SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 1996
-------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to __________________
Commission file number 1-9917
CATALINA LIGHTING, INC.
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(Exact name of registrant as specified in its chapter)
FLORIDA
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(State or other jurisdiction of incorporation or organization)
59-1548266
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(I.R.S. Employer Identification Number)
18191 NW 68TH AVENUE, MIAMI, FLORIDA 33015
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(Address of principal executive offices) (Zip Code)
(305) 558-4777
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Registrant's telephone number, including area code
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Former name, former address and former fiscal
year, if changed since last report.
Indicate by check / 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
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date. OUTSTANDING ON AUGUST 5, 1996: 7,063,587 SHARES.
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
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Condensed consolidated balance sheets -
June 30, 1996 and September 30, 1995............................... 3-4
Condensed consolidated statements of operations -
Three and nine months ended June 30, 1996 and 1995................. 5
Condensed consolidated statements of cash flows -
Nine months ended June 30, 1996 and 1995........................... 6-7
Notes to condensed consolidated financial statements................. 8-11
Management's discussion and analysis of financial
condition and results of operations................................ 12-20
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings............................................ 21
ITEM 4 Submission of Matters to a Vote of Security Holders.......... 21
ITEM 6 Exhibits and Reports on Form 8-K............................. 21
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2
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, SEPTEMBER 30,
ASSETS 1996 1995
---------- ----------------------- ----------------------
(Unaudited) *
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Current assets
Cash and cash equivalents................................. $ 466 $ 807
Accounts receivable, net of
allowances of $6,491 and $4,934,
respectively............................................ 27,186 31,747
Inventories............................................... 39,982 40,306
Other current assets...................................... 5,580 3,963
----------------------- ----------------------
Total current assets ............................ 73,214 76,823
Property and equipment, net................................. 25,772 20,049
Restricted cash equivalents and short-term
investments............................................. 247 6,339
Goodwill, net............................................... 11,451 11,777
Deferred costs, net......................................... 1,907 3,149
Other assets................................................ 2,021 1,914
======================= ======================
$ 114,612 $ 120,051
======================= ======================
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(continued on page 4)
3
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<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
JUNE 30, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---------------------------------------- ---------------------- ----------------------
(Unaudited) *
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Current liabilities
Notes payable - credit lines.............................. $ 1,541 $ 1,604
Accounts and letters of credit payable.................... 24,077 23,295
Current maturities of bonds payable....................... 970 970
Other current liabilities................................. 5,132 4,743
---------------------- ----------------------
Total current liabilities........................... 31,720 30,612
Notes payable - credit lines................................ 19,155 26,100
Convertible subordinated notes.............................. 7,600 7,600
Bonds payable............................................... 10,165 10,966
Other liabilities........................................... 2,725 2,644
----------------------- ----------------------
Total liabilities................................... 71,365 77,922
----------------------- ----------------------
Commitments and contingencies
Stockholders' equity
Common stock.............................................. 71 70
Additional paid-in capital................................ 26,040 25,894
Retained earnings......................................... 17,136 16,165
----------------------- ----------------------
Total stockholders' equity........................ 43,247 42,129
----------------------- ----------------------
$ 114,612 $ 120,051
======================= ======================
*Condensed from audited financial statements
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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4
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- -------------------------------------
1996 1995 1996 1995
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net sales............................... $ 43,882 $ 38,878 $ 134,983 $ 125,439
Cost of sales........................... 36,664 34,048 112,024 104,821
----------------- ----------------- ----------------- ----------------
Gross profit............................ 7,218 4,830 22,959 20,618
Selling, general and administrative
expenses.............................. 6,226 5,981 19,113 17,806
----------------- -----------------
----------------- ----------------
Operating income (loss)................. 992 (1,151) 3,846 2,812
----------------- ----------------- ----------------- ----------------
Other income (expenses)
Interest expense...................... (892) (969) (2,433) (2,547)
Other income (expenses)............... (70) (106) 205 197
----------------- ----------------- ----------------- ----------------
Total other income (expenses)..... (962) (1,075) (2,228) (2,350)
----------------- ----------------- ----------------- ----------------
Income (loss) before income taxes....... 30 (2,226) 1,618 462
Income tax provision (benefit).......... 12 (762) 647 185
----------------- ----------------- ----------------- ----------------
Net income (loss)....................... $ 18 $ (1,464) $ 971 $ 277
================= ================= ================= ================
Weighted average number of
shares outstanding
Primary 7,816 6,976 7,756 7,854
Fully diluted 7,816 6,976 7,756 7,854
Earnings (loss) per share
Primary $ - $ (.21) $ .13 $ .04
Fully diluted $ - $ (.21) $ .13 $ .04
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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5
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
JUNE 30,
-------------------------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... 971 277
Adjustments for non-cash items................................. 6,736 3,355
Change in assets and liabilities............................... 2,204 (13,928)
----------------- ------------------
Net cash provided by (used in) operating activities............ 9,911 (10,296)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net...................................... (8,259) (6,898)
Payments for acquisitions...................................... - (473)
Decrease (increase) in restricted cash equivalents and
short-term investments....................................... 6,092 (10,650)
Return of funds escrowed in conjunction
with the acquisition of Go-Gro............................... - 1,904
Collection of receivable from shareholder...................... - 1,850
Payment to affiliated company.................................. - (1,837)
----------------- ------------------
Net cash provided by (used in) investing activities............ (2,167) (16,104)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock......................... 132 208
Payments on other liabilities...................................... (408) (714)
Proceeds from issuance of bonds.................................... 99 11,937
Payments on bonds.................................................. (900) -
Proceeds from notes payable - credit lines......................... 36,366 30,800
Payments on notes payable - credit lines........................... (43,311) (17,768)
Net proceeds from (payments on) notes payable - credit lines
due on demand................................................... (63) 57
Return of restricted cash.......................................... - 477
---------------- -----------------
Net cash provided by (used in) financing activities............... (8,085) 24,997
----------------- ------------------
Net increase (decrease) in cash and cash equivalents.............. (341) (1,403)
Cash and cash equivalents at beginning of period.................. 807 3,053
----------------- ------------------
Cash and cash equivalents at end of period........................ 466 1,650
================= ==================
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(continued on page 7)
6
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
NINE MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
------------- ------------
(IN THOUSANDS)
Cash paid for:
Interest $ 2,481 $ 2,281
Income taxes $ 2,579 $ 1,476
During the nine months ended June 30, 1996 and 1995, total capital
lease obligations incurred for new office and warehouse equipment aggregated
$537,000 and $141,000, respectively.
On June 15, 1995, the Company sold racking and equipment with a net
book value of $216,000 receiving as payment a note receivable for $572,000.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the accounting policies described in the
Company's Annual Report for the fiscal year ended September 30, 1995 and should
be read in conjunction with the consolidated financial statements and notes
which appear in that report. These statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments, which consist mostly of
normal, recurring accruals, considered necessary for a fair presentation have
been included. The results of operations for the three and nine months ended
June 30, 1996 may not necessarily be indicative of operating results to be
expected for the full fiscal year due, in part, to seasonal fluctuations in the
Company's business and changes in economic conditions.
Certain amounts previously presented in the financial statements of
prior periods have been reclassified to conform to the current period's
presentation.
2. INVENTORIES
Inventories consisted of the following:
JUNE 30, SEPTEMBER 30,
1996 1995
------------------- ---------------------
(In thousands)
Raw materials............... $ 4,362 3,535
Work-in-progress............ 1,126 1,030
Finished goods.............. 34,494 35,741
=================== =====================
Total Inventories........... $ 39,982 $ 40,306
=================== =====================
8
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. PROPERTY AND EQUIPMENT, NET
During the 1995 fiscal year, the Company began construction of a
475,000 square foot facility located near Tupelo, Mississippi, to consolidate
warehouse operations located in leased facilities in Texas and Massachusetts.
The facility became operational on March 15, 1996. The Company completed the
move of all inventory from its Texas facility and ceased operations therein
effective April 30, 1996. The Company anticipates ceasing the warehousing
operations located in Massachusetts in early fiscal 1997. The Company expended
$8.9 million for the building and underlying land, and $3.1 million on machinery
and equipment for the facility. The Company arranged for the issuance in 1995 of
$10.5 million in State of Mississippi Variable Rate Industrial Revenue
Development Bonds to finance (along with internally generated cash flow and the
Company's $1 million leasing facility) the new warehouse and machinery and
equipment. The bonds have a stated maturity of May 1, 2010 and require mandatory
sinking fund redemption payments, payable monthly, of $900,000 per year from
1996 to 2002, $600,000 per year in 2003 and 2004, and $500,000 per year from
2005 to 2010. The bonds bear interest at a variable rate (5.6% at June 30, 1996)
that is adjustable weekly to the rate the remarketing agent for the bonds deems
to be the market rate for such bonds. The bonds are secured by a lien on the
land, building, and all other property financed by the bonds. Additional
security is provided by a $10.8 million direct pay letter of credit which is not
part of the Company's credit line. The unused portion of the $10.5 million bond
proceeds and $150,000 in sinking fund payments represent the restricted cash
equivalents and short-term investments reflected in the balance sheet at June
30, 1996.
Shenzhen Jiadianbao Electrical Products Co., Ltd. (SJE), a subsidiary
of Go-Gro, and the Bureau of National Land Planning Bao-An Branch of Shenzhen
City (BNLP) entered into a Land Use Agreement covering approximately 467,300
square feet in Bao-An County, Shenzhen City, People's Republic of China on April
11, 1995. The agreement provides SJE with the right to use the above-described
land until January 18, 2042. The land use rights are non-transferable. Land
costs approximated $2.6 million of which Go-Gro has paid its 70% proportionate
share of $1.8 million.
Under the terms of this agreement, SJE is obligated to construct
approximately 917,000 square feet of factory buildings and 275,000 square feet
of dormitories and offices, with 40 percent of the construction required to be
completed by April 1, 1997 and the remainder by December 31, 2000. At an
estimated average construction price of $9.50 per square foot, construction
costs should approximate $11.3 million. The $11.3 million includes approximately
$1.6 million for a Municipal Coordination Facilities Fee (MCFF). The MCFF is
based upon the square footage to be constructed. The agreement calls for the
MCFF to be paid in two installments of approximately $800,000 on October 31 and
December 31, 1996. The first construction phase (a 170,000 square foot factory
and a 60,000 square foot dormitory) is estimated to be completed in December
1996. SJE plans to file an application to (1) reduce the amount of square
footage required to be constructed by approximately 33-50% and thereby
proportionately reduce the MCFF; (2) allocate the required construction square
footage to two parcels - the first parcel containing 230,000 square feet of
construction to be completed in December 1996 and the second parcel containing
the remainder of the construction to be completed by December 31, 2000; (3)
decrease the April 1997 required construction to 230,000 square feet; and (4)
make the MCFF payable upon the completion of each applicable factory and/or
dormitory building. The outcome of the application cannot be presently
determined. The Company used internally generated funds to finance the first
phase of the construction and anticipates financing the second phase through
either its current banking relationships or by establishing additional banking
relationships.
9
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NOTES PAYABLE - CREDIT LINES
On March 15, 1996 and December 28, 1995 the Company amended its $65
million domestic credit facility with a group of commercial banks. Such
amendments extended the maturity date of the facility through March 31, 1999,
increased the interest rate on loans, provided for quarterly principal payments
of $950,000 commencing June 1, 1997 on the $7.6 million non-revolving loan
portion of the credit facility, revised certain covenants and subjected
borrowings to a borrowing base defined as the aggregate of certain percentages
of the Company's U.S. receivables and inventory. Borrowings under the facility
bear interest, payable monthly, at the Company's preference of either the prime
rate or the LIBOR rate plus 2.2% through June 30, 1996 or subsequent to June 30,
1996, at either the prime rate or the LIBOR rate plus a variable spread based
upon earnings, debt and interest expense levels with the exception of the
non-revolving loan which bears interest, payable monthly, at the prime rate plus
1%.
5. CONTINGENCIES
On June 4, 1991, the Company was served with a copy of the Complaint in
the matter of Browder vs. Catalina Lighting, Inc., Robert Hersh, Dean S.
Rappaport and Henry Gayer, Case No. 91-23683, in the Circuit Court of the 11th
Judicial Circuit in and for Dade County, Florida. The plaintiff in the action,
the former President and Chief Executive Officer of the Company, contends that
his employment was wrongfully terminated and as such brought action for breach
of contract, defamation, slander, libel and intentional interference with
business and contractual relationships. On June 11, 1992, the court dismissed
the Complaint and on June 17, 1992, the plaintiff filed an amended Complaint
including claims for damages in excess of $5 million against the Company and
declaratory relief as well as claims for damages in excess of $3 million against
the named directors. On November 24, 1992, the Company filed a Counterclaim in
the action. The Counterclaim alleges damages for in excess of $1 million arising
out of actions which the Company alleges constituted violation of federal and
state securities laws, breach of fiduciary duty, breach of contract, breach of
constructive trust, conversion, civil theft, negligence, fraudulent inducement,
fraud and extortion. On December 21, 1992, Mr. Browder filed his Answer denying
the allegations of the Counterclaim. On March 1, 1993, Mr. Browder voluntarily
dismissed Count II of his Complaint which sought a Declaratory Judgment. In
June, 1995, the Court granted the Company's Motion for Summary Judgment on the
plaintiff's claims of libel which reduced the claims for damages against the
Company to $3,000,000.
The case is presently in the discovery stages. The Company's legal
counsel has opined that, based on their understanding of the facts, the legal
elements necessary to justify a termination of John Browder's employment for
"Cause" existed at the time his employment was terminated. Thus, the Company
believes that the possibility is remote that any amounts claimed to be due by
Mr. Browder will be paid by the Company. Accordingly, no provisions for any
amounts which Mr. Browder claims are owed under his employment agreement nor any
liability that may result from this litigation have been recorded in the
accompanying condensed consolidated financial statements.
On February 23, 1993, Dana Lighting, a subsidiary of the Company,
and Nathan Katz, President of Dana, were served with a copy of the Complaint in
a matter captioned Holmes Products Corp. vs. Dana Lighting, Inc. and Nathan
Katz, Case No. 93-0249 in the Superior Court of the Commonwealth of
Massachusetts, City of Worcester, Massachusetts. The plaintiff in the action
alleges that Dana Lighting engaged in acts constituting tortious interference
with contractual actions, interference with prospective economic relationship
with plaintiff's supplier and unfair competition. Plaintiff seeks injunctive
relief and
10
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. CONTINGENCIES (CONTINUED)
damages in excess of $10 million. Dana filed its Answer to the Complaint on
March 15, 1993 denying all allegations, and Plaintiff's request for a temporary
restraining order was denied by the Court. The supplier and Dana's President
have filed affidavits with the court denying that Dana engaged in such acts. In
July 1994, Holmes Products Corp. amended the Complaint to include allegations of
a violation of civil RICO and a violation of the Federal Antitrust laws. On July
22, 1994, Dana Lighting removed the case from State Court to the United States
District Court for the District Court of Massachusetts. Dana believes that the
Complaint is totally without merit and disputes that any of the alleged acts or
damages occurred or that Dana is liable in any matter. Dana intends to defend
this case vigorously. The Company believes that the possibility is remote that
any significant damages will be paid by the Company in connection with this
litigation. Accordingly, no provision for any liability that may result from
this litigation has been recorded in the accompanying condensed consolidated
financial statements.
On August 8, 1996, the Company was served with a copy of the Complaint
in the matter of Black & Decker (U.S.), Inc. vs. Catalina Lighting, Inc., Case
No. 96-1042-A, in the United States District Court, Eastern Division of
Virginia. The plaintiff in the action contends that the Company has infringed
certain of plaintiff's patents in selling its line of flexible flashlights and
as such brought action for an unspecified amount of monetary damages and an
injunction prohibiting any further acts of infringement. Management believes
that damages recoverable by the plaintiff, if any, will not have a material
adverse impact on the Company's financial position or results of operations.
However, based on the early stages of the litigation, no assurances can be given
as to the ultimate outcome. The Company does not believe that its design and
sale of flexible flashlights violates the property right of others and the
Company intends to defend this case vigorously.
The Company is also a defendant in other legal proceedings arising in
the normal course of business. In the opinion of management, based on advice of
legal counsel, the ultimate resolution of these other legal proceedings will not
have an adverse effect on the Company.
6. COMMITMENT
On April 26, 1996, the Company entered into a license agreement with
Westinghouse Electric Corporation to market and distribute a full range of
lighting fixtures, lamps and other lighting products under the Westinghouse
brand name in exchange for royalty payments. The agreement terminates on
September 30, 2001. Catalina has an option to extend the agreement for an
additional ten years. The royalty payments are due quarterly and are based on a
percent of the value of the Company's net shipments of Westinghouse branded
products. No payments were due under the agreement for the period from April 26,
1996 to June 30, 1996. Either party has the right to terminate the agreement
during years three through five of the agreement if the Company does not meet
the minimum net shipments required under the agreement.
11
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In the following comparison of the results of operations, the three
and nine month periods ended June 30, 1996 and 1995 are referred to as 1996 and
1995, respectively.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Net sales and gross profit for 1996 were $43.9 million and $7.2
million, respectively, as compared to $38.9 million and $4.8 million,
respectively, for 1995. The Company generated net income of $18,000 ($.00 per
share) in 1996 compared to a net loss of $1.5 million ($.21 per share) in 1995.
In 1996, Kmart accounted for 5.7% of the Company's net sales while its
affiliate, Builders Square, accounted for 5.8% of net sales. In addition, in
1996 another customer accounted for 10.8% of net sales. However, the 10.8% of
net sales represented by this customer includes large initial orders for new
items related to an expansion of their functional lighting program, and sales to
this customer are not expected to constitute 10% or more of the Company's net
sales for the 1996 fiscal year. In 1995, the respective percentages of net sales
for Kmart, the affiliate of Kmart and the other customer were 3.5%, 8.0% and
8.0%.
DISTRIBUTION
Distribution operations contributed pretax income of $9,000 in 1996 as
compared to a pretax loss of $1.6 million in 1995.
Net sales from distribution operations aggregated $35.9 million in
1996, as compared to $30.5 million in 1995. Net sales increased by $5.4 million
over the prior year due to $6.9 million in additional sales of functional
lighting/lamps, resulting from increased unit sales. The increase in sales of
functional lighting reflects expanded programs with existing customers and the
addition of new customers. Sales of functional lighting/lamps accounted for 67%
of sales in 1996 compared to 57% in 1995. The Company's net sales for its other
principal line of products, lighting fixtures, decreased by $1.5 million or
11.6% from 1995 and approximately $2.3 million from either of the previous two
quarters of fiscal 1996. Management attributes this decline to soft consumer
demand for these products and a weakened customer base arising from the
financial difficulties experienced by several of the Company's more significant
customers for lighting fixtures.
Gross profit from distribution operations increased to $5.1 million in
1996 from $3.5 million in 1995. As a percentage of net sales, gross profit from
distribution operations was 14.3% and 11.4% for 1996 and 1995, respectively.
Incremental contributions from increased sales and an improvement in margins
earned on warehouse sales of all product types generated the added gross profit
dollars. Gross profit as a percent of net sales increased due to the improvement
in margins discussed above and lower provisions for sales returns and incentives
as a percentage of net sales, stemming from improved return and incentive
experience.
Selling, general and administrative expenses ("SG&A") for distribution
operations amounted to $4.4 million in 1996 and 1995. Decreases in professional
fees ($409,000) and merchandising expenses ($88,000) served to offset higher
payroll, bonuses and benefits ($196,000), depreciation and amortization of
property and equipment ($152,000) and various other expense categories.
12
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION (CONTINUED)
Interest expense on distribution-related financing increased to
$676,000 in 1996 from $613,000 in 1995 due to higher outstanding borrowings and
a higher weighted average cost of funds.
MANUFACTURING
Excluding certain administrative costs incurred at the corporate
headquarters, in 1996 the Company's manufacturing operations recorded pretax
income of $21,000. This compares to a pretax loss of $647,000 in 1995.
GO-GRO
On a pretax basis, Go-Gro Industries Limited ("Go-Gro") generated
$565,000 in pretax income in 1996 while reporting a pretax loss of $61,000 in
1995. Sales by Go-Gro to non-related companies, the majority of which were made
in the European market, decreased by approximately $800,000, or 10.5%, in 1996
to $7.0 million. Total shipments for Go-Gro included intercompany sales by
Go-Gro to the Company and its subsidiaries (which are eliminated for financial
statement purposes and the profit on such sales deferred until the goods are
sold to third parties) of $8.5 million in 1996 and $4.0 million in 1995. Gross
profit increased in total dollars in 1996 by $655,000 to $2.3 million as a
result of the increase in total shipments.
SG&A expenses increased by $142,000 to $1.5 million mostly due to added
payroll and benefits related to new employees hired to pursue additional sales
in the European market and to support the increased sales volume. Interest
expense declined in 1996 by $106,000 due to lower outstanding borrowings.
MERIDIAN
The pretax loss for Meridian Lamps, Inc. ("Meridian") was $544,000 for
1996 and $586,000 for 1995. Net sales increased to $1 million in 1996 from
$576,000 in 1995. An additional $305,000 in Meridian product was sold in 1995
through the Company's distribution operations.
Cost of sales in 1996 was $1.2 million. The following factors increased
costs of sales during 1996:
(1) a sales volume insufficient to avoid significant underutilization
of plant capacity resulting in manufacturing variances;
(2) unit production that has exceeded unit sales to date resulting in
additional storage expenses and a provision for excess inventory;
(3) costs required to develop new products.
Cost of sales exceeded sales by $272,000 in 1995 due entirely to
manufacturing inefficiencies related to the start-up nature of Meridian's
operations during this period.
Other expenses for 1996 and 1995 were $354,000 and $314,000,
respectively, consisting mostly of the amortization of start-up costs, marketing
and merchandising expenses, and interest expense.
13
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
INCOME TAX PROVISION
The effective income tax rates for 1996 and 1995 were 40% and 34.2%,
respectively. The higher effective tax rate for 1996 reflects the impact on
projected pretax income for 1996 of amounts expensed by the Company for
financial statement purposes which are not deductible for tax purposes
(consisting primarily of goodwill amortization and interest incurred by certain
foreign subsidiaries), which have the effect of increasing the effective tax
rate.
COMPARISON OF NINE MONTHS ENDED JUNE 30, 1996 AND 1995
Net sales and gross profit for 1996 were $135 million and $23 million,
respectively, as compared to $125.4 million and $20.6 million, respectively, for
1995. The Company generated net income of $971,000 ($.13 per share) in 1996
compared to net income of $277,000 ($.04 per share) in 1995.
In 1996, Kmart accounted for 4.5% of the Company's net sales while its
affiliate, Builders Square, accounted for 7.3% of net sales. In 1995, the
respective percentages of net sales for Kmart, and its affiliates were 4.2% and
7.5%.
DISTRIBUTION
Distribution operations contributed pretax income of approximately $2.8
million in 1996 and $2.5 million in 1995.
Net sales from distribution operations aggregated $113.8 million in
1996, as compared to $106.3 million in 1995. The $7.5 million increase in net
sales reflects additional sales in Canada of $1.3 million and increased sales of
functional lighting/lamps shipped directly from the Orient to new and existing
customers. The increase in net sales was partially offset by an increase in
provisions for sales incentives. Sales of functional lighting increased by a
total of $14.5 million due to increased unit sales. Sales of functional
lighting/lamps accounted for 65% of sales in 1996 compared to 56% in 1995. The
Company's net sales for its other principal line of products, lighting fixtures,
decreased by $7.0 million or 15% from 1995 to 1996. Management attributes this
decline to soft consumer demand for these products and a weakened customer base
arising from the financial difficulties experienced by several of the Company's
more significant customers for lighting fixtures.
Gross profit from distribution operations increased to $18.4 million in
1996 from $17.1 million in 1995. As a percentage of net sales, gross profit from
distribution operations was 16.2% and 16.1% for 1996 and 1995, respectively. The
$1.3 million increase in gross profit is mostly attributable to the incremental
contribution to gross profit of higher sales and better margins earned on
warehouse sales of all product types, the effect of which was partly reduced by
the increase in the provisions for sales incentives. Such additional sales
incentives are provided to acquire new customers, to expand lighting programs
with existing customers and as a result of competitive pressures. The gross
profit percentage for 1996 reflects higher margins on sales of new products and
warehouse sales, which offset the impact on the gross profit percentage of the
higher proportion of sales represented by direct sales (which are made at lower
margins than warehouse sales) and the increase in provisions for sales
incentives.
14
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION (CONTINUED)
Selling, general and administrative expenses ("SG&A") for distribution
operations amounted to $13.9 million in 1996, as compared to $13.2 million in
1995. The added SG&A is comprised of increases in depreciation and amortization
of property and equipment ($322,000), expenses related to Mexican operations
which commenced during fiscal 1996 ($222,000), factoring costs related to the
insurance of additional customer accounts ($171,000) and merchandising and
customer display costs ($139,000). Such increases were partially offset by a
decrease of $260,000 in professional fees.
Interest expense on distribution-related financing rose to $1.8 million
in 1996 from $1.5 million in 1995 due to additional average outstanding
borrowings and a higher weighted average cost of funds.
MANUFACTURING
Excluding certain administrative costs incurred at the corporate
headquarters, in 1996 the Company's manufacturing operations recorded a pretax
loss of $1.2 million. This compares to a pretax loss from manufacturing
operations of $2.0 million in 1995.
GO-GRO
On a pre-tax basis, Go-Gro generated $475,000 in pre-tax income in 1996
while reporting a pretax loss of $820,000 in 1995. Sales by Go-Gro to
non-related companies primarily located in Europe, increased by $1.6 million, or
9%, in 1996 to $19 million. Total shipments for Go-Gro included intercompany
sales by Go-Gro to the Company and its subsidiaries (which are eliminated for
financial statement purposes and the profit on such sales deferred until the
goods are sold to third parties) of $17.9 million in 1996 and $14.3 million in
1995. Gross profit increased in total dollars in 1996 by $1.3 million to $5.4
million as a result of increased shipment.
SG&A was $4.6 million for 1996, up $434,000 from 1995 mostly due to
added payroll and benefits related to new employees hired to pursue additional
sales in the European market and to support the increased sales volume. Interest
expense declined in 1996 by $351,000 due to lower outstanding borrowings while
other income increased by $81,000, mostly reflecting the sale of intangible
assets.
MERIDIAN
Meridian's pretax loss of $1.2 million for 1995 is not comparable to
the pretax loss of $1.7 million for 1996 as Meridian did not commence operations
until mid December 1994. Net sales for Meridian were $2.1 million in 1996 and
$1.8 million in 1995.
15
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
MERIDIAN (CONTINUED)
Cost of sales for 1996 was $2.9 million. The following factors
increased costs of sales during 1996:
(1) a sales volume insufficient to avoid significant underutilization
of plant capacity, resulting in manufacturing variances;
(2) unit production that has exceeded unit sales to date, resulting in
additional storage expenses and a provision for excess inventory;
(3) costs required to develop new products.
Cost of sales exceeded sales in 1995 by $552,000 due entirely to
manufacturing inefficiencies related to the start up nature of Meridian's
operations during this period.
Meridian's remaining expenses for 1996 increased by $253,000 from 1995
as Meridian was operational for nine months in 1996 as compared to only six
months in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its short-term liquidity needs through cash provided
by operations, accounts payable, borrowings under various credit facilities with
banks, and the use of letters of credit from customers to fund certain of its
direct sales activities. Lease obligations, mortgage notes, convertible
subordinated notes, bonds and capital stock are additional sources for the
longer-term liquidity and financing needs of the Company. Management believes
the Company's available sources of cash will enable it to fulfill its liquidity
requirements for the next year.
CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1996
The Company's operating, investing and financing activities resulted in
a net decrease in cash and cash equivalents of $341,000 from September 30, 1995
to June 30, 1996.
Net cash of $9.9 million was provided by operating activities. Such
cash was used to pay down borrowings from credit lines and to pay for certain
capital expenditures.
Capital expenditures during the period aggregated $8.3 million, and
included additional construction costs of $2.3 million for the Tupelo warehouse
and the purchase of $2.7 million in equipment and computer software for such
warehouse (for the most part financed by the issuance in May 1995 of a series of
State of Mississippi Variable Rate Industrial Revenue Development Bonds) and
$2.1 million in costs incurred by Go-Gro for the construction of a factory and a
dormitory and the purchase of machinery, molds and equipment. In addition,
office and warehouse equipment (primarily purchased for the Tupelo warehouse)
amounting to $537,000 was acquired and financed by the Company's leasing
facilities.
16
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CREDIT FACILITIES, CONVERTIBLE SUBORDINATED NOTES AND BONDS
The Company has a $65 million credit facility with a group of
commercial banks. This facility provides credit in the form of a $7.6 million
non-revolving loan and $57.4 million in revolving loans, acceptances, and trade
and stand-by letters of credit, matures March 31, 1999 and provides for
quarterly principal payments of $950,000 commencing on June 1, 1997 on the
non-revolving loan. The non-revolving loan bears interest at prime plus 1% and
other borrowings under the facility bear interest, payable monthly, at the
Company's preference of either the prime rate or LIBOR plus 2.2% through June
30, 1996 or subsequent to June 30, 1996 at either prime or the LIBOR rate plus a
variable spread based upon earnings, debt and interest expense levels.
Obligations under this facility are secured by substantially all of the
Company's U.S. assets. The Company is required to comply with various convenants
in connection with this facility and borrowings are subject to a borrowing base
calculated from U.S. receivables and inventory. In addition, the agreement
prohibits the payment of any cash dividends or other distribution on any shares
of the Company's common stock, other than dividends payable solely in shares of
common stock, unless approval is obtained from the lenders. At June 30, 1996,
the Company had used $30.4 million under its credit facility.
The Company's Canadian and Hong Kong subsidiaries have credit
facilities with foreign banks of $2.2 million and $4.5 million, respectively.
Borrowings under the Canadian facility are secured by substantially all of the
assets of the Canadian subsidiary and are limited under a borrowing base defined
as the aggregate of certain percentages of accounts receivable and inventory.
The Hong Kong facility provides credit in the form of acceptances, trade and
stand-by letters of credit, overdraft protection and negotiation of discrepant
documents presented under export letters of credit issued by banks. Each of
these credit facilities are payable upon demand and are subject to annual
reviews by the banks. With respect to the Canadian facility, the Company is
required to comply with various covenants, which effectively restrict the amount
of funds which may be transferred from the Canadian subsidiary to the Company.
The Hong Kong facility limits dividends that may be paid to the Company to 40%
of Go-Gro's earnings but does not limit advances or loans from Go-Gro to the
Company. The aggregate amounts available for borrowing under the Canadian and
Hong Kong facilities at June 30, 1996 were $700,000 and $1.6 million,
respectively.
The Company has outstanding $7.6 million of 8% convertible subordinated
notes due on March 15, 2002. The notes are convertible into common shares of the
Company's stock at a conversion price of $7.31 per share, subject to certain
anti-dilution adjustments as defined in the Note Agreement, at any time prior to
maturity. The notes are subordinated in right of payments to all existing and
future senior indebtedness of the Company and the notes are callable at the
option of the Company with certain required premium payments on or after March
15, 1996. Principal payments of approximately $2.5 million are required on March
15 in each of the years 2000 and 2001. The remaining outstanding principal and
interest is due in full on March 15, 2002. Interest is payable semiannually. The
terms of the Note Agreement require the Company to maintain specific interest
coverage ratio levels in order to increase its credit facilities or otherwise
incur new debt and to maintain a minimum consolidated net worth. In addition,
the agreement prohibits the declaration or payment of dividends on any shares of
the Company's capital stock, except dividends or other distributions payable
solely in shares of the Company's common stock, and the purchase or retirement
of any shares of capital stock or other capital distributions.
17
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
During the 1995 fiscal year, the Company began construction of a
475,000 square foot facility located near Tupelo, Mississippi to consolidate
warehouse operations located in leased facilities in Texas and Massachusetts.
The facility became operational on March 15, 1996. The Company completed the
move of all inventory from its Texas facility and ceased operations therein
effective April 30, 1996. The Company anticipates ceasing the warehousing
operations located in Massachusetts in early fiscal 1997. The Company expended
$8.9 million for the building and underlying land, and $3.1 million on machinery
and equipment for the facility. The Company arranged for the issuance in 1995 of
$10.5 million in State of Mississippi Variable Rate Industrial Revenue
Development Bonds to finance (along with internally generated cash flow and the
Company's $1 million leasing facility) the new warehouse and machinery and
equipment. The bonds have a stated maturity of May 1, 2010 and require mandatory
sinking fund redemption payments, payable monthly, of $900,000 per year from
1996 to 2002, $600,000 per year in 2003 and 2004, and $500,000 per year from
2005 to 2010. The bonds bear interest at a variable rate (5.6% at June 30, 1996)
that is adjustable weekly to the rate the remarketing agent for the bonds deems
to be the market rate for such bonds. The bonds are secured by a lien on the
land, building, and all other property financed by the bonds. Additional
security is provided by a $10.8 million direct pay letter of credit which is not
part of the Company's credit line. The unused portion of the $10.5 million bond
proceeds and $150,000 in sinking fund payments represent the restricted cash
equivalents and short-term investments reflected in the balance sheet at June
30, 1996.
The Company financed the purchase and improvements of its Meridian
manufacturing facility through the issuance of a series of State of Mississippi
General Obligation Bonds (Mississippi Small Enterprise Development Finance Act
Issue, 1994 Series GG) with an aggregate available principal balance of
$1,605,000, a weighted average coupon rate of 6.36% (as of June 30, 1996), and a
contractual maturity of 15 years. The bonds are secured by a first mortgage on
land, building and improvements and a $1,713,000 standby letter of credit which
is not part of the Company's credit line. Interest on the bonds is payable
semiannually and principal payments are due annually.
The Company has a $1 million leasing facility with a financial
institution to finance the purchase of equipment in the United States, of which
approximately $500,000 was available at June 30, 1996.
OTHER
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a subsidiary
of Go-Gro, and the Bureau of National Land Planning Bao-An Branch of Shenzhen
City entered into a Land Use Agreement covering approximately 467,300 square
feet in Bao-An County, Shenzhen City, People's Republic of China on April 11,
1995. The agreement provides SJE with the right to use the above land until
January 18, 2042. The land use rights are non-transferable. Land costs
approximated $2.6 million of which Go-Gro has paid its 70% proportionate share
of $1.8 million.
Under the terms of this agreement, SJE is obligated to construct
approximately 917,000 square feet of factory buildings and 275,000 square feet
of dormitories and offices, with 40 percent of the construction required to be
completed by April 1, 1997 and the remainder by December 31, 2000. At an
estimated average construction price of $9.50 per square foot, construction
costs should approximate $11.3 million. The $11.3 million includes approximately
$1.6 million for a Municipal Coordination Facilities Fee (MCFF). Such MCFF is
based upon the square footage to be constructed. The agreement calls for the
MCFF to be paid in two installments of approximately $800,000 on October 31 and
December 31, 1996. The first
18
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OTHER (CONTINUED)
construction phase (a 170,000 square foot factory and a 60,000 square foot
dormitory) is estimated to be completed in December 1996. SJE plans to file an
application to (1) reduce the amount of square footage required to be
constructed by approximately 33-50% and thereby proportionately reduce the MCFF;
(2) allocate the required construction square footage to two parcels - the first
parcel containing 230,000 square feet of construction to be completed in
December 1996 and the second parcel containing the remainder of the construction
to be completed by December 31, 2000; (3) decrease the April 1997 required
construction to 230,000 square feet; and (4) make the MCFF payable upon the
completion of each applicable factory and/or dormitory building. The outcome of
the application cannot be presently determined. The Company used internally
generated funds to finance the first phase of the construction and anticipates
financing the second phase through either its current banking relationships or
by establishing additional banking relationships.
The Company serves as an exclusive supplier to Kmart for interior and
exterior residential lighting merchandise under an agreement which expires on
June 30, 1997. As consideration for this exclusivity agreement, the Company
agreed to provide Kmart with sales discounts which are paid monthly to Kmart
based upon prior months' sales. At June 30, 1996, approximately $600,000 in
sales discounts remained available for utilization against future sales by Kmart
under the agreement.
On April 26, 1996, the Company entered into a license agreement with
Westinghouse Electric Corporation to market and distribute a full range of
lighting fixtures, lamps and other lighting products under the Westinghouse
brand name in exchange for royalty payments. The agreement terminates on
September 30, 2001. Catalina has an option to extend the agreement for an
additional ten years. The royalty payments are due quarterly and are based on a
percent of the value of the Company's net shipments of Westinghouse branded
products. No payments were due under the agreement for the period from April 26,
1996 to June 30, 1996. Either party has the right to terminate the agreement
during years three through five of the agreement if the Company does not meet
the minimum net shipments required under the agreement.
RENEWAL OF CHINA'S MOST FAVORED NATION STATUS
During the fiscal year ended September 30, 1995, approximately 87%
(including purchases from Go-Gro) of the products purchased for sale by the
Company's distribution operations were imported from China. The continued
importation of these products could be affected by any one of several
significant trade issues that presently impact U.S. - China relations. These
issues and their possible effects are summarized below.
On June 19, 1996, the President of the United States extended to the
People's Republic of China "Most Favored Nation" ("MFN") treatment for the entry
of goods into the United States for an additional year, beginning July 3, 1996.
In the context of United States tariff legislation, MFN treatment means that
products are subject to favorable duty rates upon entry into the United States.
The Presidential Determination did not recommend subjecting any future renewal
of MFN trade status for China to various conditions, such as China's compliance
with the 1992 bilateral agreement with the United States concerning prison labor
and overall progress with respect to human rights, release and accounting of
Chinese citizens imprisoned or detained for their political and religious
beliefs, humane treatment of prisoners, protecting Tibet's religious and
cultural heritage and permitting international radio and television broadcasts
into China. Congress has passed a resolution instructing certain committees to
investigate China's alleged human rights abuses, illicit arms transfers and
unfair trade practices. Members of Congress and the "human rights community"
will continue to
19
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RENEWAL OF CHINA'S MOST FAVORED NATION STATUS - CONTINUED
monitor the human rights issues in China and adverse developments in human
rights and other trade issues in China could affect U.S. - China relations.
On November 30, 1993, the United States Trade Representative ("USTR")
placed China on the "priority watch list" under the so-called Special 301
provisions of the Trade Act of 1974 dealing with the protection of intellectual
property rights. On June 30, 1994, USTR announced that China had been designated
a "priority foreign country" under the "special 301" provisions of the Trade Act
of 1974. On February 4, 1995, the USTR announced that the United States would
take retaliatory trade action against China if the government did not agree to
address intellectual property rights issues. The USTR also published a final
list of products comprising $1 billion worth of Chinese exports to the United
States which would be subject to increased duties. Products currently
manufactured by and for the Company were excluded from the list. On February 26,
1995 the United States and China resolved this dispute when China agreed to
close down a number of compact disc plants and take enforcement actions against
copyright piracy which was evidenced by the signing of an Intellectual Property
Enforcement Agreement (the "IPR Agreement"). On April 30, 1996 USTR designated
China as a "priority foreign country" because of its failure to implement the
1995 intellectual property enforcement agreement and on June 17, 1996, the
United States and China reached an understanding on the enforcement of the
intellectual property agreement. USTR will continue to monitor China's
implementation of the 1995 agreement and trade sanctions could be imposed for
non-compliance at any time pursuant to a decision by USTR that China is not
satisfactorily implementing the 1995 agreement.
As a result of various political and trade disagreements between the
U.S. Government and China, it is possible restrictions could be placed on trade
with China in the future which could adversely impact the Company's operations.
20
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 8, 1996, the Company was served with a copy of the Complaint
in the matter of Black & Decker (U.S.), Inc. vs. Catalina Lighting, Inc., Case
No. 96-1042-A, in the United States District Court, Eastern Division of
Virginia. The plaintiff in the action contends that the Company has infringed
certain of plaintiff's patents in selling its line of flexible flashlights and
as such brought action for an unspecified amount of monetary damages and an
injunction prohibiting any further acts of infringement. Management believes
that damages recoverable by the plaintiff, if any, will not have a material
adverse impact on the Company's financial position or results of operations.
However, based on the early stages of the litigation, no assurances can be given
as to the ultimate outcome. The Company does not believe that its design and
sale of flexible flashlights violates the property right of others and the
Company intends to defend this case vigorously.
The Company is a defendant in legal proceedings arising in the normal
course of business. In the opinion of management, based upon advise of legal
counsel, their ultimate resolution will not have a material adverse effect on
the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.136 Complaint in the matter BLACK & DECKER (U.S.), INC., BLACK &
DECKER INC. VS. CATALINA LIGHTING, INC., Case No. 96-1042-A,
in the United States District Court Eastern Division of
Virginia.
11 Schedule of Computation of Earnings (loss) per Share
(b) REPORTS ON FORM 8-K
The Registrant filed a report on Form 8-K on July 19, 1996.
21
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
/S/ DEAN S. RAPPAPORT
-----------------------------------------
Dean S. Rappaport
Executive Vice President, Chief Financial
Officer and Treasurer
/S/ DAVID W. SASNETT
-----------------------------------------
David W. Sasnett
Vice President of Finance, Controller and
Chief Accounting Officer
Date: August 14, 1996
EXHIBIT 10.136
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
BLACK & DECKER (U.S.) INC.
BLACK & DECKER INC.
701 East Joppa Road SUMMONS IN A CIVIL ACTION
Towson, Maryland 21204
v. CASE NUMBER: 96-1042-A
CATALINA LIGHTING, INC.
18191 N.W. 68TH Avenue
Hialeah, Florida 33015-3905
8-08-96
TO: (Name and Address of Defendant) 9:51 AM
CATALINA LIGHTING, INC. ILLEGIBLE 1024
18191 N.W. 68th Avenue
Hialeah, Florida 33015
YOU ARE HEREBY SUMMONED and required to file with the Clerk of this
Court and serve upon PLAINTIFF'S ATTORNEY (name and address)
Amy S. Owen
MILES & STOCKBRIDGE, P.C.
1751 Pinnacle Drive, Suite 500
McLean, Virginia 22102
(703) 903-9000
an answer to the complaint which is herewith served upon you, within 20 days
after service of this summons upon you, exclusively of the day of service. If
you fail to do so, judgment by default will be taken against you for the relief
demanded in the complaint.
NORMAN M. MEYER, JR., CLERK 7/31/96
- ---------------------------- -------
/S/ LORRI A. HARPER
- --------------------------
BY DEPUTY CLERK
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
(Alexandria Division) ILLEGIBLE
STAMP
BLACK & DECKER (U.S.) INC. ) JUL 31 1996
BLACK & DECKER INC )
701 East Joppa Road )
Towson, Maryland 21204 )
)
Plaintiffs, )
)
v. ) Civil Action No. 96-1042-A
)
CATALINA LIGHTING, INC. )
18191 N.W. 68th Avenue )
Hialeah, Florida 33015-3905 )
)
Defendant. )
COMPLAINT FOR PATENT INFRINGEMENT
Plaintiffs, BLACK & DECKER (U.S.) INC. and BLACK & DECKER INC.
(collectively "Black & Decker"), complain of defendant, CATALINA LIGHTING, INC.
("Catalina"), as follows:
1. This is a complaint for patent infringement of United States Patent
No. 5,517,392, entitled "Sleeve Retention for Flexible Core of a Flashlight,"
issued on May 14, 1996 ("the '392 patent") and of United States Patent No.
5,521,803, entitled "Flashlight With Flexible Core," issued on May 28, 1996
("the '803 patent"). The Court has jurisdiction over the subject matter of the
complaint under 28 U.S.C. ss. 1338. Venue is proper under 28 U.S.C. ss. 1400(b).
2. This Court has personal jurisdiction over Catalina by virtue of its
tortious acts of patent infringement, which have been committed in the
Commonwealth of Virginia, and its transaction of business in Virginia. Catalina
has made, used, offered for sale and sold flexible flashlights, including those
sold under the name
<PAGE>
"THE PORTABLE HUGGER," which are covered by United States Patents Nos. 5,517,392
and 5,521,803 (collectively "the patents in suit").
3. Black & Decker (U.S.) Inc. is a Maryland corporation having its
principal place of business at 701 East Joppa Road, Towson, Maryland, within 100
miles of this Court. Black & Decker (U.S.) Inc. is a leading American designer
and manufacturer of consumer products.
4. Black & Decker Inc. is a Delaware corporation which owns the patents
in suit, which are exclusively licensed to Black & Decker (U.S.) Inc. Both Black
& Decker inc. and Black & Decker (U.S.) Inc. have standing to bring suit against
Catalina for infringement of the patents in suit.
5. Catalina is a Florida corporation having a place of business at 18191
N.W. 68th Avenue, Hialeah, Florida 33015-3905. Catalina is engaged in the
business of, among other things, manufacturing, distributing and selling
residential and commercial lighting devices.
6. As stated above, Catalina has infringed the patents in suit by
making, using, offering to sell and selling flexible flashlights that embody the
inventions described and claimed in the patents in suit and by inducing
infringement of the patents in suit in the United States. Catalina has also
infringed the patents in suit by importing and inducing others to import into
the United States flexible flashlights that embody the inventions described and
claimed in the patents in suit.
- 2 -
<PAGE>
7. Catalina's acts of infringement have been willful and deliberate,
having been done with full knowledge of the patents in suit.
8. Black & Decker has been damaged by Catalina's infringing acts and
will be continued to be damaged unless Catalina is enjoined by this Court.
9. Black & Decker is entitled to recover damages from Catalina in an
amount adequate to compensate it for the infringement that has occurred and that
will continue to occur until an injunction is issued by the Court.
PRAYER FOR RELIEF
WHEREFORE, Black & Decker seeks judgment against Catalina as follows:
A. An award of damages adequate to compensate Black & Decker for the
infringement of the '392 and '803 patents that has occurred, but in no event
less than a reasonable royalty;
B. A determination that Catalina's patent infringement has been willful
and deliberate and an award to Black & Decker of three times the damages so
determined, as provided for in 35 U.S.C. ss. 284, together with prejudgment
interest from the date infringement began;
C. A determination that this case is "exceptional" as provided by 35
U.S.C. ss. 285 and an award to Black & Decker of its costs and reasonable
attorneys' fees;
D. Preliminary and permanent injunctions against Catalina, including its
subsidiaries, affiliates, related
- 3 -
<PAGE>
companies, agents, employees and representatives (and all persons in active
concert or participation with it), prohibiting all further acts of infringement
of the 1392 and 1803 patents; and
E. Such other and further relief as this Court and/or a jury may deem
proper and just.
JURY DEMAND
Black & Decker hereby demands a trial by jury on all issues presented in
this Complaint that are so triable.
/S/ AMY S. OWEN
-----------------------------------
Amy S. Owen
MILES & STOCKBRIDGE, P.C.
1751 Pinnacle Drive, Suite 500
McLean, Virginia 22102
(703) 903-9000
Raymond P. Niro
John C. Janka
Raymond P. Niro, Jr.
Christopher J. Lee
David J. Sheikh
NIRO, SCAVONE, HALLER AND NIRO
181 West Madison Street, Suite 4600
Chicago, Illinois 60602
Phone: (312) 236-0733
Attorneys for Black & Decker (U.S)
Inc. and Black & Decker Inc.
OF COUNSEL
John D. Del Ponti
The Black & Decker Corporation
701 East Joppa Road TW 199
Towson, Maryland 21204
Barry E. Deutsch
Black & Decker (U.S.) Inc.
6 Armstrong Road
Shelton, Connecticut
- 4 -
<TABLE>
<CAPTION>
EXHIBIT 11
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PRIMARY EARNINGS (LOSS) PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- -----------------------------------
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income (loss) $ 18,000 ($ 1,464,000) $ 971,000 $ 277,000
Add: Interest on debt assumed to - - 25,000 -
be repaid
================ ================ ================ ================
Net income (loss) for primary earnings $ 18,000 ($ 1,464,000) $ 996,000 $ 277,000
(loss) per common share
================ ================ ================ ================
Weighted average number of common shares 7,016,000 6,976,000 7,002,000 6,952,000
outstanding during the period
Add: Common equivalent shares determined
using the "Modified Treasury
Stock" method representing shares
issuable upon exercise of stock options
and warrants 800,000 - 754,000 902,000
---------------- ---------------- ---------------- ----------------
Weighted average number of shares used
in calculation of primary earnings (loss) 7,816,000 6,976,000 7,756,000 7,854,000
per share ================ ================ ================ ================
Primary earnings (loss) per common share $ - $ (.21) $ .13 $ .04
================ ================ ================ ================
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
(CONTINUED)
SCHEDULE OF COMPUTATION OF FULLY DILUTED EARNINGS (LOSS) PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- -----------------------------------
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
Net income (loss) $ 18,000 ($ 1,464,000) $ 971,000 $ 277,000
Add: Interest on debt assumed to - - 20,000 -
be repaid
================ ================ ================ ================
Net income (loss) for fully diluted earnings $ 18,000 ($ 1,464,000) $ 991,000 $ 277,000
(loss) per common share
================ ================ ================ ================
Weighted average number of common shares 7,016,000 6,976,000 7,002,000 6,952,000
outstanding during the period
Add: Common equivalent shares determined
using the "Modified Treasury
Stock" method representing shares
issuable upon exercise of stock options
and warrants 800,000 - 754,000 902,000
---------------- ---------------- ---------------- ----------------
Weighted average number of shares used
in calculation of fully diluted earnings (loss) 7,816,000 6,976,000 7,756,000 7,854,000
per share ================ ================ ================ ================
Fully diluted earnings (loss) per common share $ - $ (.21) $ .13 $ .04
================ ================ ================ ================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 466
<SECURITIES> 0
<RECEIVABLES> 27,186
<ALLOWANCES> 6,491
<INVENTORY> 39,982
<CURRENT-ASSETS> 73,214
<PP&E> 25,772
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,612
<CURRENT-LIABILITIES> 31,720
<BONDS> 10,165
0
0
<COMMON> 71
<OTHER-SE> 43,176
<TOTAL-LIABILITY-AND-EQUITY> 114,612
<SALES> 134,983
<TOTAL-REVENUES> 134,983
<CGS> 112,024
<TOTAL-COSTS> 112,024
<OTHER-EXPENSES> 19,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,433
<INCOME-PRETAX> 1,618
<INCOME-TAX> 647
<INCOME-CONTINUING> 971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 971
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
