future remedial activities. Katy and
Balteau have agreed to share the costs associated with this
additional work. Katy has established reserves in
connection with this matter.

3. The Missouri Pacific Railroad Company ("Missouri Pacific")
filed a complaint against Katy alleging that Katy, through
its subsidiary, W.J. Smith, is liable for past and future
cleanup costs associated with a parcel of real estate in
Denison, Texas which is owned by Missouri Pacific (the
"Parcel"). Investigations, completed on or about 1991,
disclosed creosote contamination, the cost of cleanup of
which, if required, could be substantial. On October 29,
1993, Katy filed its Answer, Affirmative and Other
Defenses, and Counterclaims against the plaintiff in this
action, denying liability for past and future cleanup costs
associated with the Parcel and alleging six counterclaims
that seek (i) a declaration that the plaintiff is liable
for costs associated with the Parcel and (ii) cost recovery
and contribution associated with the Parcel and another
parcel of real estate located in Denison, Texas owned by W.
J. Smith. This case is now in the discovery phase. Katy's
liability with respect to this case cannot be determined at
this time.

Although management believes that these actions individually and in
the aggregate are not likely to have a material adverse effect on Katy's
consolidated financial position or results of operations, further costs
could be significant and will be recorded as a charge to operations when
such costs become probable and reasonably estimable.

On February 18, 1994, a purported derivative action was filed in the
Delaware Court of Chancery by Pensler Capital Partners, I.L.P. and others
("Pensler") against the Company and all members of the Company's Board of
Directors (the "Board"). The Complaint alleges, among other things, that
the directors of the Company have breached their fiduciary duties to the
Company's stockholders through their alleged refusal to negotiate in good
faith with Pensler in connection with its proposal to acquire the Company
in a merger transaction in which holders of the Company's outstanding
common stock were to have received $28 per share in cash. The complaint
seeks, among other things, (i) a declaration that the Board has breached
its fiduciary duties in connection with Pensler's merger proposal, (ii) an
order requiring the Board to negotiate with Pensler in good faith, (iii)
an order requiring the Board to issue to Pensler an option to purchase 1.8
million shares of the Company's common stock, which, when exercised, would
reduce the holdings of the Carroll family to less than a majority of the
outstanding shares, (iv) an order requiring the Board to issue to Pensler
an option to acquire 582,000 shares of the Company's common stock that
were allegedly improperly acquired by the Company in June and September,
1991, and (v) an order enjoining the payment by the Company of an
extraordinary dividend and from taking any other extraordinary action
until such time as the effects of the defendants' alleged unlawful actions
have been dissipated. On March 17, 1994, the Court of Chancery heard
Pensler's motion for a mandatory preliminary injunction and took the
matter under advisement. Katy's liability, if any with respect to this
action cannot be determined at this time.

On March 9, 1994 the Company's Board of Directors endorsed the
recommendation of a special committee of the Board that the Company
consider a special cash dividend of $14.00 per share to holders of Katy
Industries, Inc. common stock to maximize shareholder values. Action by
the Board to declare the dividend, however, has been deferred until the
resolution of the motion described in the preceding paragraph not
prohibiting the dividend.

If the dividend is approved it will result in a total payment of
approximately $126,000,000 which will be funded through the use of
available cash balances and the sale of marketable securities. Had the
dividend been paid as of December 31, 1993 the available combined cash,
cash equivalents, time deposits and marketable securities after the
payment would have been $35,000,000. Management believes that these
funds, combined with available lines of credit, will be sufficient to fund
the Company's operations and planned capital expenditures in the
foreseeable future.

Management is in the process of reviewing each of its businesses to
determine the Company's focus for the future. Upon the conclusion of such
review, management may determine to sell certain companies and may augment
its remaining businesses with acquisitions. Such review has yet to be
completed and there have been no decisions regarding the disposition of
any companies. Should such sales occur, management anticipates that funds
from these sales would be used for general corporate purposes. Any
acquisitions would be funded through current cash balances and available
lines of credit.

New Accounting Pronouncements

Effective January 1, 1994 Katy adopted Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments
in Debt and Equity Securities". Adoption of SFAS No. 115 will result in
Katy's investment in 498,566 shares of UP common stock being classified as
"Securities available for sale" and valued at their fair value on that
date. The unrealized holding gain on the UP stock will be classified as
a separate component of equity, net of the related tax liability. It
resulted in an increase in the value of the investment by $15,428,000 and
an increase in stockholders' equity of approximately $9,257,000, net of
related taxes, on January 1, 1994.

During 1992, SFAS No. 112 "Employer's Accounting for Postemployment
Benefits" was issued. Katy adopted this statement effective January 1,
1994. It did not have a material impact on either Katy's results of
operations or financial position.

Results of Operations

During 1993, the Company's electrical component distribution company
was reclassified from the Industrial Components Group to the Consumer
Products Group to reflect the reassessment of the principal market for
that company's products. All prior periods have been restated
accordingly.

For additional financial information relating to Katy's operating
segments see Note 11 to the consolidated financial statements.

Following are summaries of sales and operating income for the years
ended December 31, 1993 and 1992 by industry segment:

Sales
Increase (Decrease)
1993 1992 Amount Per Cent

Industrial Machinery $ 61,363 $ 67,383 ($ 6,020) ( 8.93%)
Industrial Components 50,853 57,801 ( 6,948) ( 12.02 )
Consumer Products 56,507 51,893 4,614 8.89

Total sales $168,723 $177,077 ($ 8,354) ( 4.72%)

Operating Income (Loss)
Percent of Sales
1993 1992 1993 1992

Industrial Machinery ($ 4,912) ($ 3,412) ( 8.00%) ( 5.06%)
Industrial Components ( 600) 3,828 ( 1.18 ) 6.62
Consumer Products 2,808 4,453 4.97 8.58

Total operating income(loss) ($ 2,704) $ 4,869 ( 1.60%) 2.75%

Sales by foreign subsidiaries for the years ended December 31, 1993
and 1992 were $41,566,000 and $51,651,000, respectively, and were 25%
and 29% of total sales.

Sales in 1993 were down from 1992 by $8,354,000, or 5%. Industrial
Machinery Group sales were down $6,020,000, or 9%. This reduction in
sales was predominantly due to the further decline in sales of shoe-making
machinery by Katy's 75% owned German subsidiary, reflecting the continuing
economic uncertainty in Eastern Europe, its principal market. Decreased
sales were also reported by the manufacturer of food packaging equipment.
The manufacturers of woodworking machinery and the waste-to-energy
operation reported increased sales.

The Industrial Components Group sales decreased by $6,948,000, or
12%. All of the companies in this group had lower sales with the
principal decreases being attributable to sales by the manufacturers of
electrical equipment and chemical pumps. Included in 1993 and 1992 are
sales of $19,031,000 and $23,219,000; and losses of $2,605,000 and
$489,000, respectively, from the Company's pump manufacturing business
which was sold in November, 1993.
The Consumer Products Group reported a $4,614,000, or 9%, increase in
sales for the year with increased sales in all operations. This increase
reflects improvements in the underlying markets served by these companies,
as well as efforts to find new markets and applications for their
products.

Operating losses in the Industrial Machinery Group in 1993 were
$1,500,000 higher than in 1992, and increased as a percent of sales from
5.1% to 8.0%. Within the Group, however, Katy realized improvement in the
operating income from the waste-to-energy business, the result of higher
volumes and operating efficiencies, and the manufacturer of woodworking
machinery, the result of increased sales and higher margins. These
improvements were offset by continued operating losses of the manufacturer
of shoe manufacturing machinery and die cutting machinery in Germany
(Schon), the result of decreased sales and substantially lower margins,
reflecting lower utilization of the company's manufacturing facilities as
well as increased pricing pressures. In 1992 the Company's German
subsidiary recorded a charge of $2,300,000 which principally represents
charges incurred to restructure and streamline the operation. In
addition, there was a substantial reduction in 1993 in operating income of
the manufacturer of food packaging machinery, the result of decreased
sales volume. The operating results of the Industrial Machinery Group
were further impacted by an additional reserve of $2,800,000 for product
liability, casualty and other insurance liabilities.

The Industrial Components Group's reduced operating income reflects
lower sales volume which impacts margins through lower facility
utilization. Additionally, the operating results of the pump
manufacturing business prior to its sale were adversely impacted by higher
operating costs on reduced sales and inventory adjustments. The
subsidiary that supplies components to the oil, gas and petroleum industry
experienced reduced volume which impacted margins and was also adversely
impacted by inventory adjustments and some product liability claims filed
in 1993.

The Consumer Products Group's decrease of $1,645,000 or 36.9%
resulted from the operating loss and asset write downs following
discontinuance of the IAQ 2000 product line of $2,300,000. This was
offset by gains in operating income from the distributor of electric parts
and the manufacturer of paints and stains. The sanitary maintenance
supplies business has faced competitive pricing pressures which impacted
margins and resulted in a decline in operating income for that business
despite increased sales.

The Company's 75% owned German subsidiary (Schon) minority
stockholders share of losses was $1,461,000 in 1993 as compared to
$2,505,000 in 1992. This reflects the fact that Schon is now in an
accumulated deficit position. Accordingly Katy is now absorbing 100% of
the losses.

Corporate expenses, net of $14,470,000, are $6,918,000 higher than
1992. This increase results from $3,500,000 of expenses to fund
retirement compensation plans approved by the Company's Board of Directors
in 1993, $1,300,000 in legal and other expenses related to various merger
transactions and an increase in insurance costs.

Interest expense decreased by $192,000, due to lower short-term
interest rates on the Company's German borrowings. Interest income
decreased by $3,017,000 primarily due to the conversion of $24,526,000 of
notes receivable from the Missouri Pacific Railroad Company into 774,166
shares of UP common stock. Also contributing to the decrease were lower
interest rates.

Other income of $2,811,000 represents primarily dividend income from
common stock investments. The gain on sale of stock of $14,668,000
represents principally the sale of common stock in UP for a pre-tax gain
of $8,497,000 and the sale of Katy's 8% interest in CEGF (France) for a
pre-tax gain of $6,081,000.

Income from continuing consolidated operations before income taxes
and minority interest of $2,259,000 in 1993 compared to a loss of
$1,417,000 in 1992. The increase represents the net impact of the factors
described above.

The provision for income taxes of $1,939,000, or an effective rate of
86%, reflects the fact that the Company did not benefit from approximately
$3,181,000 of losses from its German subsidiary. In 1992 the effective
income tax rate was similarly affected by not recognizing a tax benefit
from such losses.

During 1993 Katy recorded provisions of $5,618,000, net of related
income tax benefits of $3,064,000, to reflect management's best estimate
of costs related to environmental remediation at plants from operations
previously discontinued.

Equity in income of unconsolidated subsidiaries decreased by $417,000
or 13%, primarily the result of a higher effective income tax rate on
earnings from unconsolidated subsidiaries in 1993. Bee Gee Holding
Company, Inc. reported increased earnings due to a lower effective income
tax rate and C.E.G.F. (USA) reported increased earnings due to increased
sales and higher margins. Syratech Corporation reported increased
earnings, resulting from increased sales. Despite a significant increase
of Syratech's earnings, Katy's share of Syratech's income in 1993
increased slightly as a result of the dilution of Katy's ownership
percentage of Syratech. The gain as a result of an initial public
offering by an unconsolidated subsidiary of $835,000 is net of income
taxes of $534,000 and is Katy's share of the increased shareholder equity
accounts of Syratech Corporation. For additional information on
unconsolidated subsidiaries and gain as a result of initial public
offering of an unconsolidated subsidiary, see Note 4 of Notes to
Consolidated Financial Statements.

Katy adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", and SFAS No. 109, "Accounting for Income
Taxes" effective January 1, 1993. The unrecorded obligation for costs
related to services already rendered up to the date of adoption of SFAS
No. 106 less a previously recorded accrual, was $1,418,000 (net of the
related tax benefit of $925,000). Katy recorded this obligation as a
cumulative effect of a change in accounting principle by a charge to
operations as of January 1, 1993. The impact of adopting SFAS No. 109 did
not materially effect prior periods or current operations; the impact of
this change was therefore recorded as part of continuing operations.

1992

Following are summaries of sales and operating income for the years ended
December 31, 1992 and 1991 by industry segment:

Sales
Increase (Decrease)
1992 1991 Amount Per Cent

Industrial Machinery $ 67,383 $ 77,317 ($ 9,934) ( 12.85%)
Industrial Components 57,801 58,824 ( 1,023) ( 1.74 )
Consumer Products 51,893 45,353 6,540 14.42

Total sales $177,077 $181,494 ($ 4,417) ( 2.43%)

Operating Income
Percent of Sales
1992 1991 1992 1991

Industrial Machinery ($ 3,412) ($ 3,437) ( 5.06%) ( 4.45%)
Industrial Components 3,828 4,617 6.62 7.85
Consumer Products 4,453 4,896 8.58 10.80

Total operating income $ 4,869 $ 6,076 2.75% 3.35%

Sales by foreign subsidiaries for the years ended December 31, 1992
and 1991 were $51,651,000 and $67,817,000, respectively, and were 29% and
37% of total sales.

Sales in 1992 were down from 1991 by $4,417,000, or 2%. Industrial
Machinery Group sales were down $9,934,000, or 13%. This reduction in
sales was predominantly due to the further decline in sales for shoe-
making machinery by Katy's 75% owned German subsidiary, and the continuing
economic uncertainty in Eastern Europe. Decreased sales were also
reported by the manufacturer of food processing equipment and from the
disposition of the Davis County, Utah waste-to-energy facility in the
first quarter of 1992. The sale of the contract equipment and repairs
business in the third quarter of 1991 also resulted in decreased sales for
the year. The manufacturers of woodworking and food packaging machinery
reported increased sales.

The Industrial Components Group sales decreased by $1,023,000, or 2%.
Increased sales of the manufacturers of electrical equipment, the
distributor of electronic parts and the gas engine and compressor parts
businesses were more than offset by the decreased sales of the
manufacturers of chemical pumps and specialty metals.

The Consumer Products Group reported a $6,540,000, or 14%, increase
in sales for the year predominantly due to the acquisition of a
manufacturer of paints and stains in the fourth quarter of 1991. The
manufacturers of sanitary maintenance supplies and filters and the
distributor of electronic parts also reported increased sales.

Operating losses in the Industrial Machinery Group were essentially
the same in 1992 and 1991, but did increase as a percent of sales from
4.4% to 5.1%. Within the Group, however, Katy realized a significant
reduction in the operating loss in the waste-to-energy business, due to
the sale of a facility in the first quarter of 1992, and a significant
improvement in operating income of the manufacturer of food packaging
equipment, the result of increased sales and higher margins, but these
improvements were offset by a substantial reduction in operating income of
the manufacturer of shoe manufacturing machinery and die cutting machinery
in Germany (Schon), the result of decreased sales and substantially lower
margins. Included in the operating results of the German subsidiary is
approximately $2,300,000 which represents charges incurred to restructure
and streamline the operation.

The Industrial Components Group's 17% decrease in operating income
resulted largely from lower operating margins by the manufacturer of
chemical pumps as a result of reduced volume, partially offset by
increased margins in the manufacturer of electronic equipment.

The Consumer Products Group's marginal decrease in operating income
and margins resulted from lower margins in its manufacturer of sanitary
maintenance supplies business and additional costs incurred to develop a
new product line in the filter business.

Interest expense increased $239,000, or 14%, due to higher short-term
debt levels maintained during the year. Interest income decreased
$539,000 due to lower interest rates.

Income before income taxes decreased $6,863,000 largely due to the
$9,973,000 gain recorded in 1991 on the sale of Union Pacific common
stock. Also contributing to the decrease was lower operating income in
1992, due to decreased sales and profit margins. Bad debt expense
decreased in 1992 by $1,831,000.

During the year ended December 31, 1992, Katy provided an additional
$4,609,000 to cover potential losses on notes and drafts receivable. In
May, 1992 Katy entered into an agreement with an issuer of approximately
$9,000,000 of notes payable to Katy whereby the notes were forgiven and
Katy received inventory, accounts receivable and fixed assets. The excess
of the note value over the proceeds received from the liquidation of these
assets was $6,354,000 and was charged against the allowance for doubtful
notes.

Equity in income of unconsolidated subsidiaries increased $894,000,
or 37%, primarily the result of increased earnings at Syratech
Corporation.

1991

Following are summaries of sales and operating income for the years ended
December 31, 1991 and 1990 by industry segment:

Sales
Increase (Decrease)
1991 1990 Amount Per Cent

Industrial Machinery $ 77,317 $109,623 ($32,306) ( 29.47%)
Industrial Components 58,824 62,015 ( 3,191) ( 5.15 )
Consumer Products 45,353 42,733 2,620 6.13

Total sales $181,494 $214,371 ($32,877) ( 15.34%)

Operating Income
Percent of Sales
1991 1990 1991 1990

Industrial Machinery ($ 3,437) $ 9,510 ( 4.45%) 8.68%
Industrial Components 4,617 6,857 7.85 11.06
Consumer Products 4,896 4,567 10.80 10.69

Total operating income $ 6,076 $ 20,934 3.35% 9.77%

Sales by foreign subsidiaries for the years ended December 31, 1991
and 1990 were $67,817,000 and $91,331,000, respectively, and were 37% and
43% of total sales.

Sales in 1991 were down from 1990 by $32,877,000, or 15%. Industrial
Machinery Group sales were down $32,306,000, or 29%. The reduction in
sales was predominantly due to the completion in 1990 of large contracts
for shoe-making machinery by Schon and the economic uncertainty in Eastern
Europe. The other companies in the group also reported decreased sales
for the year.

The Industrial Components Group's sales decreased $3,191,000, or 5%.
The additional sales reported by the manufacturer of locomotive control,
monitoring and recording systems acquired in the first quarter of 1991
were more than offset by decreased sales reported for the year by all
other companies in the group.

The Consumer Products Group reported a $2,620,000, or 6%, increase in
sales for the year with all companies posting increased sales except for
the distributor of electronics parts. The acquisition of a manufacturer
of paints and stains in the fourth quarter also contributed to the
increased sales.

Operating income decreased from 1990 by $14,858,000, or 71%. The
Industrial Machinery and Industrial Components Groups reported decreases
of $12,947,000 and $2,240,000, respectively. The Consumer Products Group
reported a $329,000 increase in operating income.

The Industrial Machinery Group's decrease in operating income was the
result of the lower sales volumes discussed above coupled with lower
operating margins at all companies. These factors, when combined with the
amortization of deferred charges at the waste-to-energy facilities and the
loss incurred upon the termination of the maintenance and operating
contract at the Utah facility provide an explanation of the total
decrease.

The Industrial Components Group's decrease in operating income
resulted primarily from lower sales levels and lower operating margins at
the specialty metals business, the gas engine and compressor parts
business and the manufacturers of chemical pumps. Increased operating
income in this group resulted from the acquisition in the first quarter of
1991.

The Consumer Products Group's increase in operating income is
attributable to the manufacturers of sanitary maintenance supplies and air
filters, the result of increased sales coupled with slightly higher
margins, improved margins at the distributor of electronic parts, and from
the acquisition in the third quarter of 1991. Operating losses generated
by the low power TV station, which was closed during 1991, partially
offset these increases.

Interest expense decreased by $249,000 the result of lower debt
levels during the year. Despite an increase in the amount of funds
available for investment, interest income decreased $2,696,000 due to
significantly lower interest rates.

Income before income taxes decreased $27,395,000 largely due to the
$18,039,000 gain on the sale of a 25% interest in Schon in 1990 and the
lower operating income reported in 1991.

Equity in income of unconsolidated subsidiaries increased $1,349,000,
the result of increased earnings at Syratech Corporation.

The extraordinary gain in 1991 of $3,372,000, net of income taxes of
$351,000, is Katy's share of the extraordinary gains reported by Syratech
Corporation which resulted from the settlement of insurance claims.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information required hereunder is incorporated by reference to the
financial statements in this report listed under Item 14(a) "Financial
Statements and Schedules".

The financial statements of Syratech Corporation, required hereunder,
are incorporated by reference to Syratech Corporation's annual Report on
Form 10-K filed with the United States Securities and Exchange Commission.

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 nominees for directors of Katy is included
under the caption entitled "Election of Directors" in its Proxy Statement
for the 1994 Annual Meeting of Stockholders ("Proxy Statement") and is
incorporated herein by reference. Information regarding executive
officers and other significant employees is included under the caption
entitled "Information Concerning Directors and Executive Officers" in the
Proxy Statement and is incorporated herein by reference.

Item 11. EXECUTIVE COMPENSATION

Information regarding compensation of executive officers is included
in the Proxy Statement under the caption entitled "Executive Compensation"
and is incorporated herein by reference.

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 included under the captions
entitled "Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" in the Proxy Statement and is incorporated herein
by reference.

Item 13. CERTAIN RELATIONSHIPS

Information regarding certain relationships and related transactions
with management is included under the caption entitled "Certain
Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.

Part IV.

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

(a) Financial Statements and Schedules

Katy Industries, Inc. -- Consolidated Financial Statements:
Independent Auditors' Report.......................................34
Financial Statements
Consolidated Balance Sheets, December 31, 1993 and 1992..........35
Statements of Consolidated Operations,
Years Ended December 31, 1993, 1992 and 1991.................. 37
Statements of Consolidated Stockholders' Equity,
Years Ended December 31, 1993, 1992 and 1991.................. 39
Statements of Consolidated Cash Flows,
Years Ended December 31, 1993, 1992 and 1991.................. 40
Notes to Consolidated Financial Statements...................... 41
Schedules
I -- Marketable Securities - Other Investments................. 68
VIII -- Valuation and Qualifying Accounts and Reserves............ 69
X -- Supplementary Income Statement Information................ 70

Schedules not included herein have been omitted because they are not
applicable or the information is included in the financial statements or
notes thereto.

(b) Reports on Form 8-K

Not applicable.

(c) Exhibits

Exhibit
Number Exhibit Title Page

3.1 Certificate of Incorporation *
3.2 By-Laws *
22 Subsidiaries of registrant 72
24 Consent 73

Katy agrees to furnish to the Commission upon request a copy of any
instrument not filed which defines the rights of holders of long-term debt
of Katy Industries, Inc. and subsidiaries for which consolidated or
unconsolidated financial statements are required to be filed.

* Copies of Certificate of Incorporation and By-Laws will be furnished
upon request.

INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
KATY INDUSTRIES, INC.
ELGIN, ILLINOIS

We have audited the accompanying consolidated balance sheets of Katy
Industries, Inc. and subsidiaries (The "Company") as of December 31, 1993
and 1992, and the related statements of consolidated operations,
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1993. Our audits also included the financial
statement schedules listed in the Index at Item 14. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Katy Industries, Inc. and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly in all material respects the information
set forth therein.

As discussed in Notes 7 and 9, respectively, to the consolidated financial
statements, in 1993 the Company changed its methods of accounting for
postretirement benefits other than pensions and income taxes.

DELOITTE & TOUCHE

Chicago, Illinois
March 1, 1994
(March 17, 1994 as to Note 15)

KATY INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992

ASSETS

1993 1992
(Thousands of Dollars)
CURRENT ASSETS:

Cash and cash equivalents $130,289 $ 34,801
Time deposits and marketable securities,
at cost; market value of $31,223 and $73,471 15,795 66,114
Accounts receivable, trade, net of
allowance for doubtful accounts of
$7,975 and $8,877 20,568 26,509
Notes and other receivables, net of
allowance for doubtful notes of $10 3,804 4,199
Inventories - Note 1 40,725 49,984
Deferred taxes - other - Note 9 10,785 366
Other current assets 3,380 2,590

Total current assets 225,346 184,563

OTHER ASSETS:
Investments, at equity, and advances to
unconsolidated subsidiaries - Note 4 45,516 40,379
Investments, at cost - Note 5 6,704 7,478
Notes receivable from Missouri Pacific
Railroad Company - Note 13 - 24,526
Notes receivable, net of allowance for
doubtful notes of $1,700 and $4,755 3,058 3,834
Miscellaneous - Notes 7 and 8 19,915 19,494

Total other assets 75,193 95,711

PROPERTIES:
Land and improvements 3,433 3,807
Buildings and improvements 22,820 25,416
Machinery and equipment 52,488 59,722

78,741 88,945
Accumulated depreciation ( 49,055) ( 54,558)

Net properties 29,686 34,387

$330,225 $314,661

See Notes to Consolidated Financial Statements.
KATY INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 and 1992

LIABILITIES

1993 1992
(Thousands of Dollars)
CURRENT LIABILITIES:

Notes payable - Note 6 $ 10,163 $ 8,154

Accounts payable 8,777 9,613

Accrued compensation 5,058 4,885

Accrued expenses - Note 1 21,508 14,896

Accrued interest and taxes 1,131 7,566

Current maturities, long-term debt - Note 6 2,991 2,840

Dividends payable 643 644

Total current liabilities 50,271 48,598

LONG-TERM DEBT, less current maturities - Note 6 4,289 5,942

OTHER LIABILITIES - Note 7 12,064 4,667

DEFERRED INCOME TAXES - Note 9 19,835 6,793

MINORITY INTEREST - 1,461

COMMITMENTS AND CONTINGENT LIABILITIES
Notes 3, 6, 8, 10, 12 and 15 - -

STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized
25,000,000-shares, issued - 9,821,329
shares 9,821 9,821
Additional paid-in capital 51,111 51,723
Foreign currency translation adjustment 3,880 2,908
Retained earnings 192,814 196,608
Treasury stock, 803,942 shares, at cost ( 13,860) ( 13,860)

Total stockholders' equity 243,766 247,200

$330,225 $314,661
See Notes to Consolidated Financial Statements.

KATY INDUSTRIES, INC.
AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED OPERATIONS

YEARS ENDED DECEMBER 31, 1993, 1992 and 1991

1993 1992 1991
(Thousands of Dollars)

Net sales..................................... $168,723 $177,077 $181,494

Costs and expenses:
Cost of goods sold.......................... 130,696 126,886 127,269
Selling, general and administrative expenses 49,460 47,091 49,081
Depreciation and amortization............... 5,716 5,709 8,747
Provision for doubtful accounts and notes -
Note 13.................................... 1,511 4,609 6,440
Interest expense............................ 1,780 1,972 1,733
Interest income............................. ( 5,220) ( 8,237) ( 8,776)
Other, net.................................. ( 2,811) 464 1,527
Gain on sale of stock - Note 13............. ( 14,668) - ( 9,973)

166,464 178,494 176,048
Income (loss) from continuing consolidated
operations before provision for income
taxes and minority interest............... 2,259 ( 1,417) 5,446

Provision for income taxes - Note 9........... ( 1,939) ( 3,283) ( 601)

Minority stockholders' share of loss.......... 1,461 2,505 470

Income (loss) from continuing
consolidated operations................... 1,781 ( 2,195) 5,315

Equity in income of unconsolidated
subsidiaries (net of tax) - Note 4.......... 2,880 3,297 2,403

Gain as a result of an initial public offering
by an unconsolidated subsidiary, (net of tax)-
Note 4 835 - -

Income from continuing operations........... 5,496 1,102 7,718

Loss from discontinued operations (net of tax) -
Note 2 ( 5,618) - -

Income (loss) before extraordinary gain and
cumulative effect of change in
accounting principle...................... ( 122) 1,102 7,718
Extraordinary gain (net of tax) - Note 4...... - - 3,372
Cumulative effect of change in
accounting principle (net of tax) - Note 7.. ( 1,418) - -
Net income (loss)........................... ($ 1,540) $ 1,102 $ 11,090
See Notes to Consolidated Financial Statements.

KATY INDUSTRIES, INC.
AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED OPERATIONS

YEARS ENDED DECEMBER 31, 1993, 1992 and 1991

1993 1992 1991

Earnings (loss) per share of common stock -
Note 1:

Income from continuing operations............ $ .60 $ .12 $ .82

Discontinued operations...................... ( .62) - -
Extraordinary gains........................ - - .36
Cumulative effect of change in
accounting principle..................... ( .15) - -

Net income (loss)......................... ($ .17)$ .12 $ 1.18

Dividends paid per share-
Common stock................................. $ .25 $ .25 $ .25

See Notes to Consolidated Financial Statements.
/TABLE

KATY INDUSTRIES, INC.
AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

Common Stock Foreign
Additional Currency
Number Par Paid-in Translation Retained Treasury
of Shares Value Capital Adjustment Earnings Stock
(Thousands of Dollars, Except Number of Shares)

Balance at
January 1, 1991 9,821,329 $ 9,821 $ 51,760 $ 5,593 $189,434 ($ 2,881)

Purchase of treasury stock - - - - - ( 10,875)
Net income - - - - 11,090 -
Common stock dividends - - - - ( 2,764) -
Foreign currency
translation adjustments - - - ( 2,384) - -
Decrease due to issuance
of stock warrants by an
investee company - - ( 37) - - -

Balance at
December 31, 1991 9,821,329 9,821 51,723 3,209 197,760 ( 13,756)

Purchase of treasury stock - - - - - ( 104)
Net income - - - - 1,102 -
Common stock dividends - - - - ( 2,254) -
Foreign currency
translation adjustments - - - ( 301) - -

Balance at
December 31, 1992 9,821,329 9,821 51,723 2,908 196,608 ( 13,860)

Net loss - - - - ( 1,540) -
Common stock dividends - - - - ( 2,254) -
Foreign currency
translation adjustments - - - 972 - -
Purchase of stock warrants
by an investee company - - ( 612) - - -
Balance at
December 31, 1993 9,821,329 $ 9,821 $51,111 $ 3,880 $192,814 ($ 13,860)
See Notes to the Consolidated Financial Statements.

KATY INDUSTRIES, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

1993 1992 1991
(Thousands of Dollars)

Cash flows from operating activities:
Net (loss) income........................... ($ 1,540) $ 1,102 $ 11,090
Depreciation and amortization............... 5,716 5,709 8,747
Provision for doubtful accounts and notes... 1,511 4,609 6,440
Loss (gain) on sale of assets............... ( 16,382) 73 ( 8,895)
Equity in income of unconsolidated
subsidiaries.............................. ( 3,715) ( 3,297) ( 2,403)
Extraordinary gains......................... - - ( 3,722)
Change in accounting principle.............. 1,418 - -
Loss from discontinued operations........... 5,618 - -
Changes in assets and liabilities,
net of sale of subsidiaries:
Receivables............................... 1,257 13,241 ( 1,854)
Inventories............................... 3,725 3,286 3,384
Other current assets...................... 222 768 2,631
Accounts payable and accrued liabilities.. ( 2,985) ( 1,968) ( 7,355)
Deferred income taxes..................... 1,604 2,712 1,047
Other, net................................ 1,708 ( 3,845) ( 1,479)
Net cash flows from operating activities ( 1,843) 22,390 7,631
Cash flows from investing activities:
Proceeds from sale of assets................ 38,891 338 35,453
Collections of notes receivable............. 535 4,861 3,976
Time deposits and marketable securities
activity, net............................. 62,630 ( 998) ( 11,372)
Investments in and advances from (to)
unconsolidated subsidiaries............... 200 ( 1,210) ( 702)
Advances to affiliates...................... - ( 5,662) -
Other investments........................... - ( 1,804) ( 4,455)
Capital expenditures........................ ( 4,278) ( 5,504) ( 10,210)
Other, net.................................. - 303 ( 1,200)
Net cash flows from investing activities.. 97,978 ( 9,676) 11,490
Cash flows from financing activities:
Proceeds from issuance of long-term debt.... 165 179 2,027
Notes payable activity, net................. 2,009 ( 2,864) 6,948
Principal payments on long-term debt........ ( 1,428) ( 1,422) ( 2,320)
Payments of dividends....................... ( 2,255) ( 2,257) ( 2,764)
Purchase of treasury stock.................. - ( 104) ( 10,875)
Net cash flows from financing activities.. ( 1,509) ( 6,468) ( 6,984)
Effect of exchange rate changes on cash....... 862 267 ( 264)
Net increase in cash and cash
equivalents................................. 95,488 6,513 11,873
Cash and cash equivalents at beginning of year 34,801 28,288 16,415

Cash and cash equivalents at end of year...... $130,289 $ 34,801 $ 28,288
Cash paid during the year for:
Interest.................................... $ 1,759 $ 1,957 $ 1,739
Income taxes................................ $ 5,719 $ 4,413 $ 5,079

See Notes to Consolidated Financial Statements.

KATY INDUSTRIES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

Note
1. SIGNIFICANT ACCOUNTING POLICIES:

Consolidation Policy - The financial statements include, on a
consolidated basis, the accounts of Katy Industries, Inc. and subsidiaries
(Katy) in which it has a greater than 50% interest. The financial
statements of Schon & Cie, AG and its subsidiaries included in Katy's
consolidated financial statements are as of October 31, 1993 and 1992 and
for each of the three years in the period ended October 31, 1993. The
financial statements of these subsidiaries are as of a different date
because of the time required to prepare and translate such financial
statements under United States generally accepted accounting principles.
Subsequent to October 31, 1993, Schon & Cie, AG realized $1,500,000 on
receivables, owed by customers in the former Soviet Union, previously
written off.

As part of the continuous evaluation of its operations in recent
years, Katy has disposed of a number of its operating units. Those which
affected the consolidated financial statements for each of the three years
in the period ended December 31, 1993 are described in Note 2.

There are no restrictions on the payment of dividends by consolidated
subsidiaries to Katy. Katy's consolidated retained earnings as of
December 31, 1993 include $25,381,000 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 subsidiaries to Katy.

All intercompany accounts, profits and transactions have been
eliminated in consolidation.

Cash and Cash Equivalents - Cash equivalents consist of highly liquid
investments with original maturities of three months or less and total
$125,957,000 and $28,255,000 as of December 31, 1993 and 1992,
respectively, which approximates their fair value.

Time Deposits and Marketable Securities - Time deposits and marketable
securities are stated at cost; the fair values are based on quoted market
prices.

Notes and Other Receivables - The fair values of notes and other
receivables approximated their carrying values.

Inventories - Inventories are stated at the lower of cost, determined
by the first-in, first-out method, or market. The components of
inventories are:

December 31
1993 1992
(Thousands of Dollars)
Raw materials............................. $ 13,710 $ 15,535
Work in process........................... 9,582 12,405
Finished goods............................ 17,433 22,044

$ 40,725 $ 49,984

Note
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Properties - Properties 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 lease period.

Accrued Expenses - The components of accrued expenses are:

December 31,
1993 1992
(Thousands of Dollars)
Accrued insurance $ 7,889 $ 3,803
Accrued EPA costs 7,444 480
Other accrued expenses 6,175 10,613
$21,508 $14,896

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.

Earnings Per Share Earnings per share are based on the weighted
average number of shares of common stock outstanding during the year
(9,017,387 in 1993, 9,018,758 in 1992 and 9,381,383 in 1991).

New Accounting Pronouncements - Statement of Financial Accounting
standards ("SFAS") No. 112 "Employers Accounting for Postemployment
Benefits" becomes effective for the Company in 1994. Effective January 1,
1994, the Company will adopt this standard, which establishes accounting
standards for employers who provide benefits to former or inactive
employees after employment but before retirement. The Company believes
that adoption of this statement will not have a material effect on the
Company's financial statements.

Katy will adopt SFAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities" effective January 1, 1994. SFAS No. 115 requires,
among other things, that securities which are available for sale be
classified as such and stated at their fair value with the unrealized
holding gain or loss accounted for as a separate component of
stockholders' equity. Adoption of SFAS No. 115 will result in the
reclassification of marketable securities with a cost of $15,795,000 to
securities available-for-sale; such securities will be revalued to their
fair value on January 1, 1994 of $31,223,000 and the unrealized holding
gain of $9,257,000, net of related taxes, will be accounted for as a
separate component of equity.

Reclassifications
Certain amounts from prior years have been reclassified to conform
with the 1993 financial statement presentation.
Note
2. DISCONTINUED OPERATIONS AND OTHER DISPOSITIONS:

Dispositions
In November, 1993 the Company sold its pump manufacturing group for
net proceeds of $9,937,000 resulting in a nominal gain. Sales of this
group were $19,031,000, $23,219,000 and $25,575,000 and operating income
(loss) was ($2,055,000), ($424,000) and $825,000 in 1993, 1992 and 1991,
respectively.

In June, 1991 Katy commenced the discontinuance of operations of its
low power television station and recorded a charge of $600,000 for closing
costs. During the third quarter of 1991 Katy sold the net operating
assets of Fulton Iron Works Company for book value, approximately
$600,000.

Discontinued Operations
In 1993 Katy provided $5,618,000, net of income tax benefits of
$3,064,000, for additional environmental cleanup costs at plant sites of
units discontinued in prior years and to record the loss on disposal of
assets of a unit discontinued in a prior year.

Note

3. ACQUISITIONS:

In February, 1991 Katy purchased for $1,900,000 in cash the net assets
of the Rail and Transport Products Division of Aeroquip Corporation, a
manufacturer of locomotive control, monitoring and recording systems. In
August, 1991, Katy purchased substantially all the net operating assets of
the paint and stain business of Sinecure Financial Corp. (formerly
Duckback Industries, Inc.), for $1,230,000. The purchase agreement
provides for additional cash payments contingent upon the attainment of
certain future earnings levels. During 1993, Katy provided $1,723,000 for
such additional cash payments and recorded this amount as goodwill,
included with "Other Assets - Miscellaneous" in the Consolidated Balance
Sheets. This goodwill is being amortized over 15 years. For the 1993
Consolidated Statement of Cash Flows, this represents a non-cash investing
transaction.

Each of these acquisitions has been accounted for by the purchase
method of accounting and the operating results of the businesses acquired
have been included in the results of operations from the dates of
acquisition.
Note
4. INVESTMENTS, AT EQUITY, AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES:

Katy's investments in and advances to unconsolidated subsidiaries
comprise the following:

December 31, 1993 Investments Advances Total
(Thousands of Dollars)

Syratech Corporation $32,977 $ - $32,977
Bee Gee Holding Company, Inc. 6,281 - 6,281
C.E.G.F. (USA) 2,060 4,198 6,258

$41,318 $ 4,198 $45,516

December 31, 1992 Investments Advances Total
(Thousands of Dollars)

Syratech Corporation $26,735 $ - $26,735
Bee Gee Holding Company, Inc. 7,297 - 7,297
C.E.G.F. (USA) 1,949 4,398 6,347

$35,981 $ 4,398 $40,379

Syratech Corporation ("Syratech")

At December 31, 1993, Katy owns 3,070,251 shares of common stock, a
26.4% interest (25.7%) on a fully diluted basis), of Syratech, which is
engaged in the manufacture, importation and sale of tabletop and giftware
products and the manufacture and sale of casual furniture and accessories.
Katy acquired this investment between 1986 and 1992 through the sale of a
subsidiary, conversion of notes receivable, cash purchases and Syratech's
repurchase of its own stock from other investors. Katy accounts for this
investment on a three month lag basis.

Note
4. INVESTMENTS, AT EQUITY, AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES
(CONTINUED):

In November, 1992, Syratech completed an initial public offering at
$16.50 a share, the effect of which diluted Katy's ownership percentage,
and resulted in a credit of $835,000, net of income taxes of $534,000, to
Katy's Statement of Consolidated Operations in 1993 on a fully diluted
basis, for Katy's share of Syratech's increased Shareholder Equity
accounts. In addition, at the time of the initial public offering,
Syratech adopted a shareholder rights plan. Katy's shares are not
registered and if sold to a single purchaser would cause the shareholder
rights plan to become effective. At December 31, 1993, the market value
of Katy's investment in Syratech's stock was $57,567,000, based upon the
closing market price, however, considering the shareholder rights plan and
the large block of stock owned by Katy, there is no assurance that Katy
could sell its stock for this value.

In 1992, subordinated notes, which were purchased for $3,000,000 in
1990, were converted, attached warrants were exercised and Katy received
509,251 shares of common stock, thereby further increasing Katy's
investment.

In 1991, Katy's share of Syratech's extraordinary gain resulting from
insurance settlements was $3,372,000, net of deferred income taxes of
$351,000.

Bee Gee Holding Company, Inc. ("Bee Gee")

Katy owns 30,000 shares of common stock, a 37-1/2% interest, of Bee
Gee, which consists of several subsidiaries engaged in the business of
harvesting shrimp off the coast of South America and processing shrimp and
other seafoods for domestic and foreign markets.

C.E.G.F. (USA)

At December 31, 1993, Katy owns 1,440 shares of common stock, a 45%
interest, of C.E.G.F. (USA), a cold storage business. Of this amount,
Katy purchased 640 shares in 1992 for cash of $1,100,000 from Bee Gee (see
above). Katy's equity in Bee Gee's operating results has been adjusted to
eliminate Bee Gee's gain on this transaction. In addition, Katy has
loaned C.E.G.F. (USA) $4,198,000 at prime plus 3/4%. The maturity date of
the loan is January 1, 1995. (See also Note 15).

Goodwill

Goodwill related to all of these investments is being amortized over
ten years.
Note
4. INVESTMENTS, AT EQUITY, AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES
(CONTINUED):

The condensed financial information which follows reflects Katy's
proportionate share in the financial position and results of operations of
its unconsolidated subsidiaries:

1993 1992
(Thousands of Dollars)

Current assets $ 35,356 $ 36,926
Current liabilities ( 13,864) ( 21,313)

Working capital 21,492 15,613

Properties, net 29,283 34,684
Other assets 913 1,107
Long-term debt ( 8,979) ( 15,189)
Other liabilities ( 5,234) ( 3,469)

Stockholders' equity 37,475 32,746

Unamortized excess of cost over
net assets acquired 3,843 3,235

Investments, at equity, in
unconsolidated subsidiaries $ 41,318 $ 35,981

1993 1992 1991
(Thousands of Dollars)

Sales $ 91,208 $ 90,451 $ 83,563
Costs and expenses ( 85,454) ( 85,515)( 80,129)

Net income, as reported 5,754 4,934 3,434
Amortization and depreciation
of excess of cost over
net assets acquired ( 774) ( 667)( 649)

Provision for income taxes ( 2,100) ( 970)( 382)

2,880 3,297 2,403
Extraordinary gains - - 3,372

Equity in net income of
unconsolidated subsidiaries $ 2,880 $ 3,297 $ 5,775
Note
5. INVESTMENTS, AT COST:

Katy's investments which are accounted for using the cost method are
as follows:

1993 1992
(Thousands of Dollars)

Oil exploration joint venture $ 6,279 $ 6,279
Other 425 1,199

$ 6,704 $ 7,478

Katy has a 15% interest in a joint venture which holds exclusive
exploratory and production rights in a specified on-shore area of
Indonesia under a production sharing contract with Pertamina, the
Indonesian government oil and gas enterprise. A 60% interest is held by
a major American oil company, and 25% is held by a Japanese concern.

The original six year exploration contract expired in February, 1991
and two-two-year extensions have been granted by the Indonesian
government. Katy's joint venture partners have been actively
investigating the economic potential of the area and have had ongoing
negotiations for a plan of development for the 1982 exploratory well which
tested favorably. Subsequently, six additional exploratory wells have
been unsuccessful.

It is impracticable to estimate the fair value of the Company's
investments, at cost, because of the lack of quoted market prices and the
inability to establish the fair value without incurring excessive costs.

Note
6. INDEBTEDNESS:

Notes Payable

Notes payable at December 31, 1993 and 1992 comprise short-term
borrowings by Katy's foreign subsidiaries under lines of credit for up to
$11,903,000, of which $10,163,000 was being used at year-end. The maximum
short-term borrowings outstanding at any month-end were $11,127,000 in
1993, $15,303,000 in 1992 and $10,198,000 in 1991. Interest rates on such
short-term borrowings averaged 5.4% at December 31, 1993, 5.0% at December
31, 1992 and 9.0% at December 31, 1991. The approximate aggregate short-
term borrowings outstanding were $9,620,000 in 1993, $9,369,000 in 1992
and $6,646,000 in 1991. Interest rates on short-term borrowings from
banks averaged approximately 5.4%, 5.0% and 9.0% during 1993, 1992 and
1991. Substantially all short-term borrowings were in Germany.

Credit Agreement

In December, 1991, Katy entered into a credit agreement with three
banks providing for a revolving credit facility not to exceed $15,000,000.
Interest on the revolving credit facility is, at Katy's option, either the
agent bank's prime interest rate, 6% at December 31, 1993, or 1-1/4% above
the agent bank's certificate of deposit interest rate, 3.18% at December
31, 1993. This agreement expires December 31, 1994.

The agreement requires Katy to maintain certain financial covenants
and also imposes limitations on the acquisition and disposition of assets,
future borrowings, guarantees, letters of credit, mergers and the
purchase, redemption or retirement of Katy stock. Pursuant to such
agreement, approximately $11,850,000 of retained earnings at December 31,
1993 was available for payment of dividends on common stock, subject to a
$5,000,000 per year limitation. Katy had no indebtedness outstanding
under this agreement at December 31, 1993. This facility is used for
letters of credit, $4,912,700 of which were outstanding at December 31,
1993.

Long Term Debt

Long-term debt at December 31 includes:
1993 1992
(Thousands of Dollars)
Notes payable - foreign banks, with interest at
5-10.15%, due through 1999............................. $ 4,159 $ 5,130
Real estate and chattel mortgages, with interest
at various rates, due through 2008.................... 769 875
Other notes payable..................................... 2,352 2,777
7,280 8,782
Less current maturities............................. ( 2,991) ( 2,840)

$ 4,289 $ 5,942

Aggregate maturities of long-term debt during the five years ending
December 31, 1998 are as follows:
(Thousands of Dollars)
1994 - $2,991
1995 - 918
1996 - 456
1997 - 326
1998 - 205
Later years - 2,384

Total $7,280
Other

As of December 31, 1993, Katy is contingently liable for $8,000,000 of
8-1/8% Industrial Development Bonds issued by Bee Gee.

The carrying amounts of the Company's long and short-term debt
agreements approximate their fair market values.

Note
7. RETIREMENT BENEFIT PLANS:

Several domestic and foreign 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. 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 are 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, except for the German pension plan which is funded by a note
receivable from the German subsidiary.

Net pension expense includes the following components:

1993 1992 1991
(Thousands of Dollars)

Service cost $ 173 $ 406 $ 393
Interest cost 482 809 745
Actual return on plan assets ( 377) ( 1,143) ( 864)
Net amortization and deferral 103 437 170

Net pension expense $ 381 $ 509 $ 444

Major assumptions used to determine pension obligations:

Discount rates for
obligations 6-8.5% 7.25-9.5% 7.75-10.5%

Discount rates for expenses 6-8.5% 7.25-9.5% 7.75-10.5%
Expected long-term
rates of return 6-8.5% 8-9.5% 8-10.5%
Assumed rates of compensation
increases 2-5% 3-8% 3-9%

U.S. plans have been valued using a discount rate of 6%. Foreign
plans have been valued using discount rates ranging from 7.0 - 8.5% which
approximate rates for obligations of similar duration in those countries
to which the plans apply.
Note
7. RETIREMENT BENEFIT PLANS (CONTINUED):

Pension Plans (Continued):

The funded status of all plans at December 31 follows:

1993 1992
Assets Accumulated Assets Accumulated
Exceed Benefit Exceed Benefit
Accumulated Obligations Accumulated Obligations
Benefit Exceed Benefit Exceed
Obligations Assets Obligations Assets

(Thousands of Dollars)

Vested benefits ($ 2,130) ($ 4,011) ($ 4,797) ($ 3,750)
Nonvested benefits ( 46) ( 100) ( 215) ( 96)

Accumulated benefit obligation ( 2,176) ( 4,111) ( 5,012) ( 3,846)
Effect of future compensation
increases ( 15) ( 172) ( 550) ( 380)

Projected benefit obligation ( 2,191) ( 4,283) ( 5,562) ( 4,226)
Plan assets at fair value 2,927 1,726 7,531 1,952

Projected benefit obligation
less than (in excess of)
plan assets 736 ( 2,557) 1,969 ( 2,274)
Unrecognized net loss (gain) 276 ( 265) 1,250 ( 604)
Unrecognized net transition
obligation (asset) ( 746) 1,409 ( 2,629) 1,683
Additional minimum liability - ( 994) - ( 708)

Prepaid (accrued) pension
cost $ 266 ($ 2,407) $ 590 ($ 1,903)

In addition to the plans described above, in late 1993 the Company's
Board of Directors approved retirement compensation programs for certain
officers and employees of the Company. The Board approved a total of
$3,500,000 to fund such plans. This amount represents the best estimate
of the obligation which vested immediately upon Board approval and is to
be paid for services rendered to date. This amount is included in
selling, general and administrative expenses in the accompanying Statement
of Consolidated Operations.

Note
7. RETIREMENT BENEFIT PLANS (CONTINUED):

Postretirement Benefits Other than Pensions

Katy provides certain health care and life insurance benefits for some
of its retired employees. Effective January 1, 1993, Katy adopted SFAS
No. 106 "Employer's Accounting for Postretirement Benefits Other Than
Pensions" which requires Katy to accrue the estimated cost of retiree
benefit payments for health and life insurance benefits during the years
the employee provides services. Katy previously expensed the cost of
these benefits, which are principally for health care, as claims were
incurred. Katy has elected to recognize the cumulative effect of this
obligation on the immediate recognition basis. The cumulative effect as
of January 1, 1993 of adopting SFAS No. 106 was an increase in accrued
postretirement benefit costs of $2,343,000 and a decrease in net earnings
for the year ended December 31, 1993 of $1,418,000 ($.15 per share), net
of income tax benefits of $925,000. This charge is being reported in the
Statement of Consolidated Operations under the caption "Cumulative effect
of change in accounting principle". The Company's postretirement benefit
plans currently are not funded. Adoption of SFAS No. 106 did not have a
material impact on income from continuing operations in 1993.

The accumulated postretirement benefit obligation at December 31, 1993
is as follows:

(Thousands of Dollars)
Retirees $2,625
Fully eligible active plan participants 204
Other active plan participants 355
Unrecognized net gain 408
$3,592

Net postretirement benefit cost for 1993 includes the following:

(Thousands of Dollars)
Service cost - benefits earned
during the year $ 103
Interest cost on accumulated
postretirement benefit obligation 233
Total cost $ 336

The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation as of December 31, 1993 was
11% for 1994 decreasing linearly each successive year until it reaches
4.5% in 2001, after which it remains constant. A one-percentage-point
increase in the assumed health care cost trend rate for each year would
increase the accumulated postretirement benefit obligation as of December
31, 1993 and net postretirement health care cost by approximately 11.3%.
The assumed discount rates used in determining the accumulated
postretirement benefit obligation at January 1, and December 31, 1993 were
7.25 % and 6%, respectively, compounded annually.

Note
7. RETIREMENT BENEFIT PLANS (CONTINUED):

401(K) Plans

The Company offers its employees the opportunity to participate in one
of nine 401(K) plans administered by Katy or one of its subsidiaries.
Participation by employees in any of the 401(K) plans is voluntary. The
Company is not required to make contributions to these plans, however,
historically, the Company, at its discretion, has made annual
contributions of $350,000, $201,000 and $171,000 in 1993, 1992 and 1991,
respectively, which, on average, have approximated 10% of the employees'
annual contributions.

Note
8. WASTE-TO-ENERGY PLANT:

A Katy limited partnership has a contract to operate a waste-to-energy
facility in Savannah, Georgia through the year 2007. This facility is
owned by a limited partnership, all the partners of which are Katy
subsidiaries. The limited partnership is under contract with the Resource
Recovery Development Authority of the City of Savannah (the City) to
receive and dispose of the City of Savannah's solid waste through 2007.
The contract provides for minimum levels of the limited partnership's
disposal fee income to be used to retire the $50,700,000 of industrial
revenue bonds issued by an Authority of the City to finance construction
of the plant. In the event of nonperformance by the other parties to the
contracts, Katy is exposed to an off-balance-sheet credit risk for the
amount of the bonds, $50,700,000 at December 31, 1993, less $5,070,000,
which is held in the debt service reserve fund for the payment of the debt
service on the bonds, in the event of a deficiency in monies available for
those purposes and possible insurance proceeds. Katy does not anticipate
nonperformance by the other parties.

In substance, the City desired a solid waste disposal and resource
recovery facility, issued bonds to finance construction of the facility,
and contracted Katy (inclusive of its subsidiaries and their partnership
interests) to construct, operate and maintain the facility. In return for
its services, Katy was intended to receive a reasonable profit and the
facility upon the termination of the various agreements. Katy is
obligated to perform under the various agreements and make the contractual
equity contributions. Katy 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 since
a right of offset exists.

Katy was contractually required to make monthly contributions to the
trust fund totalling $9,200,000 and $8,991,000 through December 31, 1993
and 1992, respectively. In consideration for these contributions, the
Waste-to-Energy facility will revert to Katy, subject to collateral
agreements under the bond indentures, when the service agreement expires.
Accordingly, Katy has included such amounts under the caption "Other
Assets - Miscellaneous". Katy is not required to make any additional
payments to the trust fund.

Note
8. WASTE-TO-ENERGY PLANT: (CONTINUED)

The Katy subsidiary has made capital expenditures to improve the
operating efficiency of the facility. These expenditures have been
accounted for as deferred expenses and are being amortized through 2007,
the period during which Katy expects to realize the economic benefits
associated with such expenditures. At December 31, 1993 and 1992,
expenditures of $3,019,000 and $3,485,000, net of accumulated amortization
of $4,618,000 and $4,152,000, respectively, are included in "Other Assets
- - Miscellaneous" in the Consolidated Balance Sheets.

Katy also owns the "Seghers" technology to manufacture waste-to-energy
facilities in North America. A $2,805,600 and $2,900,000 asset is
included in "Other Assets - Miscellaneous" as of December 31, 1993 and
1992, respectively. In 1993 Katy commenced amortization of this asset
through 2007. Accumulated amortization as of December 31, 1993 totaled
$94,400.

Note
9. INCOME TAXES:

Effective January 1, 1993, the Company adopted the provisions of SFAS
No. 109 "Accounting for Income Taxes". Accordingly, income taxes are
accounted for under the liability method, which requires deferred tax
assets and liabilities to be recognized based upon (a) the difference
between the financial accounting and tax bases of assets and liabilities
and (b) operating loss and tax credit carryforwards. Deferred tax assets
and liabilities at the end of each period are determined using the
currently enacted tax rate expected to apply to taxable income in the
periods in which the deferred tax asset or liability is expected to be
settled or realized.

The cumulative effect on prior years of adopting SFAS No. 109 was not
material, nor was the effect on 1993 operations. In previous years income
taxes were accounted for in accordance with SFAS No. 96.

Separate provisions for income taxes are calculated for continuing
operations, for all operations and for net income. The provision
(benefit) allocated to discontinued operations, extraordinary gains and
accounting changes represents the incremental effect on Katy's total
income tax provision of income (loss) as a result of each such item.
Federal current and deferred income tax provisions for 1993, 1992 and 1991
have been reduced due to the recognition of net operating loss and tax
credit carryforwards.

The domestic and foreign components of income (loss) before income
taxes, exclusive of equity in income of unconsolidated subsidiaries, are:

1993 1992 1991

Domestic: (Thousands of Dollars)
Continuing operations...................... $ 9,723 $ 8,201 $ 9,385
Discontinued operations.................... ( 8,682) - -
Extraordinary gains........................ - - 3,723
Change in accounting principle............. ( 2,343) - -
Total domestic........................... ( 1,302) 8,201 13,108
Foreign:
Continuing operations...................... 6,003) ( 7,113)( 3,469)
Total worldwide.......................... ($ 7,305) ($ 1,088) $ 9,639

Note
9. INCOME TAXES (CONTINUED):
The components of the total provision (benefit) for income taxes are:

1993 1992 1991
(Thousands of Dollars)
Continuing operations:
Current:
Federal.................................. $ 1,980 $ 261 $ 532
State.................................... 1,020 598 1,214
Foreign.................................. ( 31) 682 ( 1,810)
Total.................................. 2,969 1,541 ( 64)
Deferred:
Federal.................................. 1,770 2,726 1,015
State.................................... ( 197) ( 14) 32
Foreign.................................. 31 - -
Total.................................. 1,604 2,712 1,047
Total continuing operations......... 4,573 4,253 983

Discontinued operations:
Federal.................................. ( 2,842) - -
State.................................... ( 222) - -
Total.................................. ( 3,064) - -

Extraordinary gain........................... - - 351
Change in accounting principle............... ( 925) - -
Total $ 584 $ 4,253 $ 1,334

The total income tax provision differed from the amount computed by
applying the statutory federal income tax rate to pretax income from
continuing operations. The computed amount and the differences for the
years ended December 31, 1993, 1992 and 1991 were as follows:

1993 1992 1991
(Thousands of Dollars)
Provision for income taxes at statutory rate.. $ 1,265 $ 364 $ 2,011
State income taxes, net of federal benefit.... 630 404 822
Foreign tax rate differential................. 178 ( 239) ( 631)
Foreign losses for which no tax benefit is
available.................................... 3,181 4,570 -
Repatriation of foreign earnings.............. - - 375
Undistributed earnings of equity investees.... 2,634 1,206 662
Alternative minimum tax....................... 1,289 - 355
Benefit of net operating loss carryforwards... ( 4,091) - ( 173)
Benefit of tax credit carryforwards........... ( 764) ( 1,865) ( 2,447)
Other, net.................................... 251 ( 187) 9

Provision for income taxes from
continuing operations..................... $ 4,573 $ 4,253 $ 983

Note
9. INCOME TAXES (CONTINUED):

The tax effects of significant items comprising the Company's net
deferred tax liability as of December 31, 1993 are as follows:

Deferred tax liabilities: (Thousands of Dollars)
Difference between book and tax
basis of property $ 3,741
Waste-to-energy facility 14,334
Undistributed earnings of equity
investees 9,562

27,637
Deferred tax assets:
Allowance for doubtful receivables 879
Inventory costs 2,999
Accrued expenses and other items 9,893
Operating loss carryforwards - domestic 486
Operating loss carryforwards - foreign 4,270
Tax credit carryforwards 4,444
22,971
Less valuation allowance ( 4,384)

18,587
Net deferred tax liability $ 9,050

The valuation allowance primarily relates to foreign net operating
loss carryforwards that may not be realized due to continued losses from
foreign operations. The valuation allowance increased $4,270,000 during
the year ended December 31, 1993, due to losses at the Company's foreign
operations. The foreign net operating loss carryforwards have no
expiration date.

At December 31, 1993 investment tax credit carryforwards of
$2,820,000 (with expiration dates ranging from 1994 to 2003), alternative
minimum tax carryforwards of $1,504,000 (with no expiration date), and
general business credits of $120,000 are available.

Deferred tax liabilities have not been recognized for all
undistributed earnings of equity investees as the temporary differences
resulting from the undistributed earnings are not expected to be realized
within the foreseeable future. The undistributed earnings would become
taxable upon the sale or liquidation of the equity investee or upon
transfer to Katy as dividends. The tax effect of the distribution is
dependent upon the nature of the distribution, but the cumulative maximum
amount of such taxes would be approximately $11,500,000.

Note
10. LEASE OBLIGATIONS:

Katy has entered into non-cancellable operating leases for
manufacturing and data processing equipment and real property with lease
terms of up to 5 years. Katy is generally obligated for the cost of
property taxes, insurance and maintenance. Future minimum lease payments
as of December 31, 1993 are as follows:

(Thousands of Dollars)
1994.........................................$1,318
1995......................................... 939
1996......................................... 677
1997......................................... 561
1998......................................... 431
Later years.................................. 360

Total minimum payments.....................$4,286

Rental expense for 1993, 1992 and 1991 for operating leases was
$2,005,000, $2,093,000 and $2,212,000, respectively.

Note
11. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION:

Katy operates principally in three industry segments: Industrial
Machinery, Industrial Components and Consumer Products. During 1993, the
Company's electrical component distribution company was reclassified from
the Industrial Components segment to the Consumer Products segment to
reflect the reassessment of the principal market for that Company's
Product. Financial data for 1992 and 1991 have been restated accordingly.

Industrial Machinery - includes companies involved in the manufacture
and sale of production machinery for the shoe-making, die-cutting, food
packaging, food processing and woodworking industries, the manufacture of
production presses used in various industries and the operation of a
waste-to-energy facility.

Industrial Components - includes companies involved in the manufacture
and sale of components such as pumps for the chemical processing industry,
which business was sold in the fourth quarter of 1993, specialty metals
and testing and measuring instruments for the electrical and electronic
markets, and the refitting of machinery for the oil, gas and petrochemical
industries.

Consumer Products - includes companies involved in the manufacture and
sale of sanitary maintenance supplies, air filters, paints, stains and the
packaging and sale of electronic components.

Note
11. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED):

Operating income by industry segment and geographical area is before
income taxes and equity in earnings of unconsolidated subsidiaries. The
following income and expense items are also not specifically identified
with any of the reporting industry segments: interest income, interest
expense, minority stockholders share of income/loss, general corporate
expenses and other income/expense, net. Corporate assets include the
substantial majority of Katy's cash and cash equivalents, time deposits
and marketable securities, notes receivable and investments.

Export sales of products, primarily to Central and South America,
Western Europe, the Middle East and the Far East, were $15,494,000,
$18,000,000, and $14,596,000 in 1993, 1992 and 1991, respectively.

Operating results by industry segment for 1993, 1992 and 1991 follow:

1993 1992 1991
Net Operating Net Operating Net Operating
Sales Income Sales Income Sales Income
(Thousands of Dollars)

Industry segments:
Industrial Machinery.. $ 61,363 ($ 4,912) $ 67,383 ($ 3,412) $ 77,317 ($ 3,437)
Industrial Components. 50,853 ( 600) 57,801 3,828 58,824 4,617
Consumer Products..... 56,507 2,808 51,893 4,453 45,353 4,896

$168,723 ( 2,704) $177,077 4,869 $181,494 6,076

Interest income........ 5,220 8,237 8,776
Interest expense....... ( 1,780) ( 1,972) ( 1,733)
Corporate expenses, net ( 14,470) ( 7,552) ( 9,647)
Other income
(expense), net........ 15,993 ( 4,999) 1,974

Income (loss) from continuing
consolidated operations
before income taxes and
minority interest $ 2,259 ($ 1,417) $ 5,446

Other information by industry segment follows:

Depreciation
and Capital
Assets Amortization Expenditures
(Thousands of Dollars)

At December 31, 1993
Industry Segments:
Industrial Machinery.................. $ 67,500 $ 2,665 $ 1,685
Industrial Components................. 24,681 1,591 848
Consumer Products..................... 33,797 1,218 1,678

Total............................ 125,978 5,474 4,211
Corporate............................. 204,247 242 67

Consolidated..................... $330,225 $ 5,716 $ 4,278

At December 31, 1992
Industry Segments:
Industrial Machinery.................. $ 76,437 $ 2,725 $ 1,705
Industrial Components................. 40,720 1,846 1,699
Consumer Products..................... 32,201 990 1,835

Total............................ 149,358 5,561 5,239
Corporate............................. 165,303 148 265

Consolidated..................... $314,661 $ 5,709 $ 5,504

At December 31, 1991
Industry Segments:
Industrial Machinery.................. $ 94,579 $ 6,281 $ 7,487
Industrial Components................. 43,116 1,594 1,411
Consumer Products..................... 30,353 725 1,275

Total............................ 168,048 8,600 10,173
Corporate............................. 151,926 147 37

Consolidated..................... $319,974 $ 8,747 $ 10,210

Note
11. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED):

Katy operates businesses both in the United States and foreign
countries. The operations for 1993, 1992 and 1991 of businesses within
major geographic areas are summarized as follows:

United Western
States Europe Other Consolidated
(Thousands of Dollars)
1993

Sales to unaffiliated
customers................. $127,157 $ 34,062 $ 7,504 $168,723

Operating income (loss).....$ 2,557 ($ 5,067) ($ 194) ($ 2,704)

Identifiable assets.........$ 96,078 $ 24,557 $ 5,343 $125,978

1992

Sales to unaffiliated
customers.................$125,426 $ 41,722 $ 9,929 $177,077

Operating income (loss).....$ 10,476 ($ 6,522) $ 915 $ 4,869

Identifiable assets.........$104,838 $ 39,290 $ 5,230 $149,358

1991

Sales to unaffiliated
customers.................$113,678 $ 59,330 $ 8,486 $181,494

Operating income............$ 4,757 $ 1,295 $ 24 $ 6,076

Identifiable assets.........$109,779 $ 53,357 $ 4,912 $168,048

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

Note
12. CONTINGENT LIABILITIES

The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by
the U.S. Environmental Protection Agency and certain state environmental
agencies and private parties as potentially responsible parties ("PRP's")
at a number of hazardous waste disposal sites under the Comprehensive
Environmental Response, Compensation and Liability Act ("Superfund") and
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. The means of determining
allocation among PRPs is generally set forth in a written agreement
entered into by the PRPs at a particular site. An allocation share
assigned to a PRP is often based on the PRP's volumetric contribution of
waste to a site. The Company is also involved in remedial response and
voluntary environmental clean-up at a number of other sites which are not
currently the subject of any legal proceedings under Superfund, including
certain of its current and formerly owned manufacturing facilities. 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 made provisions
for indicated environmental liabilities in the aggregate amount of
approximately $7,500,000 in addition to $1,000,000 accrued and paid in
1993. The Company expects this amount to be expended over the next one to
four years.

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

1. The United States had alleged violations of RCRA based upon
the alleged status of sludge drying beds of W. J. Smith Wood
Preserving Company, a Katy subsidiary ("W. J. Smith"), as a
hazardous waste management unit. Since 1990, the Company
has spent in excess of $3,500,000 in undertaking cleanup and
compliance activities in connection with this matter and has
established a reserve, in excess of $4,000,000, for future
such activities. The Company is currently negotiating with
the United States Environmental Protection Agency (USEPA)
concerning additional actions to mitigate off-site releases.
If the Company's proposal is approved, the Company believes
that the amount reserved will be adequate. However, total
cleanup and compliance costs cannot be determined until such
approval is received.

2. 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. Balteau has demanded that Katy accept
financial responsibility for investigation and clean-up
costs incurred as a result of the PCB contamination.
Balteau has notified the State of Oregon that it intends to
perform a voluntary cleanup, cost estimates for which
currently range between $2,000,000 and $6,000,000.

Note
12. CONTINGENT LIABILITIES (CONTINUED)

The Oregon Department of Environmental Quality has recently
requested that additional investigative activities be
performed to support future remedial activities. Katy and
Balteau have agreed to share the costs associated with this
additional work. Katy has established reserves in
connection with this matter.

3. The Missouri Pacific Railroad Company ("Missouri Pacific")
filed a complaint alleging that Katy, through its
subsidiary, W. J. Smith, is liable for past and future
cleanup costs associated with a parcel of real estate in
Denison, Texas which is owned by Missouri Pacific (the
"Parcel"). Investigations, completed in or about 1991,
disclosed creosote contamination, the cost of cleanup of
which, if required, could be substantial. On October 29,
1993, Katy filed its Answer, Affirmative and Other Defenses,
and Counterclaims against the plaintiff in this action,
denying liability for past and future cleanup costs
associated with the Parcel and alleging six counterclaims
that seek (i) a declaration that the plaintiff is liable for
costs associated with the Parcel and (ii) cost recovery and
contribution associated with the Parcel and another parcel
of real estate located in Denison, Texas owned by W. J.
Smith. This case is now in the discovery phase. Katy's
liability with respect to this case cannot be determined at
this time.

Although management believes that these actions in the aggregate are
not likely to have a material adverse effect on Katy's consolidated
financial position or results of operations, further costs could be
significant and will be recorded as a charge to operations when such costs
become probable and reasonably estimable.

Katy also has a number of product liability and workers' compensation
claims pending against it and its subsidiaries. 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. Such accruals are developed
using currently available claim information. The incurred but not
reported component of the liability was developed using actuarial
techniques.

Note
13. UNUSUAL ITEMS:

During 1993 various charges were recorded in Katy's Statement of
Consolidated Operations.

A pre-tax charge of $4,000,000 was included in cost of sales to
reflect adjustments to casualty insurance and product warranty claim
liabilities to reflect information received in the fourth quarter related
to certain claims and the bankruptcy of Katy's excess insurance carrier.

Note
13. UNUSUAL ITEMS (CONTINUED)

A pre-tax charge of $3,500,000 was included in selling, general and
administrative expenses for retirement compensation programs for certain
officers and employees of the Company.

A pre-tax charge of $2,300,000 was included in cost of sales related
to the IAQ2000 product line of Katy's Moldan unit. This charge reflects
the decision to remove this product from the market and represents
IAQ2000's operating loss for the year as well as the write-down of the net
assets of this product line in the fourth quarter.

Katy incurred legal and other related costs of approximately
$1,300,000, included in selling, general and administrative expenses, in
1993 associated with:

1) A proposed merger agreement with Katy Holdings, Inc., a Delaware
Corporation formed by members of the family of Wallace E. Carroll,
pursuant to which certain members of the Carroll family would acquire
all of the outstanding shares of Katy's common stock not already owned
by them,

2) Expenses to respond to a shareholder action lawsuit naming Katy and
various directors of Katy as defendants as a result of the proposed
merger agreement and

3) Expenses related to a second merger agreement proposed by Pensler
Capital and various partners.

In January, 1993 Katy sold its 8% interest, (78,145 shares of common
stock) in Compagnie des Entrepots et Gares Frigorifigues (CEGF), a French
cold storage company, for cash proceeds of $10,953,000 resulting in a pre-
tax gain of $6,081,000. Katy's investment in CEGF as of December 31,
1992, $4,872,000, had been classified in "Time deposits and marketable
securities" in the Consolidated Balance Sheet.

In the first quarter of 1993 Katy exchanged $24,526,000 of notes
receivable from the Missouri Pacific Railroad Company into 774,166 shares
of Union Pacific Corporation (UP) common stock at an exchange rate of
$31.68 per share. In the third quarter of 1993 Katy sold 300,000 shares
of UP stock for proceeds of $18,001,000, resulting in a pre-tax gain of
$8,497,000.

During 1992 Katy recorded charges of $2,100,000 to cover potential
losses on notes receivable accepted for the sales of subsidiaries in prior
years and recorded charges of $2,150,000 for the write-off of drafts
receivable at its German subsidiary.

In January, 1992, pending litigation between Katy and the owner of the
waste-to-energy facility in Davis County, Utah was settled and a long-term
operating agreement and maintenance contract between the owner and a
second Katy subsidiary was terminated. Katy recorded a pre-tax charge of
$1,253,000 in 1991 as a result of the settlement, primarily due to the
write-off of deferred expenses.

During 1991 Katy sold 775,600 shares of UP common stock for net
proceeds of $34,544,000, resulting in pre-tax gains of $9,973,000. Also,
during 1991 Katy recorded a charge of $2,818,000 to provide for product
liability and workers' compensation claims and a charge of $5,427,000 to
cover potential losses on notes and drafts receivable.

Note
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

Quarterly results of operations have been affected by unusual or
infrequently occurring items as discussed in Notes 2, 7, and 13.

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
(Thousands of Dollars, except per share amounts)

1993

Net sales...................... $ 40,340 $ 44,592 $ 43,678 $ 40,113

Gross profit................... $ 10,197 $ 11,588 $ 11,110 $ 2,693

Income (loss) from continuing
operations................... $ 5,071 $ 1,532 $ 4,295 ($ 5,402)

Discontinued operations........ ( 1,343) - ( 4,275) -

Cumulative effect of change in
accounting principle......... ( 1,418) - - -

Net income (loss).............. $ 2,310 $ 1,532 $ 20 ($ 5,402)

Per Share data:
Income (loss) from continuing
operations................... $ .56 $ .17 $ .48 ($ .60)

Discontinued operations........ ( .15) - ( .48) -

Cumulative effect of change in
accounting principle......... ( .15) - - -

Earnings (loss) per share...... $ .26 $ .17 $ - ($ .60)

During the fourth quarter of 1993 Katy provided approximately $2,440,000
(net of tax) of additional reserves for casualty insurance and product
warranty claim costs, $634,000 (net of tax) to record obligations for
retirement compensation programs, $1,248,000 (net of tax) to write down
the IAQ 2000 product line and $484,000 (net of tax) to record legal and
other costs related to various transactions.

1992
Net sales...................... $ 46,311 $ 46,471 $ 42,105 $ 42,190

Gross profit................... $ 11,970 $ 13,272 $ 10,875 $ 10,041

Net income (loss).............. $ 832 $ 1,476 $ 382 ($ 1,588)

Earnings (loss) per share.... $ .09 $ .16 $ .04 ($ .18)

15. SUBSEQUENT EVENTS:

On February 18, 1994, a purported derivative action was filed in the
Delaware Court of Chancery by Pensler Capital Partners, I.L.P. and others
("Pensler") against the Company and all members of the Company's Board of
Directors (the "Board"). The complaint alleges, among other things, that
the directors of the Company have breached their fiduciary duties to the
Company's stockholders through their alleged refusal to negotiate in good
faith with Pensler in connection with its proposal to acquire the Company
in a merger transaction in which holders of the Company's outstanding
common stock were to have received $28 per share in cash. The complaint
states that the Board's actions in this regard and others have been
dominated by the Carroll family, which holds, in the aggregate, a majority
of the Company's outstanding common stock. The complaint states that, for
a substantial period of time, the Board has engaged in a course of conduct
which has been intended to allow the Carroll family to acquire control of
the Company in one or more transactions that have not afforded the
minority stockholders of the Company a control premium for their shares in
the Company. The complaint seeks, among other things, (i) a declaration
that the Board has breached its fiduciary duties in connection with
Pensler's merger proposal, (ii) an order requiring the Board to negotiate
with Pensler in good faith, (iii) an order requiring the Board to issue to
Pensler an option to purchase 1,800,000 shares of the Company's common
stock, which, when exercised, would reduce the holdings of the Carroll
family to less than a majority of the outstanding shares, (iv) an order
requiring the Board to issue to Pensler an option to acquire 582,000
shares of the Company's common stock that were allegedly improperly
acquired by the Company in June and September, 1991, and (v) an order
enjoining the payment by the Company of an extraordinary dividend and from
taking any other extraordinary action until such time as the effects of
the defendants alleged unlawful actions have been dissipated. The Company
intends to, and understands that the defendant directors intend to, deny
all allegations of wrongdoing alleged in the complaint and to vigorously
defend the action.

On March 9, 1994 the Company's Board of Directors endorsed the
recommendation of a special committee of the Board that the Company
consider a special cash dividend of $14.00 per share to holders of Katy
Industries, Inc. common stock to maximize shareholder values. Action by
the Board to declare the dividend, however, will be deferred until the
resolution of the motion described in the preceding paragraph not
prohibiting the dividend.

On March 17, 1994, the Court of Chancery heard Pensler's motion for
a mandatory preliminary injunction and took the matter under advisement.

In March, 1994 the factory employees of the Company's manufacturer of
food packaging and processing machinery, Peters Machinery Company, went on
strike. The effect of this strike, if any, on the Company's consolidated
results of operations will depend upon the duration and final resolution
of the strike, and, accordingly, cannot be determined at this time.

In March, 1994 the Company agreed in principal to purchase 1,600
shares of C.E.G.F. (USA) common stock for approximately $2,500,000. This
purchase increases the Company's investment in C.E.G.F. (USA) to 95%.
Accordingly, as of the closing date of this transaction the accounts of
C.E.G.F (USA) will be included in the consolidated financial statements of
the Company.

KATY INDUSTRIES, INC.
AND SUBSIDIARIES

SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS

DECEMBER 31, 1993

(Thousands of Dollars)

Amount at which
each portfolio of
equity security
Number of shares Market value issues and each
Name of issuer or units-principal of each issue other security is
and title of amount of bonds Cost of at balance carried in the
each issue and notes each issue sheet date balance sheet
_____________________________________________________________________________________________

Union Pacific Corporation 498,566 shares of
common stock $ 15,795 $ 31,223 $ 15,795

Marketable securities $ 15,795

Syratech Corporation 3,070,251 shares of
common stock 32,977 57,567 $ 32,977

Bee Gee Holding 30,000 shares of Class B
Company, Inc. common stock 6,281 N/A 6,281

Companie des Entrepots
et Gares Frigorifiques 1,440 shares of
(USA) common stock 2,060 N/A 2,060

Investments in unconsolidated
subsidiaries, at equity $ 41,318

Teweh Production
Sharing Contract Joint Venture 6,279 N/A $ 6,279

Other investments - 425

Other investments $ 6,704

N/A - Market value not readily available.

KATY INDUSTRIES, INC.
AND SUBSIDIARIES

SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Thousands of Dollars)

Balance at Additions Recoveries Balance
Beginning Charged to Credited to Other at End
Description of Year Expense Expense Adjustments of Year

Reserves deducted from
assets to which they apply:

Year ended December 31, 1993:

Reserve for doubtful accounts:
Trade receivables $ 8,877 $ 583 ($ 45) ($ 732)(a)
( 708)(d) $ 7,975
Current notes and other
accounts receivable 10 30 ( 57) 27 (a) 10

Long term notes receivable 4,755 1,000 - ( 4,055)(a) 1,700

$13,642 $ 1,613 ($ 102) ($ 5,468) $ 9,685

Year ended December 31, 1992:

Reserve for doubtful accounts:
Trade receivables $ 6,186 $ 2,155 ($ 5) ($ 269)(a)
396 (b)
414 (d) $ 8,877
Current notes and other
accounts receivable 10 65 - ( 65)(a) 10
Long term notes receivable 10,212 2,394 - ( 7,598)(a)
( 253)(b) 4,755

$16,408 $ 4,614 ($ 5) ($ 7,375) $13,642

Year ended December 31, 1991:

Reserve for doubtful accounts:
Trade receivables $ 3,764 $ 4,998 ($ 57) ($ 2,519)(a) $ 6,186
Current notes and other
accounts receivable 242 - - ( 232)(b) 10
Long term notes receivable 8,400 1,500 - ( 621)(a)
633 (b)
300 (c) 10,212
$12,406 $ 6,498 ($ 57) ($ 2,439) $16,408

(a) Doubtful accounts written off against the reserve.
(b) Reclassification from (to) other balance sheet accounts.
(c) Adjustment due to the disposition of a subsidiary.
(d) Adjustment due to the fluctuation of foreign exchange rates.
/TABLE

KATY INDUSTRIES, INC.
AND SUBSIDIARIES

SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

Charged to Costs and Expenses
Year Ended December 31
1993 1992 1991
(Thousands of Dollars)

Maintenance and repairs.....................$ 2,675 $ 2,174 $ 3,653

Research and Development.................... 2,598 3,583 3,864

Amortization of intangible assets........... A A A

Taxes other than payroll and income taxes... A A A

Royalties................................... A A A

Advertising costs........................... A A A

A - Amounts are not presented as such amounts are less than 1% of net sales.

KATY INDUSTRIES, INC.

INDEX OF EXHIBITS

DECEMBER 31, 1993

Exhibit
Number Exhibit Title Page

3.1 Certificate of Incorporation *

3.2 By-Laws *

22 Subsidiaries of registrant 72

24 Consent 73

* Copies of Certificate of Incorporation and By-Laws will be furnished
upon request.

Exhibit 22

SUBSIDIARIES OF REGISTRANT

The following list sets forth subsidiaries of Katy Industries, Inc.
as of February 28, 1994, with successive indentation indicating
parent/subsidiary relationships of such subsidiaries. The percentage
(unless 100%) of outstanding equity securities owned by the immediate
parent and the state of jurisdiction or incorporation of each such
subsidiary is stated in parentheses. Omitted subsidiaries do not, in the
aggregate, constitute a "significant subsidiary".

American Gage & Machine Company (Illinois)
Walsh Press Company (Illinois)
Bach-Simpson Limited (United Kingdom)
Bach Simpson, Inc. (Delaware)
Bach-Simpson, Ltd. (Ontario, Canada)
Bee Gee Holding Company, Inc. (Florida) (37.5%)
Bush Universal, Inc. (New York)
Hamilton Precision Metals, Inc. (Delaware)
Waldom Distributors, Inc. (Delaware)
Waldom Electronics, Inc. (Illinois)
C.E.G.F.(USA), Inc. (Delaware) (45%)
Duckback Products, Inc. (Delaware)
Finson International, Inc. (Delaware) (20%)
Hallmark Holdings, Inc. (Delaware) (Formerly Elgin Watch International,
Inc.)
Beehive Machinery, Inc. (Utah)
Graycon Tools, Inc. (Indiana)
Hallmark Industries, Inc. (Delaware)
Katy Oil Company of Indonesia (Delaware)
Katy-Teweh Petroleum Company (Delaware)
Katy-Seghers, Inc. (Delaware)
Panhandle Industrial Company, Inc. (Delaware)
Peters Machinery Company (Delaware)
Schon & Cie, AG (Germany) (75%)
American Shoe Machinery Corporation, Inc. (Delaware)
Societe de Fabrication Europeenne des Machines, S.A.R.L. (France)
Schoen Machinery U.S.A., Inc. (Illinois)
Schon Engineering KFT (Hungary) (51%)
Schon-Kaev-Eger KFT (Hungary) (58%)
Sinecure Financial Corp. (Colorado) (11%)
Syratech Corporation (Delaware) (26.40%)

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in the Annual Report on Form
10-K under the Securities Exchange Act of 1934 of Katy Industries, Inc.
for the year ended December 31, 1993 of our reports dated February 11,
1994 and contained or incorporated by reference in the Annual Report on
Form 10-K of Syratech Corporation insofar as such reports related to the
consolidated financial statements and consolidated financial statement
schedules of Syratech Corporation for the year ended December 31, 1993.

Boston, Massachusetts
March 28, 1994

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.

KATY INDUSTRIES, INC.
Registrant
Dated: March 31, 1994

/s/J. Saliba
Chairman of the Board

POWER OF ATTORNEY

Each person signing below appoints Jacob Saliba and
John R. Prann, Jr., 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 31st day of March,
1994.

Signature Title

/s/J. Saliba Chairman of the Board and
Director
J. Saliba

/s/John R. Prann, Jr. President
John R. Prann, Jr. (Chief Executive Officer)

/s/P. Kurowski Chief Financial Officer
P. Kurowski

/s/W. H. Murphy Director
W. H. Murphy

/s/C. W. Sahlman Director
C. W. Sahlman

/s/A. R. Miller Director
A. R. Miller
Signature Title

/s/P. E. Johnson Director
P. E. Johnson

/s/W. E. Carroll Director
W. E. Carroll

/s/Lelia Carroll Director
Lelia Carroll
Signature Title

/s/William F. Andrews Director
William F. Andrews

/s/Doyle G. Berry Director
Doyle G. Berry

/s/Barry J. Carroll Director
Barry J. Carroll

/s/Denis H. Carroll Director
Denis H. Carroll

/s/C. Felix Harvey Director
C. Felix Harvey

/s/John Stuart Hunt Director
John Stuart Hunt

/s/Lutz Raettig Director
Lutz Raettig

/s/Reginald N. Whitman Director
Reginald N. Whitman