FORM 10-K
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from________________________to________________________
COMMISSION FILE NO: 1-9917
CATALINA LIGHTING, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1548266
State or other jurisdiction of (I.R.S Employer
incorporation or organization Identification Number)
18191 N.W. 68TH AVENUE, MIAMI, FLORIDA 33015
(Address of principal executive offices, including zip code)
(305) 558-4777
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value New York Stock Exchange
$.01 per share
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 the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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The aggregate market value of voting stock held by non-affiliates of the
Registrant computed by reference to the closing price of such stock, as reported
by the New York Stock Exchange, on December 18, 1996 was $36.2 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Company for its 1997
Annual Meeting of Stockholders are incorporated by reference into Part III.
Number of shares outstanding of Registrant's common stock, as of
December 18, 1996: 7,064,587
Exhibit Index at Page 53
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FORM 10-K
CATALINA LIGHTING, INC.
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K (this "Form
10-K"), including statements under "Item 1. Business" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward- looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
Catalina Lighting, Inc. (the "Company") and its subsidiaries to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, but are not
limited to, the following: the highly competitive nature of the lighting
industry; reliance on certain key customers; consumer demand for lighting
products; dependence on imports from China; general economic and business
conditions; competition; operating costs; advertising and promotional efforts;
brand awareness; the existence or absence of adverse publicity; acceptance of
new product offerings; changing trends in customer tastes; changes in business
strategy; quality of management; availability, terms and deployment of capital;
business abilities and judgment of personnel; availability and cost of raw
materials and supplies; factory construction schedules; the costs and other
effects of legal and administrative proceedings; and other factors referenced in
this Form 10-K. The Company will not undertake and specifically declines any
obligation to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
ITEM 1. BUSINESS.
GENERAL
Catalina Lighting, Inc. was incorporated under the laws of the state of
Florida in 1974 and became a public company in 1988. The Company designs,
manufactures, contracts for the manufacture of, imports and distributes a broad
line of lighting fixtures and lamps under the Westinghouse/registered trademark/
brand and the Catalina/registered trademark/, Dana/registered trademark/,
Meridian Lamps/registered trademark/ and Illuminada/registered trademark/ trade
names. The Company also functions as an original equipment manufacturer, selling
goods under its customers' private labels. The Company sells principally in the
United States through a variety of retailers including home centers, national
retail chains, office superstore chains, warehouse clubs, discount department
stores, catalog showrooms, lighting showrooms and hardware stores. The Company
also sells its products in Europe and Canada, and, to a lesser extent, in
Mexico, Asia, Latin America and Australia. Currently, its product line is
comprised almost entirely of lighting fixtures and lamps. The Company has
supplemented its product lines through acquisitions but has remained focused on
lighting products and has no plans to materially change its sales focus in the
near future.
STRATEGY
In order to expand its retail distribution network and more efficiently
and profitably service its customers, the Company focuses on the following
strategies:
TARGETED DISTRIBUTION. The Company distributes a diverse product line
through multiple retail channels. The Company targets rapidly growing and large
retailers, including leading home centers, office product superstores, warehouse
clubs, discount department stores, catalog showrooms, lighting showrooms and
hardware stores. Large retailers assure a broad distribution of a variety of the
Company's products while high-growth retailers provide the Company with rapid
penetration of selected industry segments. Secondarily, the Company targets
smaller chains within the above retail categories. While sales to each of these
retailers are smaller than those to their larger counterparts, these smaller
retailers are more numerous than their larger competitors and account for a
significant portion of the lighting industry. The Company's distribution
strategy provides it with numerous sources of demand and promotes the Company's
brand names broadly throughout the residential and office lighting markets in
the United States, Europe and Canada, and to a lesser extent Asia, Mexico, Latin
America and Australia.
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PROGRAM SELLING. In its primary domestic markets, the Company strives
to be the primary source of lighting products to its retailers by offering a
complete program of lighting products in a variety of categories. The
availability of over 1000 styles of outdoor/security lighting, table, floor and
torchiere lamps, chandeliers, recessed and track lighting and wall and ceiling
lights - the majority of which are available in several colors or finishes -
provides retailers the opportunity to source most of their lighting products
through the Company on a "one stop shopping" basis. The Company believes that
its broad selection of affordable products coupled with its ability to aid its
retail customers in developing a complete lighting program gives it a
competitive advantage.
INTERNATIONAL EXPANSION The Company's Hong Kong based subsidiary,
Go-Gro Industries Limited ("Go-Gro"), sells its products principally to
wholesale distributors in Europe, but also sells to various customers in the
U.S., Asia and Australia and is also a supplier to the Company in the U.S. and
Canada. Management believes the Company's products and services are well suited
for further growth in these and other markets. The Company expects to join
forces with sales representatives and distributors in its foreign target markets
and utilize their knowledge of local markets' tastes in products, social
customs, and trading nuances to facilitate the Company's entry into those
countries. The Company's current plans include expansion of Go-Gro's existing
sales and marketing operations in Europe, including the United Kingdom.
TURNKEY DEPARTMENTS. The Company consults with many of its domestic
retail customers to establish departments which allow the Company to display its
products in a customized layout designed to meet each retailer's specific
merchandising and marketing goals. The Company can design, assemble and maintain
these departments and provide the retailer with shelving plan-o-grams, signs,
point-of-purchase promotional strategies and in-store inventory stocking
programs. Turnkey departments ensure the Company's retail customers efficient
and convenient management of the Company's products within their stores and
allow the Company to maintain an attractive and informative presentation of its
products.
WAREHOUSE SUPPLY OF IMPORTED GOODS. The Company's warehouses in the
United States, Canada and Mexico enable it to provide the cost advantage of
imported products with the convenience of short delivery time. Warehouse sales
allow retailers to receive products in several days as compared to several
months for items shipped directly to them from Asia. Timely deliveries increase
the customer's inventory turns and profits making the Company a valuable partner
in the retailer's business.
SALES MANAGEMENT. Catalina has regional vice-presidents and supporting
salespeople strategically located in key regions throughout the U.S., Europe,
Canada, Asia and Mexico. While continuing to maintain independent
representatives in select areas, the Company has built a team of sales
professionals who service key accounts and cultivate new business in their
regions. The Company will continue to develop its internal sales force to
provide dedicated and knowledgeable lighting professionals to aid in directing
the customers' buying decisions and ensure maximum penetration into targeted
markets.
PRODUCTS
The Company markets a diverse product line of lighting fixtures and
lamps used primarily in residential and office settings. The Company's product
line is comprised of three main categories: hardwire lighting fixtures
("lighting fixtures"), functional table and floor lamps ("functional lamps") and
decorative table and floor lamps ("decorative lamps"). Lighting fixtures consist
of outdoor/security lighting, chandeliers, recessed and track lighting, and wall
and ceiling lights. Functional lamps consist of halogen desk lamps, bankers
lamps, swing arm desk lamps, torchiere lamps, magnifier lamps, and any other
lamps generally used for task oriented functions. Decorative lamps consist of
table top and floor lamps in such materials as metal, ceramic, hydrocal, and
crystal glass. The Company may continue to expand its product lines internally
or through acquisitions.
The Company's products are manufactured and assembled according to the
Company's design specifications. The finished products are packaged and labeled
under one of the Company's brand names: Westinghouse/registered trademark/,
Catalina/registered trademark/, Dana/registered trademark/, Meridian
Lamps/registered trademark/ and Illuminada/registered trademark/. The Company
also functions as an original equipment manufacturer, selling goods under its
customers' private labels.
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CUSTOMERS
The Company distributes its products in North America principally
through major retail outlets, including home centers, national retail chains,
office superstore chains, discount department stores, warehouse clubs, catalog
showrooms, furniture and lighting stores and hardware stores. Go-Gro's products
are sold to a large extent in Europe to wholesale distributors under their
private labels. Go-Gro also sells to selected retail customers in the U.S.,
Europe, Australia and Asia. In fiscal 1996 and 1995, Kmart accounted for 3.9%
and 5.9%, respectively, of the Company's net sales while its affiliate, Builders
Square, accounted for 7.1% and 6.9% of the Company's net sales. For the fiscal
years ended September 30, 1996 and 1995, net sales to the Company's ten largest
customers represented approximately 58% and 53%, respectively, of the Company's
total revenues. The Company believes its relationships with its customers are
good.
SALES
DISTRIBUTION OPERATIONS
Distribution operations generated net sales of $153.8 million and
$148.3 million in 1996 and 1995, respectively, representing 83.3% and 84.1%,
respectively, of net sales in such years. The backlog of unshipped orders at
September 30, 1996 and 1995 was $13.8 million and $13.2 million, respectively.
Although these orders are subject to cancellation by the customers, the Company
believes substantially all such orders are firm. The Company's distribution
operations utilize two methods to sell products: warehouse sales and direct
sales.
The Company purchases products overseas for its own account and
warehouses the products in a 475,000 square foot Company-owned facility in
Tupelo, Mississippi and in leased facilities in Montreal, Canada, Mexico City,
Mexico and in a public warehouse in California. The Company is responsible for
costs of shipping, insurance, customs clearance and duties, storage and
distribution related to such warehouse products and therefore, warehouse sales
usually command higher per unit sales prices than direct sales of the same
items. For the fiscal years ended September 30, 1996 and 1995, warehouse sales
accounted for 54% and 61%, respectively, of the net sales generated by the
Company's distribution operations.
The Company's direct sales are made either by delivering lighting
products to the retailers' common carriers at a shipping point in Asia or by
shipping the products from Asia directly to retailers' distribution centers,
warehouses or stores. Direct sales are made in large quantities (generally
container-sized lots) to customers, who pay pursuant to their own international,
irrevocable, transferable letters of credit or on open credit with the Company.
Upon receipt of a customer's letter of credit, the Company transfers the portion
of the letter of credit covering the cost of merchandise to its supplier. The
terms of the transfer provide that draws may not be made by the supplier until
the Company is entitled to be paid pursuant to the terms of the customer's
letter of credit. The Company has the right to draw upon the customer's letter
of credit once the products are inspected by the Company or its agents,
delivered to the port of embarkation and the appropriate documentation has been
presented to the issuing bank within the time periods established by such letter
of credit. For fiscal years ended September 30, 1996 and 1995, 46% and 39%,
respectively, of the net sales generated by the Company's distribution
operations were attributable to direct sales.
The relative proportion of the Company's distribution sales generated
by each method is dependent upon customer buying preferences and Company sales
strategies. Purchasing on a direct basis allows the customer to generally pay a
lower price than purchasing the same items from the warehouse, but such method
requires the customer to purchase in greater quantities and thus assume the
costs, risks and liquidity requirements associated with holding larger
inventories. Customer buying preferences are influenced by a number of business,
economic and other factors. The underlying factors driving customer buying
preferences often vary from customer to customer and are subject to change, thus
customer buying preferences over time are inherently difficult to predict.
MANUFACTURING OPERATIONS
On July 30, 1994 the Company purchased Go-Gro a lighting products
manufacturer with its administrative office located in Hong Kong and production
facilities located in the Guangdong Province of China. Go-Gro's production
equipment is owned by Shenzhen Jiadianbao Electrical Products Co., Ltd. (SJE),
Go-Gro's cooperative joint venture
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subsidiary. SJE's factory buildings are leased from the Company's joint venture
partner in SJE, Shenzhen Baoanqu Fuda Industries Co. Ltd. ("Fuda"), a Chinese
company. Under the terms of the cooperative joint venture agreement with Fuda,
Go-Gro is entitled to 100% of the manufacturing profits and losses of SJE, while
Fuda is entitled to a yearly management fee from SJE of approximately $400,000
in addition to the rent for the factory buildings. Go-Gro manufactures an
extensive product line consisting primarily of lamps sold mainly to wholesale
distributors and retailers in Europe, the Company and its subsidiaries and to a
lesser extent, retailers in North America. Go-Gro had sales for fiscal 1996 and
1995 of $53.3 million and $43 million, respectively, of which $25.3 million in
1996 and $17.3 million in 1995 were sold to the Company and its subsidiaries.
The backlog of unshipped orders at September 30, 1996 and 1995 was $15.9 million
and $8.5 million, respectively, of which $6.4 million and $3.1 million for 1996
and 1995, respectively, was for the Company and its subsidiaries. Although these
orders are subject to cancellation by the customers, the Company believes
substantially all such orders are firm. Go-Gro and its subsidiaries employ
approximately 2,900 people.
SJE leases factory buildings in three separate locations in China.
During 1995, the Company initiated a consolidation of its Go-Gro/SJE
manufacturing facilities into one large compound in order to achieve certain
manufacturing efficiencies and to fix its occupancy costs in what management
believes will be an inflationary business environment. In April 1995, SJE 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. The agreement provides SJE
with the right to use the above-described land until January 18, 2042. The land
use rights are non-transferable. Under the terms of the SJE joint venture
agreement, ownership of the land and buildings of SJE is divided 70% to Go-Gro
and 30% to the other joint venture partner. Land costs, including the land use
rights, 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. The total
construction costs for this project are estimated at $11.3 million, and include
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 installments beginning in January 1997 and continuing
through 1998, with 46% of the total fee due by September 1997. SJE plans to file
an application to reduce the amount of square footage required to be constructed
by approximately 40% and thereby proportionately reduce the MCFF and make the
MCFF payable upon the completion of each applicable factory and/or dormitory
building. The outcome of the application cannot be presently determined. Go-Gro
anticipates shifting a substantial portion of its manufacturing operations from
the current leased properties to the new SJE owned facilities over the next five
years. The first construction phase (a 162,000 square foot factory, a 77,000
square foot warehouse and a 60,000 square foot dormitory) is estimated to be
completed in March 1997 and will increase present production capacity by
approximately 30%.
Meridian Lamps, Inc. ("Meridian") is a wholly-owned subsidiary with a
manufacturing facility located in Meridian, Mississippi, which commenced
operations in late December 1994. Meridian produces decorative table and floor
lamps. The Meridian facility consists of 123,000 square feet with both
manufacturing and warehousing capabilities. Meridian's activities during 1996
were focused upon refinement of the production processes and establishment of a
customer base. Meridian's operations generated $2.8 million in net sales during
fiscal 1996 and $2.8 million during its nine months of operations in fiscal
1995.
PURCHASING
Other than the goods produced by Go-Gro and Meridian, the products sold
by the Company during 1996 were virtually all purchased and imported from
approximately 60 independent suppliers located in China and Taiwan. The
Company's primary suppliers of lighting products are located in China. In fiscal
1996 and 1995, Chinese suppliers, excluding Go-Gro, accounted for approximately
71% of the Company's total goods purchased for the Company's distribution
operations. Shunde No. 1 Lamp Factory ("Shunde") accounted for approximately 23%
of purchases for the Company's distribution operations in 1996 and 19% in 1995.
Purchases from the top five independent suppliers comprised 50% and 39%,
respectively, of total purchases for distribution for fiscal 1996 and 1995.
Other than Shunde, no independent supplier accounted for more than 10% of
purchases by the Company's distribution operations in 1996. In
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addition, goods produced by Go-Gro, which also manufactures in China,
constituted approximately 24% in 1996 and 16% in 1995, of purchases made by the
Company's distribution operations.
On June 21, 1996, the Company entered into an agreement with Shunde
whereby Shunde agreed to manufacture lighting products for the Company to be
sold in North and South America and the European Community on an exclusive basis
for a three year period beginning October 1, 1996 in return for annual minimum
purchase requirements from the Company. The agreement is terminable if the
Company does not meet its minimum purchase requirements, at which time the
exclusivity clause would cease. However, no amounts would be due Shunde for
failure to meet the purchase requirements.
While the Company purchases its products from a small number of large
suppliers with whom it maintains close alliances, the same products could be
purchased from numerous other suppliers. The Company provides key suppliers with
design and quality specifications and product safety standards. To ensure that
its high standards of product quality and shipping schedules are met by
suppliers, the Company employs staff in offices in Hong Kong, Taiwan and
Southern China. These employees include product inspectors who are knowledgeable
about the Company's product specifications and work closely with the suppliers
to verify that such specifications are met. Additionally, key officers of the
Company frequently visit suppliers to emphasize quality and maintain good
relations.
During 1996 approximately 95% (including purchases from Go-Gro) of the
products purchased for sale by the Company's distribution operations were
imported from China. In addition, Go-Gro sold $28 million in products to
unaffiliated entities, of which $3.1 million were shipped to the U.S. The
continued importation of these products and the Company's business 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 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.
During 1995, the Company obtained a political risk insurance policy
issued by the Multilateral Investment Guarantee Agency, a member of the World
Bank Group, in the amount of $14.4 million covering its purchase and
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expansion of SJE in China. The contract is a long-term non-cancelable guarantee
covering the risks of expropriation and war and civil disturbance. The Company
obtained guarantees to cover existing assets of $11.0 million and stand-by
guarantees on its facility under construction of $3.4 million.
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.
COMPETITION
The Company's product lines span major segments within the lighting
industry and, accordingly, the Company's products compete in a number of
different markets with a number of different competitors. The Company competes
with other independent distributors, importers, manufacturers, and suppliers of
lighting fixtures and other consumer products. The lighting industry is highly
competitive. Other competitors market similar products that compete with the
Company on the basis of price. Some of these competitors do not maintain
warehouse operations or perform some of the services provided by the Company
which require the Company to charge higher prices. The relatively low barriers
to entry into the lighting industry and the limited proprietary nature of many
lighting products also permit new competitors to enter the industry easily. The
ability of the Company to compete successfully in this highly competitive market
depends upon its ability to manufacture and purchase quality products on
favorable terms, ensure its products meet safety standards, deliver the goods
promptly at competitive prices, and provide a wide range of services such as
electronic data interchange and customized products, packaging, and store
displays.
INDEPENDENT SAFETY TESTING
As part of its marketing strategy, the Company voluntarily submits its
products to recognized product safety testing laboratories in countries in which
it markets its products. Such laboratories include Underwriters Laboratories
(UL) in the United States, Canadian Standards Association (CSA) in Canada,
Association Nacional de Normalizacion y Certification del Sector Electrico
(ANCE) in Mexico and various European electrical testing organizations. If the
product is acceptable, the laboratory issues a report which provides a technical
description of the product. It also provides the Company's suppliers with
procedures to follow in producing the products and periodically conducts
inspections at such suppliers' facilities for compliance. Electrical products
which are manufactured in accordance with safety certification marks are
generally recognized by consumers as safe products and such certification marks
are often required by various governmental authorities to comply with local
codes and ordinances. The Company does not anticipate any difficulty in
maintaining the right to use the listing marks of these laboratories.
PRODUCT LIABILITY
The Company is engaged in a business which could expose it to possible
claims for injury resulting from the failure of its products. While the Company
maintains $1 million in product liability insurance as well as a $25 million
aggregate umbrella insurance policy, there can be no assurance that claims will
not arise in the future, that the proceeds of such policy will be sufficient to
pay any such claims, or that the Company will be able to maintain the same level
of insurance. Management has no knowledge of any cases which will exceed these
insurance limits.
TRADEMARKS AND PATENTS
On April 26, 1996, the Company entered into a license agreement with
Westinghouse Electric Corporation ("Westinghouse") 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. The Company 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, subject to annual minimum payments due. 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.
On December 17, 1996 White Consolidated Industries, Inc. ("White")
which has acquired certain limited trademark rights from Westinghouse
to market certain household products under the White-Westinghouse trademark,
notified the Company of a lawsuit against Westinghouse and the Company. The
lawsuit challenges the Company's right
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to use the Westinghouse trademarks on its lighting products and alleges
trademark infringement. Both the Company and Westinghouse vigorously dispute
White's allegations and on December 24, 1996, Westinghouse and the Company
served a Complaint and Motion for Preliminary Injunction against White, AB
Electrolux, Steel City Vacuum Co., Inc., Salton/Maxim Housewares, Inc., Newtech
Electronics Corp., and Windmere Durable Holdings, Inc. alleging that the
defendants had violated Westinghouse's trademark rights, breached the Agreement
between Westinghouse and White and seeking an injunction to enjoin White against
interference with their contractual arrangements. Management does not believe
this litigation will have a material adverse impact on the Company's financial
position or annual results of operations.
The Company's licensed brand, Westinghouse/registered trademark/, and
the Company's own trademarks, Catalina/registered trademark/, Dana/registered
trademark/, Meridian Lamps/registered trademark/ and Illuminada/registered
trademark/ are registered in the United States, Canada and Mexico as well as in
numerous countries in the European Community and Asia. The Company is in the
process of registering its trademarks in Central and South America.
EMPLOYEES
As of December 18, 1996 the Company employed approximately 300 people
in the United States, including 75 people at Meridian. The Hong Kong and China
operations, including Go-Gro's cooperative joint venture, employed approximately
2,900 people. None of the Company's employees are represented by a collective
bargaining unit and the Company believes that its relationships with its
employees are good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Please see Note 13 of the Consolidated Financial Statements.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of December 18,
1996 with respect to the executive officers of the Company:
NAME AGE POSITION WITH THE COMPANY
- -------------------- -------- ------------------------------------------
Robert Hersh 50 Chairman, President,
Chief Executive Officer, Director
Dean S. Rappaport 44 Executive Vice President,
Chief Operating Officer, Director
William D. Stewart 48 Executive Vice President -
Sales and Marketing, Director
Nathan Katz 41 Executive Vice President - Catalina,
President of Catalina Industries, Inc.
Wai Check Lau 49 President of Go-Gro Industries Limited
Janet P. Ailstock 48 Vice President, General Counsel
Thomas M. Bluth 39 Vice President, Secretary, Treasurer
David W. Sasnett 40 Vice President, Chief Financial Officer
None of the Company's officers has any family relationship with any
director or other officer. "Family relationship" for this purpose means any
relationship by blood, marriage, or adoption, not more remote than first cousin.
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ROBERT HERSH has been the President and Chief Executive Officer of the
Company since April, 1991, Chairman of the Board since June, 1991 and a Director
of the Company since April, 1988. Mr. Hersh served as the Executive Vice
President of the Company from 1985 to April 1991 and as Secretary from June,
1989 until June, 1991.
DEAN S. RAPPAPORT has been Executive Vice President, of the Company
since January, 1988 and a Director of the Company since April, 1988. From
January 1988 to November 1996 Mr. Rappaport was Chief Financial Officer and
Treasurer of the Company. Mr. Rappaport was promoted to Chief Operating Officer
of the Company in November 1996. From 1984 until he joined the Company, Mr.
Rappaport was a partner with Wachsman & Rappaport, P.A., a public accounting
firm located in Margate, Florida.
WILLIAM D. STEWART has been Executive Vice President, Marketing and
Sales of the Company since 1989, and a Director of the Company since April,
1994. From 1985 until he joined the Company, Mr. Stewart was the Executive Vice
President with Crest Industries, Inc., a distributor of home improvement
products.
NATHAN KATZ has been Executive Vice President of the Company since
October 1, 1993 and President of Catalina Industries, Inc., a wholly-owned
subsidiary of the Company since August 1989. From October 1983 to August 1989,
Mr. Katz was the Chief Executive Officer of Dana Imports, Inc., an importer of
lamps located in Boston, Massachusetts.
WAI CHECK LAU has been President of Go-Gro Industries Limited since
1985.
JANET P. AILSTOCK has been Vice President and General Counsel for the
Company since April 1992. Prior to joining the Company, from 1986 to 1992 Ms.
Ailstock was associated with the law firm of Fine, Jacobson, Schwartz, Nash and
Block practicing in the area of securities and corporate law.
THOMAS M. BLUTH has been Vice President since August 1994 and Secretary
of the Company since November 1994. Mr. Bluth became Treasurer of the Company in
November 1996. From 1989 until he joined the Company, Mr. Bluth was Vice
President and General Counsel for Ellis Diversified, Inc. From 1987 to 1989, Mr.
Bluth was the Assistant Tax Director for Southwestern Bell Corporation.
DAVID W. SASNETT has been a Vice President of the Company since
November 1994. In November 1996, Mr. Sasnett became the Chief Financial Officer
of the Company. Prior to that time, he was the Company's Controller and Chief
Accounting Officer. From 1993 until he joined the Company, Mr. Sasnett was the
Vice President - Finance and Controller of Hamilton Bank, N.A. and from 1980 to
1993 was employed by the international accounting firm of Deloitte & Touche.
10
<PAGE>
ITEM 2. PROPERTIES.
The following table sets forth details about the Company's offices,
manufacturing plants and warehouse facilities:
LEASED/
LOCATION FACILITY OWNED
----------------- ----------------------- -----------------------
Miami, FL Headquarters/ owned (1)
office
Dallas, TX office/warehouse leased (2)
Tupelo, MS warehouse owned (1)
warehouse leased
Easton, MA office leased
Meridian, MS manufacturing plant / owned (1)
warehouse
warehouse leased
Montreal, Canada office/warehouse leased
Mexico office leased
warehouse leased
Hong Kong office leased
China office/manufacturing leased
plants/warehouse
dormitories leased
manufacturing plant/ partially owned (3) /
warehouse/dormitories under construction
Taiwan office leased
----------------- ----------------------- -----------------------
(1) Owned subject to a first mortgage.
(2) The Company has subleased all space under this lease to unrelated parties.
(3) This facility is owned by a joint venture in which the Company has a
70% interest as to ownership of the facility. The joint venture
purchased land use rights which terminate in the year 2042.
(Continued on page 12)
11
<PAGE>
Additionally, the Company has month-to-month lease agreements with
public warehouses in California and Mississippi, which provide handling services
for the Company's inventory.
All of the Company's properties are fully utilized, with the exception
of the Company's Meridian manufacturing facility, which operated at
approximately 50% of capacity in 1996. With the exception of the office /
warehouse space in Dallas, which has been fully subleased, all of the Company's
properties are suitable for its operations.
ITEM 3. LEGAL PROCEEDINGS.
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 relationship. 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 consolidated financial statements.
On February 23, 1993, Dana Lighting (now Catalina Industries, Inc.), 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
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 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 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, and on October 25, 1996 and December 4, 1996, the Company was
served with a second and third complaint entitled Black & Decker vs. Catalina
Lighting and Westinghouse Electric Corp., Case Nos. 96-1577-A and 96-1707-A,
respectively. All cases are pending in the United States District Court, Eastern
Division of Virginia. The plaintiff in these actions 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 annual
results of operations. The Company does not believe that its design and sale of
flexible flashlights violates the property rights of others and the Company
intends to defend this case vigorously. However, no assurances can be given as
to the ultimate outcome.
12
<PAGE>
The Company is also a defendant in other legal proceedings arising in
the 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
a material adverse effect on the financial posiion or annual results of
operations of the Company. See also Item 1 "Trademarks and Patents."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the quarter ended September 30, 1996, no matters were submitted
for a vote of the Company's stockholders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the New York Stock Exchange
under the symbol LTG. The following table sets forth, for the periods indicated,
the high and low closing prices of the common stock as reported by the New York
Stock Exchange.
High Low
Fiscal Year Ended September 30, 1995
First Quarter 11 7/8 6 3/4
Second Quarter 9 1/4 6 1/4
Third Quarter 6 3/4 5
Fourth Quarter 6 3/4 5 1/4
Fiscal Year Ended September 30, 1996
First Quarter 5 3/8 3 5/8
Second Quarter 6 3/4 4 3/4
Third Quarter 7 1/8 5 3/8
Fourth Quarter 5 3/4 3 1/2
On December 18, 1996, the closing price of the Company's common stock
as reported on the New York Stock Exchange was $5.125. As of December 18, 1996,
there were approximately 180 holders of record of the Company's common stock,
several of which are brokerage firms which hold shares in street name on behalf
of their clients and whose holdings comprise a majority of the Company's
outstanding shares.
The Company has never paid cash dividends on its common stock. The
Company intends to retain future earnings, if any, to finance the expansion of
its business and does not anticipate that any cash dividends will be paid in the
foreseeable future. In addition, the terms of the Company's domestic credit
facility and convertible subordinated notes prohibit 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. Future dividend policy will depend on the
Company's earnings, capital and financing requirements, expansion plans,
financial condition and other relevant factors.
13
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA.
(in thousands, except per share data)
AT OR FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------
1996 1995(1) 1994(2) 1993 1992
-------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $184,630 $176,292 $142,123 $112,791 $104,995
Net income $ 1,603 $ 400 $ 5,510 $ 4,404 $ 2,524
Primary earnings per share $ 0.21 $ 0.05 $ 0.75 $ 0.69 $ 0.39
Fully diluted earnings per share $ 0.21 $ 0.05 $ 0.74 $ 0.65 $ 0.37
Total assets $117,462 $120,051 $101,428 $ 65,904 $ 63,768
Long-term borrowings $ 36,571 $ 46,299 $ 30,068 $ 20,316 $ 953
</TABLE>
Certain amounts presented above for prior years have been reclassified to
conform to the current year's presentation. No cash dividends were declared
during the five year period ended September 30, 1996.
(1) Includes operating results for Go-Gro for the full fiscal year and Meridian
from December 15, 1994 to September 30, 1995.
(2) Includes assets and liabilities acquired upon the acquisition of Go-Gro on
July 30, 1994 and the operating results for Go-Gro for the period July 31,
1994 to September 30, 1994.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company's fiscal years ended September 30, 1996, 1995 and 1994 are
referred to herein as "1996", "1995" and "1994", respectively.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship to net sales of amounts presented in the Company's consolidated
statements of operations.
YEARS ENDED
SEPTEMBER 30,
----------------------------------------------
1996 1995 1994
------------ ------------- ------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 83.2 84.1 81.1
------------ ------------- ------------
Gross profit 16.8 15.9 18.9
Selling, general and
administrative expenses 13.9 13.6 11.8
------------ ------------- ------------
Operating income 2.9 2.3 7.1
Interest expense (1.8) (2.0) (1.2)
Other income 0.2 0.2 0.1
------------ ------------- ------------
Income before income taxes 1.3 0.5 6.0
Income tax provision 0.5 0.3 2.1
------------ ------------- ------------
Net income 0.8% 0.2% 3.9%
============ ============= ============
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
Net sales and gross profit for 1996 were $184.6 million and $30.9
million, respectively, as compared to $176.3 million and $27.9 million,
respectively, for 1995. The Company generated greater net income of $1.6 million
($.21 per share) in 1996 as compared to net income of $400,000 ($.05 per share)
in 1995, as the pretax operating results of the Company's Hong Kong
manufacturing subsidiary (Go-Gro) improved significantly.
In 1996, Kmart accounted for 3.9% of the Company's net sales while its
affiliate, Builders Square, accounted for 7.1% of net sales. In 1995, the
respective percentages of net sales for Kmart and its affiliate were 5.9% and
6.9%.
DISTRIBUTION OPERATIONS
Distribution operations contributed pretax income of approximately $3.3
million in 1996 and $3.2 million in 1995.
Net sales from distribution operations aggregated $153.8 million in
1996, as compared to $148.3 million in 1995. The $5.5 million increase in net
sales reflects additional sales in Canada of $3 million. An increase in gross
sales was partially offset by an increase in provisions for sales incentives of
$3.4 million resulting from competitive pressures. Sales of functional lighting
increased by a total of $13.5 million reflecting increased unit sales. Sales of
functional lighting/lamps accounted for 64% of sales in 1996 compared to 58% in
1995. The Company's net sales for its other principal line of products, lighting
fixtures, decreased by $8 million or 12.8% from 1995 to 1996. Management
attributes this decline to a weakened customer base arising from the financial
15
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
difficulties experienced by several of the Company's more significant customers
for lighting fixtures.
Gross profit from distribution operations increased to $23.9 million in
1996 from $22.9 million in 1995. As a percentage of net sales, gross profit from
distribution operations was 15.5% and 15.4% for 1996 and 1995, respectively. The
$1 million increase in gross profit is attributable for the most part to the
incremental contribution of higher sales. The gross profit percentage for 1996
reflects higher margins on sales of new products and higher margins on warehouse
sales, which offset the impact on the gross profit percentage of the higher
proportion of total distribution sales represented by direct sales (which are
made at lower margins than warehouse sales of the same items) and the increase
in provisions for sales incentives. Warehouse sales decreased to comprise 54% of
distribution sales in 1996, as compared to 61% in 1995.
Selling, general and administrative expenses ("SG&A") for distribution
operations amounted to $18.3 million in 1996, as compared to $17.7 million in
1995. The added SG&A is comprised of increases in depreciation and amortization
of property and equipment ($472,000) as the Company accelerated the amortization
of its computer system in connection with the planned purchase of a new system
in 1997, expenses related to Mexican operations which commenced during fiscal
1996 ($275,000) and factoring costs related to the insurance of additional
customer accounts ($181,000). These increases were offset by a reduction in the
amortization of deferred costs of $214,000.
Interest expense on distribution-related financing rose to $2.3 million
in 1996 from $2.1 million in 1995 primarily due to additional average
outstanding borrowings.
MANUFACTURING OPERATIONS
Excluding certain administrative costs incurred at the corporate
headquarters, in 1996 the Company's foreign and domestic manufacturing
operations recorded a pretax loss of $867,000. This compares to a pretax loss
from manufacturing operations of $2.4 million in 1995. An analysis of the
results for the Company's two manufacturing subsidiaries is as follows:
GO-GRO
Go-Gro generated $1.6 million in pretax income in 1996 while reporting
a pretax loss of $600,000 in 1995. Sales by Go-Gro to non-related companies
primarily located in Europe, increased by $2.4 million, or 9%, in 1996 to $28
million. Go-Gro also recorded intercompany sales 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
$25.3 million in 1996 and $17.3 million in 1995. Gross profit increased in total
dollars in 1996 by $2.3 million to $8.3 million as a result of the overall
increase in shipments.
SG&A was $6.3 million for 1996, up $735,000 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 $424,000 due to lower outstanding borrowings while
other income increased by $129,000, mostly reflecting the sale of intangibles
and increased income from an investee.
MERIDIAN
Meridian's pretax loss of $1.8 million for 1995 is not comparable to
the pretax loss of $2.4 million for 1996 as Meridian did not commence operations
until mid December 1994. Net sales for Meridian were $2.8 million in 1996 and
$2.3 million in 1995. An additional $500,000 in Meridian product was sold in
1995 through the Company's distribution operations.
Cost of sales for 1996 was $4 million. The following factors increased
costs of sales during 1996:
16
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
(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 $870,000 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 $244,000 from 1995
as Meridian was operational for twelve months in 1996 as compared to only nine
months in 1995.
During 1996, the sales volume of Meridian's decorative lamps product
line was insufficient to avoid significant underutilization of Meridian's
manufacturing facilities, which operated at approximately 50% of capacity. In
late 1996 Meridian developed several additions to its product line. Management
believes these new products, along with continued aggressive sales efforts, will
facilitate placement of Meridian product with new and existing customers.
However, it is presently uncertain when this subsidiary will be able to
significantly improve its operating results.
INCOME TAX PROVISION
The effective income tax rates for 1996 and 1995 were 34.6% and 51.9%,
respectively. The decrease in the effective rate from 1995 is mostly
attributable to higher proportionate foreign income which is taxed at a lower
rate than U.S. income. The high effective tax rate for 1995 reflects the impact
on pretax income 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.
The Company's effective income tax rate is dependent both on the total
amount of pretax income generated and the relative contribution to such total of
income from foreign operations. Consequently, the Company's effective tax rate
may vary in future periods.
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1995 AND 1994
Net sales and gross profit for 1995 were $176.3 million and $27.9
million, respectively, as compared to $142.1 million and $26.8 million,
respectively, for 1994. The added sales for 1995 as well as changes in the other
components of operating results reflect, in part, the addition of manufacturing
to the Company's operations for 1995. The Company generated net income of
$400,000 ($.05 per share) in 1995 compared to net income of $5.5 million ($.74
per share) in 1994 as various factors adversely impacted its distribution and
manufacturing operations.
DISTRIBUTION OPERATIONS
Distribution operations generated pre-tax income of $3.2 million in
1995 as compared to $8.3 million in 1994.
Net sales from distribution operations aggregated $148.3 million in
1995, as compared to $136.0 million in 1994. The $12.3 million increase in sales
principally results from increased unit sales of functional lamps and reflects
$3.3 million in additional sales made in the Canadian market. A 37.6% increase
in the sales of functional lamps served to more than offset a 12.7% decline in
sales of lighting fixtures. Sales from domestic warehouses increased 6% while
sales made from Asia directly to customers increased 18.5%. In 1995, Kmart
accounted for 4.6% of the Company's net distribution sales, and an affiliate of
Kmart accounted for 8.2% of net distribution sales. In 1994, the respective
percentages for Kmart and its affiliates were 6.9% and 13.9%, respectively.
Gross profit from distribution operations declined to $22.9 million in
1995 from $25.5 million in 1994. As a percentage of sales, gross profit
from distribution operations was 15.4% and 18.7% for 1995 and 1994,
respectively. Factors which reduced gross profit for 1995 include (1) the
decline in the sales of lighting fixtures as a percentage of distribution sales,
as the gross profit percentage earned on sales of lighting fixtures typically
exceeds that earned on sales of functional lamps; (2) additional sales
17
<PAGE>
incentives and allowances provided to acquire new customers and expand lighting
programs with existing customers; (3) reduced demand for consumer products in
general, which increased competitive pressures on retailers of these products
and, ultimately, on the suppliers of such products, including the Company, and
(4) higher inventory levels for part of the year, which resulted in the Company
expensing $1.2 million more in 1995 than 1994 for incremental storage and
handling costs incurred to carry these higher inventories.
S,G&A for distribution operations amounted to $17.7 million in 1995,
as compared to $15.7 million in 1994. The major components of the $2.0
million increase in SG&A from 1994 relate to selling expenses such as
advertising, merchandising and sales materials ($375,000), professional services
($333,000), charges related to the prepayment of $7.6 million of the Company's
convertible subordinated notes ($267,000), depreciation and amortization
($196,000), and payroll and benefits, net of the decrease in executive bonuses
($421,000). Greater depreciation and amortization reflects investments in
capital expenditures, most notably computer software and equipment. Advertising
costs for 1995 exceeded those for 1994 as the Company investigated new avenues,
such as television, for advertising its products. The remaining increases in the
other main components of S,G&A are attributable to the growth in sales and
overall increased operations of the Company.
Interest expense on distribution-related financing rose to $2.1 million
in 1995 from $1.5 million in 1994 due to additional average outstanding
borrowings necessary to support the Company's higher inventory levels and a
higher weighted average cost of funds.
MANUFACTURING OPERATIONS
Manufacturing operations began in August 1994 with the acquisition of
Go-Gro and in late December 1994 with the commencement of sales by Meridian. In
1995, Go-Gro and Meridian recorded pretax losses of approximately $600,000 and
$1.8 million, respectively, excluding certain administrative costs incurred at
the corporate headquarters.
Sales by Go-Gro during 1995 amounted to $43 million, with $25.7 million
made to unaffiliated parties located principally in Europe and the remainder
made to the Company and other subsidiaries of the Company. However, while
available production capacity at Go-Gro was utilized to produce merchandise for
the Company and its other subsidiaries (generating $17.3 million in intercompany
sales for Gro-Gro) such intercompany sales are eliminated for financial
reporting purposes, and profits thereon are not recognized until such
merchandise is ultimately sold to unrelated parities.
Go-Gro's gross profits in 1995 were negatively impacted by increased
raw material costs which it was unable to pass on to customers in the form of
increased prices. The gross profit of approximately $6 million recognized by
Go-Gro during 1995 was insufficient to cover its operating costs, which
consisted of approximately $5.5 million in SG&A and interest expense of $1.2
million. Included in the operating costs for Go-Gro were approximately $244,000
in goodwill amortization and $684,000 in interest expense arising from the
acquisition of Go-Gro by the Company.
Sales of Meridian products directly by Meridian amounted to $2.3
million and an additional $500,000 of Meridian's products were sold through the
Company's distribution operations in 1995. Cost of goods sold and other
operating costs (S,G&A and interest expense) amounted to $3.2 million and
$940,000, respectively, for the year. The operating performance of Meridian for
1995 reflects many of the production concerns typically faced during the
initiation of manufacturing operations including (1) refinement of the
production and packaging processes, (2) hiring and training of the work force,
(3) identification of the best sources of raw materials and (4) optimal
allocation of production capacity to maximize profits given market conditions
and sales demands.
INCOME TAX PROVISION
Effective income tax rates for 1995 and 1994 were 51.9% and 35.8%,
respectively. The higher effective tax rate for 1995 is attributable to the
decrease in pretax income from 1994 to 1995. Amounts expensed by the Company for
financial statement purposes which are not deductible for tax purposes,
consisting primarily of goodwill amortization, have the effect of increasing the
effective tax rate. Such amounts had a significant impact on the effective tax
rate for 1995 given 1995's relatively lower pretax income of $831,000, but did
not as significantly affect the 1994 rate given pretax income in that year of
$8.6 million.
<PAGE>
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 fiscal 1997.
18
<PAGE>
1996 CASH FLOWS
The Company's operating, investing and financing activities resulted in
a net increase in cash and cash equivalents of $959,000 from September 30, 1995
to September 30, 1996.
Net cash of $12.5 million was provided by operating activities. Such
cash was used to reduce outstanding borrowings under the credit lines, make
payments due on bonds payable and other long term debt and to pay for certain
capital expenditures.
Capital expenditures during the year aggregated $9.5 million, and
included additional construction costs of $2.3 million for the Tupelo warehouse
and the purchase of $3.2 million in equipment and computer software for such
warehouse (financed by the issuance in May 1995 of a series of State of
Mississippi Variable Rate Industrial Revenue Development Bonds) and $3.5 million
in costs incurred by Go-Gro for the construction of a China factory and
dormitory and the purchase of machinery, molds and equipment. In addition,
office and warehouse equipment (primarily purchased for the Tupelo warehouse)
amounting to $573,000 was financed by the Company's leasing facilities.
Management estimates that capital expenditures in fiscal 1997 will
approximate $8 million, representing additional construction costs and
equipment for the China facilities, computer software and hardware for the
distribution operations and other miscellaneous capital additions. These capital
expenditures will be financed by leasing facilities with financial institutions
and funds from operations.
CREDIT FACILITIES AND CONVERTIBLE SUBORDINATED NOTES
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, payable monthly, 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 the LIBOR rate
plus a variable spread based upon earnings, debt and interest expense levels
defined under the credit agreement. The effective rates for the non-revolving
loan and the other borrowings were 9.25% and 7.3%, respectively, at September
30, 1996. 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
September 30, 1996, the Company had $34.6 million in additional borrowings
available under this credit facility.
The Company's Canadian and Hong Kong subsidiaries have credit
facilities with foreign banks of 4 million Canadian dollars (approximately U.S.
$2.9 million) and 35 million Hong Kong dollars (approximately U.S. $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. Advances up to $1.1 million bear interest at the
Canadian prime rate (5.75% at September 30, 1996) while advances in excess of
$1.1 million bear interest at the Canadian prime rate plus .5%. 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. Advances bear interest
at the Hong Kong prime rate plus .25% (8.75% at September 30, 1996). 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 agreement
prohibits the payment of dividends and 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
September 30, 1996 were U.S.$918,000 and U.S.$909,000, respectively.
The Company has outstanding $7.6 million of 8% convertible subordinated
notes due 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 payment 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. 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
19
<PAGE>
to increase its credit facilities or otherwise incur new debt and to maintain a
minimum consolidated net worth. In addition, the note 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.
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 during the second quarter of fiscal 1996. The
Company completed the move of all inventory from its Texas and Massachusetts
facilities and ceased warehousing operations therein effective April 30, 1996
and September 30, 1996, respectively. The Company expended $9 million for the
building and underlying land, and $3.2 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 September 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 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 6.23% and a contractual maturity
of November 1, 2009. 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 facility with a U.S. financial institution
to finance the purchase of equipment in the United States, of which $576,000 was
available at September 30, 1996. In addition, the Company has a nine million
Hong Kong dollar (approximately U.S. $1.2 million) facility with a Hong Kong
financial institution to finance the purchase of equipment for its China
facilities, all of which was available at September 30, 1996.
OTHER
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a
cooperative joint venture 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. Under the terms of the SJE joint venture agreement, ownership
of the land and buildings of SJE is divided 70% to Go-Gro and 30% to the other
joint venture partner. Land costs, including the land use rights, 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. The total
construction costs for this project are estimated at $11.3 million, and include
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 installments beginning in January 1997 and continuing
through June 1998, with 46% of the total fee due by September 1997. SJE plans to
file an application to reduce the amount of square footage required to be
constructed by approximately 40% and thereby proportionately reduce the MCFF and
make the MCFF payable upon the completion of each applicable factory and/or
dormitory building. The outcome of the application cannot be presently
determined. It is anticipated that Go-Gro will shift a substantial portion of
its manufacturing operations from the current leased properties to the new SJE
owned facilities over the next five years. The first construction phase (a
162,000 square foot factory, a 77,000 square foot warehouse and a 60,000 square
foot dormitory) is estimated to be completed in March 1997 and will increase
present production capacity by approximately 30%. 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.
<PAGE>
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
20
<PAGE>
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, subject to annual
minimum payments due. 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.
The Company is engaged in an aggressive defense against litigation
initiated by Black & Decker. Legal fees associated with this litigation are
expected to be approximately $1 million for the first quarter of fiscal 1997
with additional legal fees associated with this litigation presently estimated
at approximately $1 million, barring appeals. The Company anticipates completion
of this litigation by the end of fiscal 1997.
FOREIGN EXCHANGE FLUCTUATIONS
The Company expects to continue to obtain most of its products from the
People's Republic of China and Taiwan. Large fluctuations in currency exchange
rates could have a material effect on the Company's cost of products, thereby
decreasing the Company's ability to compete. All purchases of finished goods are
made in U.S. dollar-denominated letters of credit which limit the Company's
exposure to foreign currency fluctuations with respect to fluctuations that
would impact existing outstanding purchase commitments. However, the Company is
subject to foreign currency fluctuations to the extent such fluctuations affect
the cost of products purchased (or manufactured) or the Company's ability to
sell into domestic or foreign markets. The Company's Canadian and Mexican
subsidiaries are subject to fluctuations between the U.S. dollar currency in
which they purchase goods and the Canadian dollar and Mexican peso currencies in
which they sell goods, however the Company's foreign exchange risk is not
significant with respect to Canada and Mexico due to the relative size of these
subsidiaries in comparison with the Company.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which provides an alternative to APB Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for stock-based compensation
issued to employees. The statement recommends a fair value based method of
accounting for employee stock options and similar equity instruments. However,
the statement also allows companies to continue to account for employee
stock-based compensation arrangements under Opinion No. 25. For companies
electing to continue to use Opinion No. 25, the statement requires disclosures
of the pro forma effect on net income and earnings per share of its fair value
based accounting for those arrangements. These disclosure requirements are
effective for financial statements for fiscal years beginning after December 15,
1995. The Company plans to continue to account for employee stock-based
compensation under Opinion No. 25.
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement No.
121 in the first quarter of fiscal 1997 and, based on current circumstances,
does not believe the effect of this adoption will have a material impact on its
financial condition or annual results of operations.
IMPACT OF INFLATION
During 1995 Go-Gro experienced price increases in the costs of raw
materials, which reduced Go-Gro's profitability due to an inability to
immediately pass on such price increases to its customers. The Company believes
that increased prices could have an initial adverse impact on the Company's net
sales and income from continuing operations but that, over time, increased
prices can be passed on to its customers.
21
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report................................................ 23
Consolidated Balance Sheets - September 30, 1996 and 1995................... 24
Consolidated Statements of Operations - Years Ended September 30,
1996, 1995 and 1994....................................................... 25
Consolidated Statements of Stockholders' Equity - Years Ended
September 30, 1996, 1995 and 1994......................................... 26
Consolidated Statements of Cash Flows - Years Ended September 30, 1996,
1995 and 1994............................................................. 27
Notes to Consolidated Financial Statements.................................. 30
Schedule II - Valuation and Qualifying Accounts - Years ended September 30,
1996, 1995 and 1994....................................................... 51
(All other schedules have been omitted as the related information is not
required or applicable)
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Catalina Lighting, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of Catalina
Lighting, Inc. and its subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1996. Our
audits also included the financial statement schedule listed in the accompanying
index to the financial statements. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule 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 Catalina Lighting, Inc. and its
subsidiaries as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
December 12, 1996
23
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
-------------------------------
1996 1995
--------------- --------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,766 $ 807
Accounts receivable, net of allowances
of $7,313,000 and $4,934,000, respectively 29,644 31,747
Inventories 39,648 40,306
Other current assets 5,009 4,152
---------- ---------
Total current assets 76,067 77,012
Property and equipment, net 26,003 20,049
Restricted cash equivalents and short-term investments 378 6,339
Goodwill, net 11,344 11,777
Other assets 3,670 4,874
---------- ---------
$ 117,462 $ 120,051
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - credit lines $ 3,963 $ 1,604
Accounts and letters of credit payable 25,289 23,295
Current maturities of bonds payable 970 970
Current maturities of other long-term debt 363 300
Income taxes payable 21 446
Other current liabilities 5,500 3,997
---------- ---------
Total current liabilities 36,106 30,612
Notes payable - credit lines 17,044 26,100
Convertible subordinated notes 7,600 7,600
Bonds payable 10,165 10,966
Other long-term debt 1,762 1,633
Other liabilities 811 1,011
---------- ---------
Total liabilities 73,488 77,922
---------- ---------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value
Authorized 1,000,000 shares; none issued - -
Common stock, $.01 par value
Authorized 20,000,000 shares; issued and outstanding
7,063,587 shares and 6,994,253 shares, respectively 71 70
Additional paid-in capital 26,135 25,894
Retained earnings 17,768 16,165
---------- ---------
Total stockholders' equity 43,974 42,129
---------- ---------
$ 117,462 $ 120,051
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1996 1995 1994
------------- -------------- --------------
Net sales $ 184,630 $ 176,292 $ 142,123
Cost of sales 153,698 148,343 115,319
----------- ----------- -----------
GROSS PROFIT 30,932 27,949 26,804
Selling, general and administrative
expenses 25,611 23,898 16,689
----------- ----------- -----------
OPERATING INCOME 5,321 4,051 10,115
----------- ----------- -----------
Other income (expenses)
Interest expense (3,254) (3,537) (1,721)
Other income 385 317 194
----------- ----------- -----------
Total other expenses (2,869) (3,220) (1,527)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,452 831 8,588
Income tax provision 849 431 3,078
----------- ----------- -----------
NET INCOME $ 1,603 $ 400 $ 5,510
=========== =========== ===========
EARNINGS PER SHARE
PRIMARY
Earnings per share $ 0.21 $ 0.05 $ 0.75
Weighted average number of shares 7,797,500 7,800,469 7,317,341
FULLY DILUTED
Earnings per share $ 0.21 $ 0.05 $ 0.74
Weighted average number of shares 7,804,500 7,800,469 8,050,100
See accompanying notes to consolidated financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1993 5,765,887 $ 58 $ 17,882 $ 10,255 $ 28,195
Proceeds from exercise of stock options 133,289 1 843 - 844
Common stock issued to acquire Go-Gro 750,000 7 4,728 - 4,735
Commin stock issued under employment agreement 10,000 - 51 - 51
Common stock issued for non-compete contract 55,756 1 416 - 417
Common stock issued pursuant to
the Dana Lighting purchase agreement 208,720 2 1,563 - 1,565
Net income - - - 5,510 5,510
--------- ------ -------- -------- --------
BALANCE AT SEPTEMBER 30, 1994 6,923,652 69 25,483 15,765 41,317
Proceeds from exercise of stock options 70,601 1 411 - 412
Net income - - - 400 400
--------- ------ -------- -------- --------
BALANCE AT SEPTEMBER 30, 1995 6,994,253 70 25,894 16,165 42,129
Proceeds from exercise of stock options 64,334 1 226 - 227
Common stock issued under employment agreement 5,000 - 15 - 15
Net income - - - 1,603 1,603
--------- ------ -------- -------- --------
BALANCE AT SEPTEMBER 30, 1996 7,063,587 $ 71 $ 26,135 $ 17,768 $ 43,974
========= ====== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED SEPTEMBER 30,
------------------------------------------
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,603 $ 400 $ 5,510
-------- ------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,266 5,239 3,036
Accounts receivable allowances, net 2,377 2,246 (60)
Deferred income taxes (1,335) (1,506) (76)
(Gain) loss on disposition of property and equipment 53 (328) 19
Change in assets and liabilities, net of effects of
acquisitions:
Decrease (increase) in accounts receivable (274) (2,492) (5,116)
Decrease (increase) in inventories 658 (7,159) (1,359)
Decrease (increase) in other current assets 452 772 (1,310)
Decrease (increase) in other assets (544) (1,564) (1,875)
Increase (decrease) in income taxes payable (425) 334 (531)
Increase (decrease) in accounts payable, letters of credit
payable and other liabilities 3,642 2,758 1,363
-------- ------- -------
Total adjustments 10,870 (1,700) (5,909)
-------- -------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 12,473 (1,300) (399)
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (9,479) (13,595) (1,984)
Payments to purchase minority interest in subsidiary - - (750)
Payments for Go-Gro acquisition, net of cash acquired (144) (586) (5,880)
Return of funds escrowed in conjunction with the
acquisition of Go-Gro - 1,904 -
Collection of receivable from stockholder - 1,850 -
Payment to affiliated company - (2,002) -
Decrease (increase) in restricted cash equivalents and
short-term investments 5,961 (5,862) 300
-------- -------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,662) (18,291) (8,314)
-------- ------- -------
</TABLE>
(Continued on page 28)
27
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
YEARS ENDED SEPTEMBER 30,
----------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTVITIES:
Proceeds from notes payable - credit lines 43,400 43,900 26,500
Payments on notes payable - credit lines (50,556) (30,768) (32,182)
Net proceeds from notes payable-credit lines due on demand 459 277 1,266
Proceeds from convertible subordinated notes - - 15,200
Payment on convertible subordinated notes - (7,600) -
Fees incurred in conjunction with convertible subordinated notes - - (767)
Proceeds from other long-term debt - - 1,200
Payments on other long-term debt (581) (812) (1,393)
Proceeds from the issuance of bonds payable 99 11,936 -
Payments on bonds payable (900) - -
Proceeds from issuance of common stock and
related income tax benefit 227 412 844
-------- -------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (7,852) 17,345 10,668
-------- -------- -------
Net increase (decrease) in cash and cash equivalents 959 (2,246) !,955
Cash and cash equivalents at beginning of year 807 3,053 1,098
-------- -------- -------
Cash and cash equivalents at end of year $1,766 $ 807 $ 3,053
======== ======== =======
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION
YEARS ENDED SEPTEMBER 30,
----------------------------------
1996 1995 1994
----------------------------------
CASH PAID FOR:
Interest $ 3,457 $ 3,595 $ 1,680
========= ======== ========
Income taxes $ 2,671 $ 1,352 $ 3,378
========= ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
On July 30, 1994, the Company acquired Go-Gro Industries Limited and Lamp Depot
Limited as follows:
Fair value of assets acquired, net of
cash and cash equivalents $ 22,920
Liabilities assumed (12,305)
Common stock issued (4,735)
--------------
Net cash payments made in 1994 $ 5,880
==============
The Company issued 750,000 shares of common stock in connection with this
acquisition.
(Continued on page 29)
28
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES (CONTINUED)
During the years ended September 30, 1996, 1995 and 1994 capital lease
obligations aggregating approximately $573,000, $189,000 and $493,000,
respectively, were incurred when the Company entered into leases for new
office, computer and warehouse equipment.
In 1996 and 1994, the Company issued 5,000 and 10,000 common shares,
respectively, to an employee as salary, pursuant to an employment agreement
with such employee.
In 1995, the Company sold racking and equipment with a net book value
of $216,000 receiving as payment a note receivable for $572,000.
During 1994, the Company issued 32,644 restricted common shares as
consideration for a one year extension, from May 1993 to May 1994, of its
non-compete contract with a shareholder and former Chief Executive Officer of
the Company. In May 1994, the Company issued 23,112 restricted common shares as
consideration for the third year of its three-year option, from May 1994 to May
1995, of such non-compete contract.
During 1994, the Company issued 208,720 common shares to the current
CEO (and previous owner) of Dana Lighting as additional proceeds for the
Company's purchase of this subsidiary.
See accompanying notes to consolidated financial statements.
29
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(a) The Business
Catalina Lighting, Inc. ("the Company") is a United States-based wholesaler,
distributor and manufacturer of lamps, lighting fixtures and other lighting
related products. The Company sells principally in the U.S. to a variety of
retailers including home centers, national retail chains, office superstore
chains, warehouse clubs, discount department stores and catalog showrooms. The
Company also sells its products in Europe, Canada and other foreign markets.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. The consolidated statements include the
results of the wholly-owned subsidiary Go-Gro Industries Limited ("Go-Gro")
subsequent to the date of acquisition on July 30, 1994. The consolidated
statements for 1996 and 1995 also include the results of Meridian Lamps, Inc.
("Meridian"), a wholly-owned subsidiary formed by the Company that commenced
operations in fiscal 1995. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(c) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(d) Geographic Risks
Substantially all of the Company's products are obtained from suppliers located
in China. Any inability by the Company to continue to obtain its products from
China could significantly disrupt the Company's business. In addition, in the
Company's consolidated balance sheet at September 30, 1996 are net assets of
$18.6 million of Company subsidiaries located in China and Hong Kong (which
will become a sovereign territory of China in 1997).
(e) Cash and Cash Equivalents
Cash on hand and in banks, money market funds and other short-term securities
with maturities of three months or less when purchased are considered cash and
cash equivalents.
(f) Accounts Receivable
Pursuant to an agreement between the Company and a bank, the bank assumes the
credit risk of certain of the Company's U.S. receivables. The Company pays a
fee of .50 percent of billings to customers covered by the arrangement. In
addition, the Company insures certain of its foreign receivables with an
insurance company. Gross accounts receivable secured under such agreements at
September 30, 1996 and 1995 amounted to $19.2 million and $19.1 million,
respectively. In addition, certain of the Company's sales are made to customers
who pay pursuant to their own international, irrevocable transferable letters
of credit. Accounts receivable secured by such letters of credit at September
30, 1996 and 1995, amounted to $8.1 million and $5.2 million, respectively.
The Company provides allowances against accounts receivable for doubtful
accounts, sales returns and sales incentives.
30
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
(h) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Interest expense incurred for the construction of facilities is
capitalized until such facilities are ready for use. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
assets. Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the lease term or estimated useful
lives of the related assets.
(i) Restricted Cash Equivalents and Short-Term Investments
The Company's restricted cash equivalents and short term investments at
September 30, 1996 represented sinking fund payments towards bonds issued to
finance the Tupelo warehouse and investment income earned on such payments. At
September 30, 1995, such amount included (1) unused funds received from the
issuance of bonds payable restricted for the construction of the Company's
warehouse in Tupelo, Mississippi and for the purchase of equipment for such
facility and (2) $375,000 in sinking fund payments towards such bonds. Such
amounts consisted of short-term, highly liquid investments and were carried at
an amount that approximated fair value.
(j) Goodwill
Goodwill represents the excess of cost over fair value of net assets acquired
and is being amortized on a straight-line basis over periods from twenty to
forty years. The Company periodically evaluates the recoverability of recorded
costs for goodwill based upon estimations of future undiscounted operating
income from the related acquired companies. Should the Company determine it
probable that future estimated undiscounted operating income from any of its
acquired companies will be less than the carrying amount of the associated
goodwill, an impairment of goodwill would be recognized, and goodwill would be
reduced to the amount estimated to be recoverable. Accumulated amortization of
goodwill amounted to $1.5 million and $1.1 million at September 30, 1996 and
1995, respectively.
(k) Capital Leases
Leases that transfer substantially all of the benefits and risks of ownership
to the Company are accounted for as the acquisition of assets and assumption of
obligations under the capital lease standards issued by the Financial
Accounting Standards Board. Accordingly, capitalized leased assets are recorded
as property and equipment and the present values of the minimum lease payments
are recorded as capital lease obligations under other long-term debt.
Depreciation of such assets is computed using the shorter of the lease terms or
estimated useful lives of the assets and is included in depreciation expense.
31
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Income Taxes
The Company and its wholly-owned domestic subsidiaries file consolidated
federal and state tax returns in the United States. Separate foreign tax
returns are filed for the Company's Hong Kong, Canadian and Mexican
subsidiaries. The Company follows the asset and liability method of accounting
for income taxes prescribed by Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes". Under the asset and liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. The effect on deferred taxes of a
change in tax rates is recognized in income in the year that includes the
enactment date.
(m) Earnings Per Share
Primary earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the year increased by common
equivalent shares (stock options, warrants and shares issuable under
contractual agreements) using the modified treasury stock method. Fully diluted
earnings per share is computed by dividing net income (as adjusted) by the
weighted average number of common shares outstanding during the year, increased
by common equivalent shares (stock options, warrants and shares issuable under
contractual agreements) using the modified treasury stock method and, where
dilutive, shares which would be issued upon the conversion of the convertible
subordinated notes.
(n) Foreign Currency Translation
The accounts of the Company's foreign subsidiaries are translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation". For subsidiaries where the functional currency
is the U.S. dollar, monetary balance sheet accounts are translated at the
current exchange rate and nonmonetary balance sheet accounts are translated at
historical exchange rates. For subsidiaries where the functional currency is
other than the U.S. dollar, all balance sheet accounts are translated at the
current exchange rate. Income and expense accounts are translated at the
average exchange rates in effect during the year. Adjustments resulting from
the translation of these entities are included in the statements of operations.
Such adjustments were not significant for any year presented. Gains and losses
arising from foreign currency transactions are included in net income and were
not significant for any year presented.
(o) Reclassifications
Certain amounts previously presented in the financial statements of prior years
have been reclassified to conform to the current year presentation.
32
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p) Impact of Recently Issued Accounting Standards
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which provides an alternative to APB Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for stock-based compensation
issued to employees. The statement recommends a fair value based method of
accounting for employee stock options and similar equity instruments. However,
the statement also allows companies to continue to account for employee
stock-based compensation arrangements under Opinion No. 25. For companies
electing to continue to use Opinion No. 25, the statement requires disclosures
of the pro forma effect on net income and earnings per share of its fair value
based accounting for those arrangements. These disclosure requirements are
effective for financial statements for fiscal years beginning after December 15,
1995. The Company plans to continue to account for employee stock-based
compensation under Opinion No. 25.
In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement No.
121 in the first quarter of fiscal 1997 and, based on current circumstances,
does not believe the effect of this adoption will have a material impact on its
financial condition or results of operations.
2. ACQUISITIONS
On July 30,1994, the Company acquired all of the issued and outstanding capital
stock of two Hong Kong companies, Go-Gro Industries Limited ("Go-Gro") and Lamp
Depot Limited ("Lamp Depot"), for an aggregate consideration of $7,500,000 and
750,000 shares of the Company's common stock. This acquisition was accounted for
under the purchase method and, accordingly, the operating results of Go-Gro and
Lamp Depot have been included in the Company's consolidated operating results
since the date of acquisition. Go-Gro is a manufacturer of lighting products
with its administrative office located in Hong Kong and production facilities
located in the Guangdong Province of the People's Republic of China. Go-Gro's
production facilities are owned by Go-Gro's cooperative joint venture
subsidiary. Under the terms of the cooperative joint venture agreement with a
Chinese company, Go-Gro is entitled to 100% of the subsidiary's profits and
losses, and the Chinese company partner is entitled to a yearly management fee
from the subsidiary of approximately $400,000. Lamp Depot was engaged in the
retail sale of lighting products in Hong Kong and China and is no longer active.
The stock of Go-Gro was purchased by the Company from selling stockholders who
represented at the closing that they were, in fact, the actual stockholders of
Go-Gro. Subsequent to the date of the closing, the Company discovered that part
of the Go-Gro stock acquired had been conveyed to one of the selling
stockholders prior to closing by a former officer of a subsidiary of the
Company, who ceased employment with such subsidiary in 1993. The Company made a
claim for indemnification and return of $1,904,000 of the consideration from
Go-Gro. Such funds were deposited into an escrow account at the date of closing
and were returned to the Company in November 1994. The purchase price and
resulting goodwill recorded for the Go-Gro acquisition were reduced accordingly
for the return of these funds. The Company contends such funds are owed to the
Company due to certain of the former officer's actions which the Company
believes constitute, among other things, breach of fiduciary duty, breach of
duty of loyalty, usurpation of corporate opportunity and fraud. The Company has
filed a lawsuit against the former officer in the Massachusetts Federal District
Court in Boston for recovery of additional damages and adjudication of this
matter. In the event the Company is not successful in this action further
increases in the purchase price and goodwill recorded for the Go-Gro acquisition
could result.
33
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
2. ACQUISITIONS (CONTINUED)
Under the terms of the purchase agreement each of the previous Go-Gro
shareholders jointly and severally represented and warranted to the Company that
as of the date of closing, Go-Gro would possess a minimum specified net worth.
The Company has determined, based upon receipt of the audited financial
statements of Go-Gro for the year ended July 31, 1994, Go-Gro failed to meet
this minimum net worth by approximately $1,850,000. The previous majority
shareholder of Go-Gro reimbursed Catalina $1,850,000 for this net worth
shortfall in March 1995.
The funds to acquire Go-Gro and Lamp Depot were provided principally from
borrowings. The allocation of the purchase price to the fair value of the assets
acquired and liabilities assumed resulted in goodwill of $6,189,000, which is
being amortized on the straight-line basis over 25 years.
In connection with the 1989 acquisition of its Dana subsidiary, the Company
issued $1,000,000 in convertible debentures bearing interest at prime, and
convertible into 400,000 common shares of the Company. In January 1993, the
Company issued amended debentures which increased the principal amount of the
debentures by $200,000, representing previously accrued interest through August
1991 on such debentures. In February 1993, the debenture holders elected to
convert their debentures, then totaling $1.2 million, into 480,000 shares of the
Company's common stock. The Company issued 160,000 of the 480,000 shares in
February 1993, and the remaining 320,000 shares were issued in May 1993.
The Dana purchase agreement provided for additional payments to the two former
Dana owners through fiscal 1994 based upon the achievement of certain annual
earnings targets. In 1993, the payments to one of these former owners ceased. In
October 1993, the Company and Dana's current CEO (and former owner) agreed to
amend the purchase agreement to provide for additional proceeds for 1993 and
1994 based upon Dana's achievement of the fiscal 1993 earnings target. The
aggregate amount due this individual for 1993 and 1994 pursuant to the above
change amounted to $1,565,000. Such additional proceeds were recorded in
goodwill. Pursuant to the conversion privileges described below, the Company
satisfied this liability by issuing 208,720 common shares in fiscal 1994.
In January 1993, the Company and the debenture holders agreed that the
conversion feature, including the conversion price, which allowed for the
debentures to be converted into stock also applied to certain other accrued
obligations to the debenture holders and to the final adjustments to increases
in the purchase price of Dana for fiscal years 1993 and 1994. Such other accrued
obligations consisted of previously accrued interest on the convertible
debentures, cost of living salary increases and increases to the purchase price
of Dana (based on Dana's achievement of earnings targets for fiscal years ended
September 30, 1991 and 1992). In February 1993, the debenture holders converted
such obligations into 149,044 shares of Catalina's common stock and in May 1993
such shares were issued. In connection with the January 1993 agreement described
above, the Company recognized a non-recurring charge totaling $509,000 and
additional goodwill in the amount $107,000.
In January 1994, the Company purchased the 49% minority equity interest in its
Canadian subsidiary for $750,000. The purchase resulted in goodwill of $421,000,
which is being amortized over 20 years.
34
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
3. INVENTORIES
Inventories consisted of the following:
SEPTEMBER 30,
---------------------
1996 1995
--------- ----------
(In thousands)
Raw materials $ 5,075 $ 3,535
Work-in-progress 1,342 1,030
Finished goods 33,231 35,741
--------- ----------
$ 39,648 $ 40,306
========= ==========
The Company capitalizes certain costs in finished goods inventory associated
with acquiring, storing and preparing inventory for distribution. Such costs
aggregated approximately $11.1 million, $12.1 million and $10.7 million for the
years ended September 30, 1996, 1995 and 1994, respectively, of which $2.6
million and $2.9 million remained in inventory at September 30, 1996 and 1995,
respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment and related depreciable lives are as follows:
SEPTEMBER 30,
---------------------- DEPRECIABLE
1996 1995 LIVES
--------- --------- -------------
(In thousands)
Land $ 3,320 $ 3,320 -
Buildings and improvements 10,592 2,834 5 to 30 years
Leasehold improvements 955 1,067 lease terms
Furniture and office equipment 854 1,396 5 to 7 years
Computer software and equipment 2,899 2,611 2 to 3 years
Machinery, molds and equipment 9,915 6,154 1 to 7 years
Display fixtures 1,195 1,689 2 years
Other assets 721 635 4 to 7 years
Construction in progress 2,651 6,067 -
-------- ---------
33,102 25,773
Less accumulated depreciation 7,099 5,724
-------- ---------
$ 26,003 $ 20,049
======== =========
Depreciation expense for the years ended September 30, 1996, 1995 and 1994 was
approximately $4,045,000, $3,140,000, and $1,757,000, respectively.
Interest capitalized during the construction of the manufacturing facilities in
China and Mississippi was approximately $463,000 and $221,000 during the years
ended September 30, 1996 and 1995, respectively, and is included in construction
in progress.
35
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
5. NOTES PAYABLE - CREDIT LINES
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, payable monthly, at the prime rate plus
1% (9.25% at September 30, 1996) and other borrowings under the facility bear
interest, payable monthly, at the Company's preference of either the prime rate
or the LIBOR rate plus a variable spread based upon earnings, debt and interest
expense levels (7.3% at September 30, 1996), as defined under the credit
agreement. Obligations under the facility are secured by substantially all of
the Company's U.S. assets, including 100% of the common stock of the Company's
U.S. subsidiaries and 49% of the stock of the Company's Canadian subsidiary. The
agreement contains covenants requiring that the Company maintain a minimum level
of equity and meet certain debt to equity and interest coverage ratios and
borrowings are subject to a borrowing base defined as the aggregate of certain
percentages of the Company's U.S. receivables and inventory. 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. The Company pays a
quarterly commitment fee of .25% based on the unused portion of the facility.
The Company has a credit facility with a Canadian bank which provides four
million Canadian dollars (approximately U.S. $2.9 million) in revolving demand
credit. Advances up to $1.1 million bear interest at the Canadian prime rate
(5.75% at September 30, 1996). Advances in excess of $1.1 million bear interest
at the Canadian prime rate plus 0.5%. The credit facility is secured by
substantially all of the assets of the Company's Canadian subsidiary and a
standby letter of credit for $1.1 million. The agreement contains certain
minimum covenants to be met by the Canadian subsidiary, prohibits the payment of
dividends, and limits advances by the bank to a borrowing base calculated based
upon receivables and inventory. This facility is repayable upon demand and is
subject to an annual review by the bank.
Go-Gro has a credit facility with a Hong Kong bank. The facility provides credit
in the form of 20 million Hong Kong dollars (U.S. $2.6 million) in acceptances
and trade and stand-by letters of credit, 5 million Hong Kong dollars (U.S.
$650,000) in overdraft protection, and 10 million Hong Kong dollars (U.S. $1.3
million) to negotiate discrepant documents presented under export letters of
credit issued by banks. Advances bear interest at the Hong Kong prime rate plus
.25% (8.75% at September 30, 1996). The facility is secured by a guarantee
issued by the Company and requires Go-Gro to maintain a minimum level of equity.
This agreement restricts the payment of dividends without the consent of the
bank to no more than 40% of Go-Gro's earnings, but does not limit advances or
loans from Go-Gro to the Company. This facility is repayable upon demand and is
subject to an annual review by the bank.
36
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
5. NOTES PAYABLE - CREDIT LINES (CONTINUED)
The Company's availability under its credit lines consisted of the following:
SEPTEMBER 30,
-------------------------
1996 1995
----------- ---------
(In thousands)
Total lines of credit $ 72,463 $ 71,762
Less:
Borrowings (21,007) (27,704)
Acceptances issued and pending
issuance (included in accounts
payable) (8,639) (9,275)
Open letters of credit and other (3,475) (7,749)
Stand-by letters of credit (2,945) (2,945)
---------- ---------
Availability under lines of credit $ 36,397 $ 24,089
========== =========
The weighted average interest rate on the current portion of notes payable -
credit lines was 7.6% and 8.5% at September 30, 1996 and 1995, respectively.
6. BONDS PAYABLE
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 6.23% and a contractual maturity of November 1,
2009. 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 lines. Interest on the bonds is payable semiannually and
principal payments are due annually.
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 during the second quarter of fiscal 1996. The Company
completed the move of all inventory from its Texas and Massachusetts facilities
and ceased operations therein effective April 30, 1996 and September 30, 1996,
respectively. The Company expended $9 million for the building and underlying
land, and $3.2 million on machinery and equipment for the facility. The Company
has received certain incentives from state and local government entities to
locate these operations in Tupelo, including a tax credit from state income
taxes to the extent of interest and principal payments on the bonds (with a five
year carryforward period) and a ten year partial exemption from real and
personal property taxes.
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, aggregating $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 September 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 the Company's credit
line.
37
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
6. BONDS PAYABLE (CONTINUED)
The aggregate maturities and sinking fund requirements of bonds payable at
September 30, 1996, were as follows (in thousands):
1997 $ 970
1998 975
1999 980
2000 985
2001 990
Thereafter 6,235
---------
$ 11,135
=========
7. OTHER LONG-TERM DEBT
Other long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------- -------------
1996 1995
------------- -------------
(In thousands)
<S> <C> <C>
Mortgage note, payable monthly through 1999 based on a 15 year
amortization schedule with a balloon payment in 1999, bearing interest at
8%, secured by land and building with a net book value of $1,533,000 at
September 30, 1996 $ 1,114 $ 1,161
Borrowings under a leasing facility with a financial institution to
finance the purchase of U.S. assets; payable monthly through maturity in
2001, bearing interest at 8.75%, and secured by warehouse equipment with
a net book value of $391,000 at September 30, 1996; $576,000 was available
for future borrowings at September 30,1996 424 -
Borrowings under a leasing facility with a financial institution to
finance the purchase of U.S. assets; payable quarterly, bearing interest
at rates ranging from 7.12% to 10%, maturing at various dates through
2001 and secured by office and warehouse equipment and computer hardware
and software with a net book value of $478,000 at September 30, 1996; no
funds were available for future borrowings at September 30, 1996 587 724
Other - 48
----------- -----------
Subtotal 2,125 1,933
Less current maturities (363) (300)
----------- -----------
$ 1,762 $ 1,633
=========== ===========
</TABLE>
38
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
7. OTHER LONG-TERM DEBT (CONTINUED)
In addition, the Company has a nine million Hong Kong dollar (approximately U.S.
$1.2 million) leasing facility with a Hong Kong financial institution to finance
the purchase of equipment for its China facilities. The facility is secured by a
guarantee issued by the Company. As of September 30, 1996, no amounts had been
borrowed under this facility.
The aggregate maturities of other long-term debt at September 30, 1996, were as
follows (in thousands):
1997 $ 363
1998 354
1999 1,196
2000 131
2001 81
---------
$ 2,125
=========
8. CONVERTIBLE SUBORDINATED NOTES
The Company has outstanding $7.6 million of 8% convertible subordinated notes
due March 15, 2002. The notes are convertible at the option of the holders 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 payment to
all existing and future senior indebtedness of the Company. The notes are
callable at the Company's option with certain required premium payments.
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 note 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.
9. INCOME TAXES
The following table summarizes the differences between the Company's effective
income tax rate and the statutory federal income tax rate:
39
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
9. INCOME TAXES (CONTINUED)
YEARS ENDED SEPTEMBER 30,
--------------------------------------
1996 1995 1994
----------- ---------- ----------
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes, net of federal
income tax benefit 8.7 4.5 3.5
Foreign tax differentials (18.4) (2.3) (3.1)
Goodwill amortization 6.0 19.4 0.9
Other 4.3 (3.7) 0.5
---------- ---------- ---------
34.6% 51.9% 35.8%
========== ========== =========
The income tax provision (benefit) consisted of the following:
CURRENT DEFERRED TOTAL
----------------- -------------- -------------
(In thousands)
Year ended September 30, 1996
Federal $ 1,454 $ (1,388) 66
State 531 (207) 324
Foreign 199 260 459
----------- ----------- ----------
$ 2,184 $ (1,335) $ 849
=========== =========== ==========
Year ended September 30, 1995
Federal $ 1,443 $ (1,206) $ 237
State 304 (247) 57
Foreign 190 (53) 137
----------- ----------- ----------
$ 1,937 $ (1,506) $ 431
=========== =========== ==========
Year ended September 30, 1994
Federal $ 2,681 $ (17) $ 2,664
State 456 (3) 453
Foreign 17 (56) (39)
----------- ----------- ----------
$ 3,154 $ (76) $ 3,078
=========== =========== ==========
Income (loss) before income taxes by source consisted of the following:
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1996 1995 1994
------------ ------------- ------------
(In thousands)
United States $ (3) $ 574 $ 7,927
Foreign 2,455 257 661
---------- ----------- ----------
$ 2,452 $ 831 $ 8,588
========== =========== ==========
40
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
9. INCOME TAXES (CONTINUED)
The tax effects of each type of temporary difference that gave rise to the
Company's current net deferred tax asset included in other current assets are as
follows:
SEPTEMBER 30,
---------------------------
1996 1995
----------- -----------
(In thousands)
Accounts receivable allowances $ 1,542 $ 890
Prepaid expenses (130) (135)
Allowance and capitalized costs for inventory 1,245 490
Foreign tax loss carryforward - 68
Loss on sublease of facilities - 56
Accrued expenses 306 66
Other 25 15
--------- ---------
$ 2,988 $ 1,450
========= =========
The tax effects of each type of temporary difference that gave rise to the
Company's net long term deferred tax asset (included in other long term assets)
are as follows:
SEPTEMBER 30,
---------------------------
1996 1995
----------- -----------
(In thousands)
Net loss on sublease of facilities $ 347 $ 425
Start up costs 128 58
Depreciation:
U.S. assets (103) (122)
Foreign assets (18) (26)
Other (74) 148
---------- ----------
$ 280 $ 483
========== ==========
The Company has not provided for possible U.S. income taxes on $4.5 million in
undistributed earnings of foreign subsidiaries that are considered to be
reinvested indefinitely. Calculation of the unrecognized deferred tax liability
related to these foreign earnings is not practicable.
10. STOCK OPTIONS, WARRANTS AND RIGHTS
STOCK OPTIONS
In August 1987, the Company adopted the Stock Option/Stock Appreciation Rights
Plan (Employee Plan), which provides for the granting of options to officers and
other key employees. Under the Employee Plan, the Company authorized the
granting of options for up to 1,750,000 shares of common stock to be granted as
either incentive or nonstatutory options at a price of 100% of the fair market
value of the shares at the date of grant, 110% in the case of a holder of more
than 10% of the Company's stock. As of September 30, 1996, 1,340,301 options
were issued and outstanding under the plan, of which 929,801 were exercisable.
Approximately 20,000 options remained available for future grants. Options vest
ratably over a three-year period commencing on October 1 following the date of
grant and are exercisable with cash or previously acquired common stock of the
Company, no later than 10 years from the grant date.
41
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
10. STOCK OPTIONS, WARRANTS AND RIGHTS (CONTINUED)
In March 1989, the Company adopted the Non-Employee Director Stock Option Plan
(Directors' Plan), which provides for the granting of options for up to 50,000
shares of common stock to non-employee directors. Under the Directors' Plan,
options to purchase 2,000 common shares are granted to non-employee directors
automatically upon their election to the Board of Directors which vest upon the
serving of a one year term. The exercise price is the fair market value of the
common stock on the date the options are granted. These options are generally
exercisable during the terms of the directors, not to exceed ten years, from the
date of grant.
Transactions and other information relating to the plans are summarized as
follows:
<TABLE>
<CAPTION>
NUMBERS OF
EMPLOYEES' PLAN: OPTIONS PRICE PER SHARE
------------------ -------------------------
<S> <C> <C>
Options outstanding at September 30, 1993 989,828 $1.75 to $7.50
Options granted 78,750 $7.50
Options exercised (103,289) $1.75 to $4.13
Options terminated (12,599) $1.75 to $2.50
------------------ -------------------------
Options outstanding at September 30, 1994 952,690 $1.75 to $7.50
Options granted 371,250 $6.75
Options exercised (70,601) $1.75 to $4.625
Options terminated (32,835) $2.50 to $7.50
------------------ -------------------------
Options outstanding at September 30, 1995 1,220,504 $1.75 to $7.50
Options granted 164,750 $4.13 to $5.50
Options exercised (21,834) $2.50 to $4.13
Options terminated (23,119) $2.50 to $7.50
------------------ -------------------------
Options outstanding at September 30, 1996 1,340,301 $1.75 to $6.75
================== =========================
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS PRICE PER SHARE
------------------ ------------------------
DIRECTORS' PLAN:
<S> <C> <C>
Options outstanding at September 30, 1993 26,000 $3.38 to $12.13
Options granted 6,000 $10.75
------------------ ------------------------
Options outstanding at September 30, 1994 32,000 $3.38 to $12.13
Options granted 8,000 $6.63
------------------ ------------------------
Options outstanding at September 30, 1995 40,000 $3.38 to $12.13
Options granted 8,000 $6.25
Options exercised (2,000) $3.38
Options terminated (12,000) $5.38 to $12.13
------------------ -------------------------
Options outstanding at September 30, 1996 34,000 $3.38 to $12.13
================== ========================
</TABLE>
42
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
10. STOCK OPTIONS, WARRANTS AND RIGHTS (CONTINUED)
The Company has outstanding options for 110,000 shares at an exercise price of
$1.75 per share issued to the former shareholders of a subsidiary in connection
with the acquisition of such subsidiary. The options expire on January 1, 2000.
On October 1, 1991, the Company issued options to purchase 20,000 shares at
$3.38 to an employee. The options expire on October 1, 2001.
In August 1990, the Company issued options outside its Directors' Plan to its
non-employee directors to purchase an aggregate of 200,000 shares of common
stock, of which 132,000 remained outstanding on September 30, 1996. The options
have an exercise price of $1.75 per share and expire August 24, 2000.
On January 3, 1992, the Company issued to certain of its executives and
non-employee directors options to purchase 275,000 shares at $4.88 per share.
The options expire January 3, 2002.
On January 15, 1993, the Company issued to one of its executives options to
purchase 50,000 shares of common stock at an exercise price of $5.25 per share.
The options were fully exercisable on September 30, 1996. The options expire on
January 14, 2003.
At various dates during fiscal 1995, the Company granted to certain new
employees options to purchase 91,000 shares of common stock at prices ranging
from $6.75 to $6.875. In most cases, one-third of the options became exercisable
on October 1, 1995, with one-third vesting on October 1 of each of the following
two years. The options expire in 10 years from the grant date. On October 27,
1995, the exercise price of these options was restated to $4.125, the market
value on such date. As of September 30, 1996, 78,500 options remained to be
exercised.
On March 4, 1996, the Company issued options to purchase 10,000 shares at $5.38
to a consultant. The options expire on March 4, 2006.
On August 27, 1996, the Company issued to one of its executives options to
purchase 5,000 shares of common stock at $3.75 per share. The options expire on
August 26, 2006.
STOCK RIGHTS
On November 20, 1990, as amended on January 24, 1991, and on March 16, 1992, the
Company adopted a Shareholders' Rights Plan, and rights were distributed as a
dividend at the rate of one right for each share of the Company's common stock.
Each right entitles the registered holder to purchase from the Company one share
of common stock at a purchase price of $20 per share, subject to adjustment. The
rights may be exercised beginning 10 days after a person or group acquires 21
percent or more of the Company's common stock or announces a tender offer that
could result in the person or group owning at least 21 percent of the Company's
common stock. Subject to possible extensions, the rights may be redeemed by the
Company at $0.001 per right at any time until 10 days after 21 percent or more
of Catalina's stock is acquired by a person or group. The rights are also
redeemable upon a vote by the stockholders of the Company if the proposed
purchase price for the shares is deemed fair by a recognized investment banker.
In the event the Company is acquired in a merger or other business combination
transaction, the holder of each right would be entitled to receive common stock
of the acquiring company having a value equal to two times the exercise price of
the right. Unless redeemed earlier, the rights expire on November 30, 2000.
43
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
10. STOCK OPTIONS, WARRANTS AND RIGHTS (CONTINUED)
STOCK WARRANTS
In connection with the Company's initial public offering of common stock in May
1988, the underwriter of such offering obtained a warrant to acquire up to
92,000 shares of common stock exercisable through May 12, 1993, at $4.20 a
share. On June 2, 1992, and June 17, 1996, the Company amended the warrant
agreement to extend the expiration date of such warrant to December 31, 1997.
The Company registered the shares underlying the warrant effective May 24, 1995.
No common stock has been issued pursuant to this warrant through September 30,
1996.
11. COMMITMENTS
The Company leases certain of its offices and warehouse facilities under
non-cancelable operating leases that expire at various dates through 2001.
Certain leases provide for increases in minimum lease payments based upon
increases in annual real estate taxes and insurance. Future minimum lease
payments under non-cancelable operating leases and minimum rentals to be
received under non-cancelable subleases as of September 30, 1996 by fiscal year,
were as follows (in thousands):
MINIMUM RENTAL MINIMUM
PAYMENTS SUBLEASE INCOME NET
-------------- --------------- -------------
1997 $ 2,374 $ 1,063 $ 1,311
1998 1,512 1,061 451
1999 1,336 1,061 275
2000 1,207 1,061 146
2001 570 454 116
------------ ---------- -----------
$ 6,999 $ 4,700 $ 2,299
============ ========== ===========
Total rental expense for all operating leases and public warehouse facilities
amounted to approximately $4.1 million, $3.9 million and $2.5 million for the
years ended September 30, 1996, 1995 and 1994, respectively, and sublease income
amounted to $491,000, $370,000 and $39,000 for the years ended September 30,
1996, 1995 and 1994, respectively.
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a cooperative joint
venture 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 this land
until January 18, 2042. The land use rights are non-transferable. Under the
terms of the SJE joint venture agreement, ownership of the land and buildings of
SJE is divided 70% to Go-Gro and 30% to the other joint venture partner. Land
costs, including the land use rights, approximated $2.6 million of which Go-Gro
has paid its 70% proportionate share of $1.8 million.
44
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
11. COMMITMENTS (CONTINUED)
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. The total construction
costs for this project are estimated at $11.3 million, and include 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 installments beginning in January 1997 and continuing through
June 1998, with 46% of the total fee due by September 1997. SJE plans to file an
application to reduce the amount of square footage required to be constructed by
approximately 40% and thereby proportionately reduce the MCFF and 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
first construction phase (a 162,000 square foot factory, a 77,000 square foot
warehouse and a 60,000 square foot dormitory) is estimated to be completed in
March 1997.
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. The Company 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, subject to annual minimum payments due. 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.
12. RELATED PARTY TRANSACTIONS
The Company leased its two facilities located in Massachusetts from entities in
which an officer and a former officer had an ownership interest. One of the
leases expired in 1996 and the other one is on a month-to-month basis. Rent
expense related to these leases was approximately $530,000, $521,000 and
$512,000 for the years ended September 30, 1996, 1995 and 1994, respectively.
The Company leases its Hong Kong office from a company owned by the President
and former majority stockholder of Go-Gro. The lease expires in August 1997 but
may be extended for an additional two years. Rent expense related to this lease
was $258,000, $237,000 and $39,000 for the years ended September 30, 1996, 1995
and 1994, respectively.
During the years ended September 30, 1996 and 1995, Go-Gro purchased $1.8
million and $1.1 million, respectively, in raw materials from an affiliate which
is fifty percent owned by the Company and which includes the President of Go-Gro
as one of its directors.
In January 1994, the Company delivered 32,644 restricted common shares as
consideration for the one-year extension, from May 1993 to May 1994, of its
non-compete contract with a former Chairman and Chief Executive Officer of the
Company. In January 1994, the Company elected to extend the term of this
non-compete agreement for the third year of its three-year option, from May 1994
to May 1995. The consideration for the one-year extension was satisfied in May
1994 by the issuance of 23,112 restricted shares of the Company's common stock.
45
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
13. GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company operates exclusively in the lighting industry with operations based
in two principal geographic areas, the United States and Asia. Net sales to
unaffiliated customers by U.S.-based operations are made primarily into the
United States. Net sales to unaffiliated customers by Asia-based operations are
made primarily into Europe. Transfers to other geographic areas primarily
represent shipments of finished goods at prices approximating those charged to
unaffiliated customers. All transfers have been eliminated from consolidated net
sales. Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
UNITED STATES ASIA OTHER ELIMINATIONS CONSOLIDATED
----------------- ------------ ----------- ----------------- ----------------
(In thousands)
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1996:
Net sales
Unaffiliated customers $ 139,521 $ 29,447 $ 15,662 $ - $ 184,630
Transfers to other
geographic areas 979 34,341 370 (35,690) -
---------- ---------- --------- ---------- ---------
Total net sales $ 140,500 $ 63,788 $ 16,032 $ (35,690) $ 184,630
========== ========== ========= ========== =========
Operating income $ 2,153 $ 2,706 $ 563 $ (101) $ 5,321
========== ========== ========= ========== =========
Identifiable assets $ 79,362 $ 31,892 $ 8,562 $ (2,375) $ 117,441
========== ========== ========= ========== =========
SEPTEMBER 30, 1995:
Net sales
Unaffiliated customers $ 137,763 $ 30,517 $ 8,012 $ - $ 176,292
Transfers to other
geographic areas 870 17,091 219 (18,180) -
---------- ---------- --------- ---------- ---------
Total net sales $ 138,633 $ 47,608 $ 8,231 $ (18,180) $ 176,292
========== ========== ========= ========== =========
Operating income $ 3,062 $ 941 $ 221 $ (173) $ 4,051
========== ========== ========= ========== =========
Identifiable assets $ 89,966 $ 25,178 $ 7,368 $ (2,461) $ 120,051
========== ========== ========= ========== =========
SEPTEMBER 30, 1994:
Net sales
Unaffiliated customers $ 124,135 $ 12,048 $ 5,940 $ - $ 142,123
Transfers to other
geographic areas 398 1,280 85 (1,763) -
---------- ---------- --------- ---------- ---------
Total net sales $ 124,533 $ 13,328 $ 6,025 $ (1,763) $ 142,123
========== ========== ========= ========== =========
Operating income $ 9,255 $ 1,415 $ (465) $ (90) $ 10,115
========== ========== ========= ========== =========
Identifiable assets $ 70,558 $ 26,789 $ 4,770 $ (689) $ 101,428
========== ========== ========= ========== =========
</TABLE>
46
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
13. GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
In fiscal 1996, one customer accounted for 3.9% of the Company's net sales while
its affiliate accounted for 7.1% and during fiscal 1995 such customers accounted
for 5.9% and 6.9%, respectively, of the Company's net sales. In fiscal 1994,
such customer and its affiliates accounted for 6.6% and 13.3%, respectively, of
the Company's net sales.
14. EMPLOYMENT AGREEMENTS
The Company has employment agreements with five executive officers. The
agreements with four of these officers are for three-year terms renewed each
year on October 1. All such officers receive compensation with minimum annual
cost of living increases of 5% and acceleration of payments due under the
agreements should there be a change in control (as defined) of the Company.
These officers participate equally in a bonus pool equal to 6.7% of the
Company's consolidated pre-tax income. The bonuses for fiscal 1996, 1995 and
1994 totaled $175,000, $59,000 and $614,000, respectively. The employment
agreement with the fifth executive officer expires in March 1998 and also
contains provisions concerning acceleration of payments should there be a change
in control of the Company.
In connection with the Company's acquisition of Go-Gro, the Company entered into
an employment agreement with the previous majority stockholder of Go-Gro, under
which such individual serves as President of Go-Gro. The term of the employment
agreement is from July 30, 1994 to July 30, 1999, renewable for a successive
five-year period upon terms mutually acceptable to the Company and the employee.
Future commitments under employment agreements at September 30, 1996, by fiscal
year, excluding the possible effect of bonuses and renewal periods, are as
follows (in thousands):
1997 $ 1,359
1998 1,385
1999 1,312
----------
$ 4,056
==========
15. 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,
47
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
15. CONTINGENCIES (CONTINUED)
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 million.
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
consolidated financial statements.
On February 23, 1993, Dana Lighting (now Catalina Industries, Inc.), 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 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 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, and on October 25, 1996 and December 4, 1996, the Company was served
with a second and third complaint entitled Black & Decker vs. Calatina Lighting
and Westinghouse Electric Corp., Case Nos. 96-1577-A and 96-1707-A,
respectively. All cases are pending in the United States District Court, Eastern
Division of Virginia. The plaintiff in these actions 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 annual
results of operations. However, 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. No provision for any liability that may result from
this litigation has been recorded in the accompanying consolidated financial
statements.
The Company is also a defendant in other legal proceedings arising in the 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 a material
adverse effect on the Company's financial position or annual results of
operations.
48
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
16. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents and restricted cash equivalents and short-term
investments:
The carrying amount approximates fair value because of the short maturity of
those instruments.
Bonds payable and other long-term debt:
The fair value of the Company's bonds payable and other long-term debt is
estimated based on the current rates offered to the Company for borrowings with
similar terms and maturities.
Estimated fair values of the Company's financial instruments are as follows (in
thousands):
SEPTEMBER 30,
-----------------------------------
1996 1995
--------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
Cash and cash equivalents $ 1,766 $ 1,766 $ 807 $ 807
Restricted cash equivalents and
short-term investments 378 378 6,339 6,339
Bonds payable 11,135 11,079 11,936 11,905
Other long-term debt 2,125 2,118 1,933 1,931
It was not practicable to estimate the fair value of the $7.6 million
convertible subordinated notes.
49
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (CONTINUED)
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1996
- -------------------------------------------------------------------------------------------------
Net Sales $ 50,180 $ 40,921 $ 43,882 $ 49,647
- -------------------------------------------------------------------------------------------------
Gross Profit $ 8,189 $ 7,552 $ 7,218 $ 7,973
- -------------------------------------------------------------------------------------------------
Operating Income $ 1,626 $ 1,228 $ 992 $ 1,475
- -------------------------------------------------------------------------------------------------
Net Income $ 588 $ 365 $ 18 $ 632
- -------------------------------------------------------------------------------------------------
Earnings Per Share:
- -------------------------------------------------------------------------------------------------
Primary $ 0.08 $ 0.05 $ - $ 0.08
- -------------------------------------------------------------------------------------------------
Fully Diluted $ 0.08 $ 0.05 $ - $ 0.08
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1995
- -------------------------------------------------------------------------------------------------
Net Sales $ 44,658 $ 41,903 $ 38,878 $ 50,853
- -------------------------------------------------------------------------------------------------
Gross Profit $ 8,713 $ 7,075 $ 4,830 $ 7,331
- -------------------------------------------------------------------------------------------------
Operating Income (Loss) $ 2,879 $ 1,084 $ (1,151) $ 1,239
- -------------------------------------------------------------------------------------------------
Net Income (Loss) $ 1,515 $ 226 $ (1,464) $ 123
- -------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share:
- -------------------------------------------------------------------------------------------------
Primary $ 0.19 $ 0.03 $ (0.21) $ 0.02
- -------------------------------------------------------------------------------------------------
Fully Diluted $ 0.19 $ 0.03 $ (0.21) $ 0.02
=================================================================================================
</TABLE>
50
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING OF COSTS AND AT END OF
DESCRIPTION YEAR EXPENSES OTHER DEDUCTIONS YEAR
- ---------------- ------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Accounts receivable allowances
deducted from accounts
receivable in the balance sheet:
Year ended September 30, 1996 $ 4,934 $ 17,135 $ - $ (14,756) $ 7,313
=========== ============ ============= =========== ===========
Year ended September 30, 1995 $ 2,688 $ 15,385 $ - $ (13,139) $ 4,934
=========== ============ ============= =========== ===========
Year ended September 30, 1994 $ 2,736 $ 11,672 $ 25 (A) $ (11,745) $ 2,688
=========== ============ ============= =========== ===========
Allowance for slow-moving items
in inventory - deducted from
inventory in the balance sheet:
Year ended September 30, 1996 $ 911 $ 903 $ - $ (281) $ 1,533
=========== ============ ============= =========== ===========
Year ended September 30, 1995 $ 352 $ 612 $ - $ (53) $ 911
=========== ============ ============= =========== ===========
Year ended September 30, 1994 $ 272 $ 38 $ 242 (A) $ (200) $ 352
=========== ============ ============= =========== ===========
<FN>
(A) This amount represents Go-Gro's allowance at the date of acquisition.
</FN>
</TABLE>
51
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1997 Annual Meeting of
Stockholders, which will be filed within 120 days of September 30, 1996.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1997 Annual Meeting of
Stockholders, which will be filed within 120 days of September 30, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1997 Annual Meeting of
Stockholders, which will be filed within 120 days of September 30, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 1997 Annual Meeting of
Stockholders, which will be filed within 120 days of September 30, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. DOCUMENTS FILED AS PART OF THIS REPORT. The following
consolidated financial statements of the Company and
its subsidiaries are filed as part of this Report:
Independent Auditors' Report
Consolidated Balance Sheets as of
September 30, 1996 and 1995
Consolidated Statements of Operations
for the years ended September 30, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity
for the years ended September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows
for the years ended September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES. The following financial
statement schedule is included in this Report:
Schedule II - Valuation and Qualifying Accounts for the
years ended September 30, 1996, 1995 and 1994
52
<PAGE>
3. EXHIBITS. The following exhibits are filed with this Report or
incorporated by reference:
<TABLE>
<CAPTION>
Exhibit Filing In Which Exhibit
Number Description Is Incorporated By Reference
- ---------- ----------------------------------------------------------- --------------------------------------------
<S> <C>
3 - Amended and Restated Articles of Incorporated Registration Statement on Form S-1, Number
33-27861
3.3 - By-Laws, as amended Form 10-K dated December 28, 1989
4 - Certificate Common Shares, par value $.01 Registration Statement on Form S-18,
Number 33-17409-A
4.2 - Werbel Roth Warrant Registration Statement on Form S-18,
Number 33-17409-A
4.3 - Convertible Debentures Form 8-K, dated August 31, 1989
4.4 - Convertible Debentures Amendment No. 1 to Registration
Statement No. 33-34444 on Form S-1
4.5 - Shareholders' Rights Plan Form 10-K dated January 14, 1990
4.6 - Second Amendment to Rights Agreement dated as of November Form 10-Q for the Quarter Ended March 31,
20, 1990 1992
10.46 - Employment Agreement between the Company and Robert Hersh, Form 10-K dated December 28, 1989
dated as of October 1, 1989
10.47 - Employment Agreement between the Company and Dean S. Form 10-K dated December 28, 1989
Rappaport, dated as of October 1, 1989
10.48 - Employment Agreement between the Company and William D. Form 10-K dated December 28, 1989
Stewart, dated as of October 1, 1989
10.49 - Leases dated September 27, 1989 between the Company and Form 10-K dated December 28, 1989
MP-1989-1 Ltd. Partnership
10.50 - Promissory Note from Nathan Katz to the Company, dated Form 10-K dated December 28, 1989
November 1989
10.51 - Promissory Note from David Hauser to the Company, dated Form 10-K dated December 28, 1989
November 1989
10.52 - Amendment to Agreement and Option Agreement between the Form 10-K dated December 28, 1989
Company and Windmere dated December 14, 1989
10.53 - Amendment No. 2 to Credit Agreement dated as of January Registration Statement No. 33-34444
31, 1990 on Form S-1
10.54 - Agreement dated as of January 1, 1990 between the Company, Registration Statement No. 33-34444
Dana, David Hauser and Nathan Katz on Form S-1
10.55 - Promissory Note executed in favor of Nathan Katz by the Registration Statement No. 33-34444
Company dated as of January 1, 1990 on Form S-1
10.56 - Promissory Note executed in favor of David Hauser by the Registration Statement No. 33-34444
Company dated as of January 1, 1990 on Form S-1
10.57 - Amendment to 1987 Stock Option Plan Registration Statement No. 33-34444 on
Form S-1
10.58 - Amendment No. 1 dated May 7, 1990 to Employment Agreement Form 10-Q dated August 17, 1990
between the Company and Robert Hersh
10.59 - Amendment No. 3 to Credit Agreement dated as of March 9, Form 10-Q dated August 17, 1990
1990
53
<PAGE>
10.60 - Amendment No. 4 to Credit Agreement dated as of May 31, Form 10-Q dated August 17, 1990
1990
10.61 - Assignment of Credit Agreement dated as of May 1, 1990; Form 10-Q dated August 17, 1990
Credit Facility between the Company and SunTrust
10.62 - Lease between Dana and H & K Realty Trust dated as of Form 10-Q dated August 17, 1990
April 1, 1990
10.63 - Lease between the Company and Paragon regarding the Dallas Form 10-Q dated August 17, 1990
Facility, dated October 16, 1989
10.64 - Amendment dated as of April 1, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between Dana, the Company and Nathan Katz No. 33-34444 on Form S-1
10.65 - Amendment dated as of April 1, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between Dana, the Company and David Hauser No. 33-34444 on Form S-1
10.66 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and John H. Browder No. 33-34444 on Form S-1
10.67 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and Robert Hersh No. 33-34444 on Form S-1
10.68 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and Dean S. Rappaport No. 33-34444 on Form S-1
10.69 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and William D. Stewart No. 33-34444 on Form S-1
10.70 - Amendment to 1987 Stock Option and Stock Appreciation Form 10-K dated January 14, 1990
Rights Plan
10.71 - Amendment to dated October 1, 1990 to Employment Agreement Form 10-K dated January 14, 1990
between the Company and Dean S. Rappaport
10.72 - First Amendment to Credit Agreement dated November 1, 1990 Form 10-K dated January 14, 1990
between the Company and Sun Bank
10.73 - Second Amendment to Credit Agreement dated January 11, Form 10-K dated January 14, 1990
1991 between the Company and Sun Bank
10.74 - Third Amendment to Credit Agreement dated March 7, 1991 Form 10-Q for the quarter ended March 31,
between the Company and Sun Bank 1991
10.75 - Amendment to Employment Agreement dated April 8, 1991 Form 10-Q for the quarter ended March 31,
between the Company and Robert Hersh 1991
10.76 - Amended and Restated Credit Agreement dated September 30, Form 8 Amendment No. 2 to Form 10-Q dated
1991 between the Company and Sun Bank June 30, 1991
10.77 - Certain equipment leases between the Company and various Form 10-K dated December 18, 1991
equipment leasing companies
10.78 - First Amendment to Amended and Restated Credit Agreement Form 10-K dated December 18, 1991
dated December 1, 1991
10.79 - Joint Venture Agreement dated as of January 14, 1992 Form 10-Q for the quarter ended March 31,
between Catalina Lighting, Inc. O'Design Ceramics, Inc. 1992
Catalina Canada Lighting Inc. and Danny Lavy, as amended
10.80 - Employment Agreement dated April 1, 1992 between Catalina Form 10-Q for the quarter ended March 31,
Lighting, Inc. and Janet P. Ailstock 1992
10.81 - Second Amended and Restated Credit Agreement among the Form 10-Q for the quarter ended March 31,
Company and Sun Bank, National Association dated as of 1992
June 19, 1992
54
<PAGE>
10.82 - Amendments to Employment Agreements between the Company Form 10-K dated December 10, 1992
and Messrs Hersh, Rappaport and Stewart dated as of
October 1, 1992
10.83 - Amendment, dated January 26, 1993 between the Company and Form 10-Q for the quarter ended December
David Moss 31, 1992
10.84 - First Amendment to Second Amended and Restated Credit Form 10-Q for the quarter ended December 31,
Facility dated as of June 19, 1992 1992
10.85 - Second Amendment to Second Amended and Restated Credit Form 10-Q for the quarter ended
Agreement Among the Company and Sun Bank, National March 31, 1993
Association, dated April 30, 1993
10.86 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and Robert Hersh
10.87 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and Dean Rappaport
10.88 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and William D. Stewart
10.89 - Agreement dated September 29, 1993 between Catalina Form 10-K dated December 28, 1993
Lighting, Inc. and Shunde No. 1 Lamp Factory
10.90 - Agreement dated October 1, 1993 between Dana Lighting, Form 10-Q for the quarter ended December
Inc., Catalina Lighting, Inc., and Nathan Katz terminating 31, 1993
the 1989 Employment Agreement
10.91 - The Employment Agreement dated October 1, 1993 between Form 10-Q for the quarter ended December
Dana Lighting, Inc., Catalina Lighting, Inc., and Nathan 31, 1993
Katz
10.92 - Note Agreement dated March 15, 1994 among the Company and Form 10-Q for the quarter ended March 31,
Massachusetts Mutual Life Insurance Company, MassMutual 1994
Corporate Investors, MassMutual Participation Investors,
S.O. P.A.F. International S.A., Prudential Securities,
Inc. and Jefferies Group, Inc.
10.93 - Second Amended Employment Agreement among the Company and Form 10-Q for the quarter ended March 31,
Janet P. Ailstock dated April 1, 1994. 1994
10.94 - Agreement dated December 30, 1993 among the Company, Danny Form 10-Q for the quarter ended March 31,
Lavy, Susan Lavy and Les Investissements Lavy, Inc. 1994
10.95 - Third amended and restated credit agreement among Catalina Form 10-Q for the quarter ended June 30,
Lighting, Inc. and Sun Bank, National association, dated 1994
May 12, 1994
10.96 - Letter of commitment between Catalina Lighting Canada Form 10-Q for the quarter ended June 30,
(1992), Inc. and National bank of Canada dated May 19, 1994 1994
10.97 - Consulting Agreement between Catalina Lighting, Inc. and Form 10-Q for the quarter ended June 30,
Henry Gayer dated July 6, 1994 1994
10.98 - Purchase Agreement among Catalina Lighting, Inc. and the Form 8-K dated August 9, 1994
Stockholders of Go-Gro Industries, Ltd.
10.99 - Employment Agreement by and among Go-Gro Industries and Form 8-K dated August 9, 1994
Mr. Lau
10.100.1 - Financial statements of Go-Gro Industries Ltd. for the Amendment No.2 to Form 8-K filed December
year ended July 31, 1994 15, 1994
10.100.2 - Financial statements of Go-Gro Industries Ltd. for the Amendment No.1 to Form 8-K filed October
years ended July 31, 1993 and 1992 13, 1994
55
<PAGE>
10.100.3 - Financial statements of CIPEL Development Ltd. for the Amendment No.1 to Form 8-K filed October
year ended July 31, 1994 13, 1994
10.100.4 - Financial Statements of CIPEL Development Limited for the Amendment No.1 to Form 8-K filed October
years ended July 31, 1993 and 1992 13, 1994
10.100.5 - Financial Statements of Lamp Depot Limited for the period Amendment No.1 to Form 8-K filed October
from September 23, 1994 (date of incorporation) to July 13, 1994
31, 1994
10.100.6 - Amended Financial Statements of Go-Gro Industries Limited Amendment No. 2 to Form 8-K/A dated
December 15, 1994
10.101 - First amendment to third amended and restated credit Form 10-K dated December 28, 1994
agreement among Catalina Lighting, Inc. and Sun Bank,
National Association, dated August 12, 1994
10.102 - Contract for the Sale and Purchase of Real Estate by and Form 10-K dated December 28, 1994
between Lauderdale County Economic Development District,
Meridian Lamps, Inc. and Jansko, Inc. dated November 1,
1994
10.103 - Mississippi Small Enterprise Development Finance Act Loan Form 10-K dated December 28, 1994
Agreement among Mississippi Business Finance Corporation
(acting for and on behalf of the State of Mississippi),
Bank of Mississippi as Servicing Trustee) and Meridian
Lamps, Inc. dated November 1, 1994
10.104 - $1,200,000 Mortgage Deed and Security Agreement and Form 10-K dated December 28, 1994
Mortgage Note issued by the Company in favor of
Mississippi Business Finance Corporation dated September
28, 1994
10.105 - Agreement of Lease by and between Anker Construction Ltd. Form 10-K dated December 28, 1994
and Catalina Lighting Canada (1992), Inc. dated October
20, 1994
10.106 - Sub-Lease Agreement dated September 23, 1994 by and Form 10-K dated December 28, 1994
between the Company and Shippers Warehouse, Inc.
10.107 - Plan Administration Support Services Agreement dated Form 10-K dated December 28, 1994
September 12, 1994 by and between Catalina Lighting, Inc.
and Sun Bank, National Association
10.108 - Amended Complaint in the Matter of Holmes Products Form 10-K dated December 28, 1994
Corporation versus Dana Lighting, Inc. and Nathan Katz
10.109 - Financing agreements between Go-Gro Industries Limited and Form 10-K dated December 28, 1994
Standard Chartered Bank dated May 27, 1994
10.110 - Financing Agreement between Go-Gro Industries Limited and Form 10-K dated December 28, 1994
The Hong Kong and Shanghai Banking Corporation Limited
dated May 31, 1993
10.111 - Letter of Credit Agreement dated as of November 1, 1994 Form 10-K dated December 28, 1994
between Meridian Lamps, Inc., the Company and Sun Bank,
National Association
10.112 - Second Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended March 31,
Agreement and Third Amended and Restated Stock and Notes 1995
Pledge between Sun Bank National Association and the
Company dated February 23, 1995
10.113 - Financing Agreement between Go-Gro Industries, Ltd. and Form 10-Q for the quarter ended March 31,
Standard Chartered Bank dated October 4, 1994 and 1995
amendment to Financing Agreement dated January 5, 1995
56
<PAGE>
10.114 - Third Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended June 30,
Agreement and Consent dated May 1, 1995 between Catalina 1995
Lighting and Sun Bank, National Association
10.115 - Fourth Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended June 30,
Agreement and Consent dated June 30, 1995 between Catalina 1995
Lighting and Sun Bank, National Association
10.116 - First Amendment to Note Agreement between Catalina Form 10-Q for the quarter ended June 30,
Lighting and Massachusetts Mutual Life Insurance Company, 1995
MassMutual Corporate Investors, MassMutual Participation
Investors, MassMutual Corporate Value Partners, Prudential
Securities Inc. and SO. P.A.F. International S.A. dated
June 28, 1995
10.117 - Loan Agreement between Mississippi Business Finance Form 10-Q for the quarter ended June 30,
Corporation and Dana Lighting, dated May 1, 1995 1995
10.118 - Letter of Credit Agreement between Dana Lighting, Inc. and Form 10-Q for the quarter ended June 30,
Sun Bank, National Association dated May 1, 1995, and as 1995
amended on June 30, 1995
10.119 - Shenzhen Municipal Agreement to transfer rights to use Form 10-Q for the quarter ended June 30,
land dated April 11, 1995 1995
10.120 - Construction Loan Agreement between Sun Bank, National Form 10-Q for the quarter ended June 30,
Association and Dana Lighting dated May 1, 1995 1995
10.121 - Indenture of Trust dated May 1, 1995, relating to $10.5 Form 10-Q for the quarter ended June 30,
million Mississippi Business Finance Corporation Taxable 1995
Variable Rate Industrial Development Revenue Bonds Series
1995
10.122 - Shenzhen Municipal Construction Contract dated January 4, Form 10-Q for the quarter ended June 30,
1995 1995
10.123 - Final Design and Construction Contract between Catalina Form 10-Q for the quarter ended June 30,
Industries, Inc., d/b/a Dana Lighting and Jesco, Inc. dated 1995
June 20, 1995
10.124 - Sublease Agreement between Catalina Lighting, Inc. and Form 10-Q for the quarter ended June 30,
Shippers Warehouse and Agreement between Catalina 1995
Lighting, Inc. and Shippers Warehouse, Inc. and S & W
Warehouse, Inc. effective June 15, 1995 as to sell warehouse
equipment.
10.125 - Land purchase Agreement dated March 31, 1995 between Form 10-Q for the quarter ended June 30,
Community Development Foundation and Dana Lighting, Inc. 1995
10.126 - Fifth amendment to Third Amended and Restated Credit Form 10-K dated December 27, 1995
Agreement dated December 4, 1995 between Catalina Lighting
and SunTrust Bank, Central Florida, National Association
f/k/a SunTrust, National Association
10.127 - Contract to amend Cooperative Joint Venture Contract Form 10-K dated December 27, 1995
between Shenzhen Baoanqu Fuda Industries Co. (SJE) and
Go-Gro Industries, Ltd. dated May 27, 1995
10.128 - Second Amendment to Note Agreement between Catalina Form 10-K dated December 27, 1995
Lighting and Massachusetts Mutual Life Insurance Company,
MassMutual Corporate investors, MassMutual Participation
Investors, MassMutual Corporate Value Partners, Ltd.,
Prudential Securities Inc. and So. P.A.F. International
S.A. dated September 30, 1995
10.129 - Sixth Amendment to third Amended and Restated Credit Form 10-Q for the Quarter ended December
Agreement dated December 28, 1995, between Catalina 31, 1995
Lighting, Inc. and SunTrust Bank, Central Florida,
National Association f/k/a SunTrust, National Association
57
<PAGE>
10.130 - Second Amendment to Letter of Credit Agreement and First Form 10-Q for the Quarter ended December
Amendment to Security Agreement between Catalina 31, 1995
Industries, Inc. d/b/a Dana Lighting and SunTrust Bank,
Central Florida, National Association f/k/a SunTrust,
National Association
10.131 - Seventh Amendment to third Amended and Restated Credit Form 10-Q for the Quarter ended March 31,
Agreement dated March 18, 1996, between Catalina Lighting, 1996
Inc. and SunTrust Bank, Central Florida, National
Association
10.132 - Third Amendment to Letter of Credit Agreement dated March Form 10-Q for the Quarter ended March 31,
27, 1996 between Catalina Industries, Inc. d/b/a Dana 1996
Lighting and SunTrust Bank, Central Florida, National
Association f/k/a SunTrust, National Association
10.133 - Third Amendment to Employment Agreement dated April 1, Form 10-Q for the Quarter ended March 31,
1996 between Catalina Lighting, Inc. and Janet P. Ailstock 1996
10.134 - License Agreement dated April 26, 1996 between Form 10-Q for the Quarter ended March 31,
Westinghouse Electric Corporation and Catalina Lighting, 1996
Inc.
10.135 - Press Release dated July 18, 1996 Form 8-K dated July 18, 1996
10.136 - Complaint in the matter of BLACK & DECKER (U.S.), INC., Form 10-Q for the Quarter ended June 30,
BLACK & DECKER INC. VS. CATALINA LIGHTING, INC., Case No. 1996
96-1042-A, in the United States District Court, Eastern
Division of Virginia
10.137 - Financing Agreement between Catalina Lighting Canada Filed herewith
(1992), Inc. and National Bank of Canada dated May 1, 1996
10.138 - Lease Financing Agreement between Go-Gro Industries Ltd. Filed herewith
and The Hong Kong and Shanghai Banking Corporation Limited
dated October 30, 1996
11 - Computation of Earnings Per Share Filed herewith
21 - Subsidiaries of the Registrant Filed herewith
23 - Consent of Deloitte & Touche LLP Filed herewith
27 - Financial Data Schedule Filed herewith
</TABLE>
58
<PAGE>
(b) REPORTS ON FORM 8-K:
None.
(c) UNDERTAKING:
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933
(the "1933 Act"), the undersigned Registrant hereby undertakes as follows, which
understanding shall be incorporated by reference into Registrant's Registration
Statements on Form S-8 Nos. 33-23900, 33-33292, and 33-62373.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit of proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
CATALINA LIGHTING, INC.
By: /S/ROBERT HERSH
----------------------------------
Robert Hersh, Chairman, President,
Chief Executive Officer and Director
December 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons of behalf of the
Company and in the capacities and on the dates indicated.
By:/S/ DEAN S. RAPPAPORT December 27, 1996
---------------------------------
Dean S. Rappaport, Director,
Executive Vice President, and
Chief Operating Officer
By:/S/ WILLIAM D. STEWART December 27, 1996
---------------------------------
William D. Stewart, Director
Executive Vice President - Sales and Marketing
By:/S/ DAVID SASNETT December 27, 1996
---------------------------------
David Sasnett,
Chief Financial Officer
By:/S/ LEONARD SOKOLOW December 27, 1996
---------------------------------
Leonard Sokolow, Director
By:/S/ HENRY LATIMER December 27, 1996
---------------------------------
Henry Latimer, Director
By:/S/ ROBERT WACHS December 27, 1996
---------------------------------
Robert Wachs, Director
By:/S/ RYAN BURROW December 27, 1996
---------------------------------
Ryan Burrow, Director
60
EXHIBIT 10.137
NATIONAL BANK OF CANADA
600, rue de La Gauchetiere ouest, Montreal (Quebec) H3B 4L2
Montreal, April 17, 1996
Commercial Lending Centre
CATALINA LIGHTING CANADA, (1992) INC./
LUMIERES CATALINA CANADA, (1992) INC.
c/o Catalina Lighting, Inc.
18191 N.W. 68th Avenue
Miami, Florida 33015
United States of America
ATTENTION OF MR. THOMAS M. BLUTH, TAX DIRECTOR
RE: OFFER OF FINANCING AND BANKING SERVICES
Dear Sir:
We are pleased to confirm you that the National Bank of Canada (the "Bank")
agrees to renew the credit facilities presently available to Catalina Lighting
Canada, (1992) Inc./Lumieres Catalina Canada, (1992) Inc. (the "Borrower").
Furthermore, the Bank includes hereby its offer of services regarding the
administration of the Borrower's accounts held with the Bank.
The terms and conditions of the said financings and banking services are
respectively presented in the schedules A and B attached to this offer to form
an integral part thereof (collectively the "Offer").
Should the present Offer meet with your approval, please indicate your
acceptance thereof by signing and initialling each page of the attached copy of
the Offer and returning same to the offices of the Bank, to the attention of Mr.
Michel Wistaff, Senior Account Manager, before 5 P.M. on May 3, 1996, failing
which the Bank, at its discretion, reserves the right to cancel and/or modify
the Offer, without notice.
Once this Offer has been accepted, we will ask our legal advisers to draw up the
applicable security documents in accordance with standards acceptable to the
Bank.
We hope that our financial support will continue to contribute to your company's
development.
NATIONAL BANK OF CANADA
Per: /s/ Alain Charbonneau Per: /s/ Michel Wistaff
--------------------- ---------------------------
Alain Charbonneau Michel Wistaff
Senior Manager Senior Account Manager
<PAGE>
Page 2
ACCEPTANCE
The undersigned hereby accepts the terms and conditions of this Offer dated
April 17, 1996 at the City of __________________, Province of Quebec, this
1st day of May, 1996.
CATALINA LIGHTING CANADA, (1992) INC./
LUMIERES CATALINA CANADA, (1992) INC.
Per: /s/ Dean Rappaport Per:
---------------------------- -----------------------
Name: Dean Rappaport Name:
Title: EVP/CFO Title:
<PAGE>
SCHEDULE A
TERMS AND CONDITIONS OF FINANCINGS
===============================================================================
1. FACILITY A-OPERATING CREDIT FACILITY
1.1 THE CREDIT
The Bank, subject to the terms and conditions hereof, agrees to make
available to the Borrower an operating credit of $4,000,000, in Canadian
Dollars, to finance the Borrower's operating requirements.
1.2 TERM
This operating credit may be reviewed from time to time by the Bank and
is repayable on demand.
1.3 MODE OF FINANCING
Subject to the terms and conditions provided herein, the Borrower may,
within the amount available to it under the present credit, avail itself
of Floating Rate advances.
1.4 INTEREST RATE
Advances up to the amount of $1,500,000 shall bear interest, until
payment in full, at the Canadian Prime Rate of the Bank and all advances
in excess of $1,500,000 shall bear interest, until payment in full, at
the Canadian Prime Rate of the Bank plus 0.50%. Any amount in arrears
shall bear interest at the Canadian Prime Rate of the Bank plus 0.50%.
Interest shall be payable monthly on the 26th day of each month.
1.5 FINANCING CONDITIONS
The aggregate total amount of the Floating Rate advances under this
operating credit shall not exceed the total of:
1.5.1 80% of the Borrower's accounts receivable (excluding contra or
inter-company accounts, accounts of doubtful quality and those
aged 90 days or more); and
1.5.2 50% of the Borrower's inventory of finished products for a maximum
of $2,000,000.
<PAGE>
Page 2
The value of the Borrower's accounts receivable and inventory of
finished products shall be established, from time to time by the Bank,
taking into account claims ranking prior to the security of the Bank.
The Borrower shall furnish to the Bank, on the 20th day of each month, a
list of its inventory, of its accounts receivable according to age and of
its accounts payable for the month ending on the last day of the
preceding month.
1.6 DISBURSEMENT AND REPAYMENT
The Borrower may draw upon the amount made available to it by virtue of
these presents, at any time during the term of the credit, by satisfying
the terms and conditions specified herein and subject to the execution of
any document that may reasonably be requested by the Bank in order to
give full effect to the provisions contained herein.
Disbursement and repayment of the operating credit shall be made in
multiples of $50.000.
The principal amount of the Floating Rate advances shall be payable on
demand.
The Borrower may repay all or part of its Floating Rate advances at any
time during the term of the credit, without penalty.
2. FACILITY B-CURRENCY CONVERSION RISK FACILITY
2.1 AMOUNT AND PURPOSE
Subject to the terms and conditions hereof, the Bank agrees to make
available to the Borrower, a currency conversion risk facility for an
aggregate amount not exceeding $500,000, in American Dollars, to conclude
transactions with the Bank with respect to the sale or purchase of
foreign currencies freely negotiated by the Bank.
2.2 CONDITIONS
The Borrower may, conclude foreign currency transactions subject to the
following conditions, namely:
- the Borrower shall give prior notice thereof to the Bank, in
accordance with the customs and practices of the market, specifying
the amount, currency and effective date of delivery of the chosen
currency;
<PAGE>
Page 3
- the maximum amount of foreign currency which the Borrower may sell or
purchase by reason hereof shall not exceed the permitted amount, as
determined by the Bank in the manner hereinafter set forth; the said
permitted amount shall be determined by the Bank by multiplying the
face value of the chosen currency by the level of risk, as per the
schedule in effect at the Bank expressed in a percentage, (for
illustration purpose only: chosen currency of U.S. $50,000.00 at a
level of risk of 10% equals a currency conversion risk amount of
U.S. $5,000.00);
- the Borrower shall execute, upon presentation, any agreement, contract,
document or other writing, including, without limitation, a
confirmation, as applicable, of such contract, in accordance with the
forms in use at the Bank, providing for, amongst other things, the
amount, currency, level of risk and fees payable to the Bank;
- the Borrower undertakes to deposit, in its Bank's U.S.$ current
account, sufficient amounts to pay the foreign currencies, at the
latest on the date of their deliverance, failing which, the Bank shall
be authorized to debit the Borrower's U.S.$ current account for an
amount equal to the amount necessary to pay the said currencies and any
fees and expenses incurred by the Bank due to the insufficiency of
funds in the Borrower's current account; all overdrafts in the
Borrower's current account shall bear interest, until payment in full,
at the U.S. Base Rate of the Bank plus 0,50%;
- the acceptance by the Bank of any request for the purchase or sale of
foreign currencies is subject to the availability of such funds on the
foreign exchange market and approval of each request is at the Bank's
discretion.
2.3 TERM
The right to the present currency conversion risk option may be reviewed
from time to time by the Bank and may be revoked at any time.
3. SECURITY
3.1 EXISTING SECURITY
The repayment of the advances made hereunder, as well as the payment of
the interest, fees and all other amounts payable under these presents and
the performance of all the borrower's obligations towards the Bank are
presently and shall always be secured by the following security:
<PAGE>
Page 4
3.1.1 a first ranking security under Section 427 of the BANK ACT;
3.1.2 an irrevocable letter of credit in the amount of $1,100,000, in
American dollars, issued by the Sun Bank, National Association and
expiring on March 31, 1997;
3.1.3 a first ranking movable hypothec in the amount of $3,000,000 on the
universality of the Borrower's movable property, present and
future, tangible and intangible, including, without limitation, a
first ranking hypothec in the amount of $3,000,000 on the proceeds
of all-risk insurance covering the property given as security and
the designation of the Bank as loss payee;
3.1.4 a cession of rank by Catalina Lighting Inc. in favor of the Bank
regarding the registrations made in the Register of personal and
movable real rights under numbers 94-0082974-0002, 94-0088558-
0001, 94-0082974-0003 and 94-0088558-0002 respectively;
3.1.5 a cession of rank by Montreal Trust Company in favor of the Bank
regarding the registrations made in the Register of personal and
movable real rights under numbers 94-0082974-0001, 94-0088558-
0001 and 94-0088558-0002 respectively.
3.2 ADDITIONAL SECURITY
To secure the repayment of advances made hereunder, the payment of
interest, fees and all other amounts payable thereunder and in the
security documents and the performance of its obligations towards the
Bank, the Borrower undertakes to provide the following additional
security, in accordance with the forms in use at the Bank:
3.2.1 a general movable hypothec in the amount of $4,600,000 on the
universality of the Borrower's movable property, present and
future, tangible and intangible, including, without limitation, a
first ranking hypothec in the amount of $4,600,000 on the proceeds
of all-risk insurance covering the property given as security and
the designation of the Bank as loss payee (in replacement of the
hypothec mentioned at Section 3.1.3);
3.2.2 a cession of rank by Catalina Lighting, Inc. in favour of the
Bank regarding any security held by Catalina Lighting, Inc.
taking rank before any of the Bank's security;
3.2.3 a cession of rank by Montreal Trust Company in favour of the Bank
regarding any security held by Montreal Trust Company taking rank
before any of the Bank's security;
<PAGE>
Page 5
3.2.4 a cession of rank by Anker Construction Ltd. in favour of the
Bank regarding any security held by Anker Construction Ltd. taking
rank before any of the Bank's security;
3.2.5 a postponement of claims by Catalina Lighting Inc. for all amounts
due to it by the Borrower up to an amount of $2,000,000;
4. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower represents and warrants to the Bank that:
4.1 It is a duly constituted and organized company and is in good standing
under the laws governing it, and it has the powers, permits and licences
required to carry on its business and to own, operate and administer its
property.
4.2 There has been no material adverse change in its financial position
since the date of its most recent audited annual financial statements
dated September 30, 1995 which have been provided to the Bank. These
statements represent fairly, at the date they were drawn up, its
financial position. The Borrower does not foresee incurring any
significant liabilities outside of the ordinary course of its business
which have not already been disclosed to the Bank.
4.3 It is not a party to any litigation or legal proceedings which could
have a material effect on its financial position or on its ability to
carry on its business.
4.4 It has good and marketable title to all its property free and clear of
all prior claims, mortgages, hypothecs, pledges, liens or other similar
encumbrances except for the Permitted Encumbrances hereunder.
4.5 The Borrower's audited annual financial statements dated September 30,
1995 provided to the Bank are accurate and complete and have been
prepared in accordance with generally accepted accounting principles.
4.6 It is not in default under the agreements to which it is a party nor
under the legislation and regulations applicable to the conduct of its
business including, without limitation, any environmental requirements,
except for such default, as applicable, which would not have a material
effect on its financial position or its ability to carry on its
business.
4.7 All taxes, assessments, deductions at source, income tax or annuities
for whch the payment thereof is guaranteed by prior claim and/or legal
hypothec have been paid by the Borrower without subrogation or
consolidation.
<PAGE>
Page 6
5. CONDITIONS PRECEDENT TO ANY RENEWAL OR DISBURSEMENT
Prior to the renewal or disbursements of the credits described therein, the
Borrower, shall provide, execute or perform the following to the
satisfaction of the Bank and its legal advisers:
5.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties contained in the Section entitled
"Representations and Warranties of the Borrower" hereof shall continue to
be true and exact and shall survive the execution of this or any
subsequent agreements; no event of default shall have occurred and no
other event shall exist that is likely to materially adversely affect the
financial position of the Borrower.
5.2 DOCUMENTS REQUIRED
The following documents shall be furnished to the Bank in form and
substance satisfactory to it:
- a duly certified copy of the documents of incorporation of the Borrower
and Catalina Lighting, Inc., the original, of recent date, of the
Borrower's "certificats de regularite" and certificate of registration
under the ACT RESPECTING THE LEGAL PUBLICATION OF SOLE PROPRIETORSHIPS,
PARTNERSHIPS AND LEGAL PERSONS;
- a duly certified copy of the borrowing by-law and the resolution of the
Board of Directors of the Borrower relating to the Borrower's
authority to execute these presents, to perform its obligations
hereunder and to deliver the security required herein;
- a duly certified copy of the resolution of the Board of Directors of
Catalina Lighting, Inc. relating to its authority to execute and to
deliver the subordination agreement and the cessions of rank required
herein;
- a certificate setting forth the functions and signatures of the
individuals authorized to represent the Borrower and Catalina Lighting,
Inc. in their dealings with the Bank;
- the security documents and the cessions of rank contemplated in
Section 3.2 herein duly executed and duly registered or filed in all
places in Canada or elsewhere where such registration or filing is
necessary and duly signified or served when such signification
or service is required under the terms thereof;
<PAGE>
Page 7
- payment in full of the set-up fees charged by the Bank.
5.3 MATERIAL CHANGE
The financings described herein shall be renewed or disbursed after the
aforementioned general and specific provisions have been met to the
Bank's satisfaction. If a material change deemed unfavourable by the Bank
occurs in the nature of the risk inherent in the financings, the Bank
reserves the right to cancel the said financings at its sole discretion
and to demand repayment of any sum already advanced in respect thereof.
6. OBLIGATIONS OF THE BORROWER
6.1 POSITIVE COVENANTS
Until payment in full of any amounts due under the terms of this Offer,
the Borrower shall:
6.1.1 use the proceeds of the financings for the purpose provided for
herein;
6.1.2 carry on its business in a diligent and continuous manner;
6.1.3 keep and maintain books of account and other accounting records in
accordance with generally accepted accounting principles and shall
furnish to the Bank its audited annual financial statements, within
120 days of the end of its fiscal year, as well as its unaudited
financial statements, on a monthly basis, within 30 days of the
end of each month;
6.1.4 maintain, at all times, a Shareholders' Equity of at least
$2,500,000, as determined in accordance with Section 8.1;
6.1.5 maintain, at all times, a Working Capital Ratio greater than or
equal to 1.0:1.0;
6.1.6 at all times, give the Bank's representatives the right to inspect
its establishments and provide access thereto, and further permit
the Bank's representatives to examine its books of account and
other records, and take extracts therefrom and/or copies thereof;
6.1.7 maintain, at all times, insurance coverage on its property
against loss or damage caused by fire and any other risk as is
customarily maintained by companies carrying on a similar
business;
<PAGE>
Page 8
6.1.8 obtain and maintain in effect the permits and licenses required
to carry on its business;
6.1.9 notify the Bank, without delay, or any event of default or any
event which, following notice or the expiry of a delay, could
constitute an event of default;
6.1.10 punctually pay all taxes, assessments, deductions at source,
income tax or annuities for which the payment thereof is
guaranteed by prior claim and/or legal hypothec, without
subrogation or consolidation except as otherwise provided in the
security documents granted from time to time pursuant to this
offer;
6.1.11 conduct all or the greater part of its business with the Bank.
6.2 NEGATIVE COVENANTS
The Borrower undertakes not to carry out the following transactions or
operations without obtaining the prior written consent from the Bank:
6.2.1 substantially change the nature of its operations or business;
6.2.2 change the control of the Borrower, which is currently held by
Catalina Lighting, Inc. (100%);
6.2.3 merge with another company; dissolve or wind up the company;
6.2.4 create or permit the existence of security on present and/or
future property, except for Permitted Encumbrances;
6.2.5 declare or pay dividends on its shares, purchase or redeem its
shares or otherwise reduce its capital except as permitted in
accordance with the prior payment of claims referred to in
paragraph 3.2.5;
6.2.6 make any capital expenditures or investments outside of the
ordinary course of its business;
6.2.7 grant loans to its officers, directors or shareholders other than
in the ordinary course of business and those already declared
in its financial statements provided to the Bank;
6.2.8 grant a loan or an investment or provide financial assistance to
a third party by way of a guarantee or otherwise other than
those already declared in its financial statements provided
to the Bank.
<PAGE>
Page 9
7. DEFAULT
7.1 EVENTS OF DEFAULT
The occurrence of one or more of the following events, shall constitute
a default under this Offer:
7.1.1 if the Borrower fails to make a payment, on demand, of principal
under the terms hereof;
7.1.2 if the Borrower fails to make a payment, interest, fees or any
other amount which may become due hereunder or under any of the
security documents provided for herein;
7.1.3 if the Borrower fails to perform or otherwise breaches any
obligation hereunder or pursuant to any of the security
documents provided for herein;
7.1.4 if the Borrower becomes subject to the provisions of the
BANKRUPTCY and INSOLVENCY ACT (CANADA) or of any other bankruptcy,
insolvency or winding up legislation;
7.1.5 if proceedings are instituted for the Borrower's dissolution,
winding-up or suspension of its operations, unless such proceedings
are contested diligently and in good faith by the Borrower and do
not impair the continued operation of its business;
7.1.6 if a creditor takes possession of the Borrower's property or a
major portion thereof or if such property is subject to a
hypothecary recourse or to receivership or is sized, except if such
seizure is contested diligently and in good faith by the Borrower;
in the event of such contestation, the Bank reserves its right to
require that the Borrower furnish it with an additional guarantee,
in form and substance and for an amount acceptable to the Bank,
to protect the security granted to the Bank hereunder;
7.1.7 if any representation or warranty made by the Borrower herein or
in any document or certificate furnished to the Bank in connection
herewith proves to be materially incorrect or erroneous.
7.1.8 if the Borrower is in default under any other contracts,
agreements or writings with the Bank or any other financial
institution.
<PAGE>
Page 10
7.2 REMEDIES BY THE BANK IN THE EVENT OF DEFAULT
Without limiting the Bank's right to require payment on demand of any
amount due hereunder by the Borrower, in the event of default, the
principal, interest and any other amounts owing to the Bank hereunder
shall become due and payable and the financings and rights under this
Offer shall cease and be cancelled as of that moment and the Bank shall
no longer have any obligation to advance any further amounts hereunder,
the whole without further notice. The rights and recourses of the Bank
shall then become enforceable hereunder and under the security documents.
7.3 APPLICATION OF PAYMENTS
The Bank shall be entitled to apply any payment received to reduce any
part of the Borrower's indebtedness as it shall deem appropriate.
7.4 RELATIONS BETWEEN THE BANK AND THE BORROWER
The Bank may grant delays, accept or waive security, accept arrangements,
grant releases and discharges and transact with the Borrower as it shall
deem acceptable without in any way limiting the responsibility of the
Borrower or infringing on the rights of the Bank under the security
provided for hereunder.
The omission on the part of the Bank to notify the Borrower of any event
of default hereunder or to avail itself of any of its rights hereunder
shall not be construed as a waiver of such event of default or right.
The acceptance by the Bank following any default by the Borrower of any
sum owing to it or the exercise by it of any right or recourse shall not
preclude it from exercising any other right or recourse, which it may
have, whether pursuant to any agreement or otherwise provided by law.
8. MISCELLANEOUS PROVISIONS
8.1 DEFINITIONS
For the purposes hereof, the following words and phrases shall have the
following meaning:
"AMERICAN DOLLARS" "U.S. DOLLARS" "US$": means lawful money of the
United States of America.
<PAGE>
Page 11
"BUSINESS DAY": means any day, other than a Saturday, Sunday or
statutory holiday, on which the offices of the Bank are open in the
Province of Quebec.
"CANADIAN DOLLARS" "CDN$": means lawful money of Canada.
"CANADIAN PRIME RATE": means the annual variable rate of interest
announced from time to time by the Bank and used to determine the
interest rates on Canadian dollar commercial loans granted by the Bank in
Canada.
"DEBT", "INDEBTEDNESS" OR "TOTAL INDEBTEDNESS": means the aggregate
amount of principal, interest and accessories due by the Borrower
hereunder.
"FLOATING RATE": means the interest rate applicable to floating rate
advances made hereunder in Canadian Dollars or American Dollars, as
applicable.
"PERMITTED ENCUMBRANCES": refers collectively to charges created by the
security documents granted from time to time by virtue of these presents
and any other charge which constitutes a "Permitted Encumbrance", as may
be defined in the said documents.
"SHAREHOLDERS' EQUITY": means the aggregate of the paid-up capital,
retained earnings of the Borrower and Subordinated Debt, less intangible
assets and the advances made by the Borrower to its shareholders or
subsidiaries or to any affiliated society or company within the meaning
of the CANADA BUSINESS CORPORATION ACT.
"SUBORDINATED DEBT": means any debt of the Borrower towards a shareholder
and/or an affiliated company of the Borrower within the meaning of the
CANADA BUSINESS CORPORATION ACT, which is entirely subordinated to the
amounts due or which could become due to the Bank hereunder.
"U.S. BASE RATE": means the annual variable rate of interest announced
from time to time by the Bank and used to determine the interest rates on
U.S. dollar commercial loans granted by the Bank in Canada.
"WORKING CAPITAL RATIO": means the ratio between total current assets and
total short-term liabilities.
8.2 ACCOUNTING TERMS
Unless another definition is provided hereunder, each accounting term
used in this Offer shall have the meaning ascribed to it in accordance
with accounting principles generally accepted by the Canadian Institute
of Chartered Accountants or by the American Institute of Certified Public
Accountants.
<PAGE>
Page 12
8.3 CONVERSION TO U.S. DOLLARS OR CANADIAN DOLLARS
Each time an amount in Canadian dollars must be converted or expressed in
U.S, dollars, or the equivalent in U.S. dollars (or inversely) must be
determined, such calculation shall be made, on the appropriate date, in
accordance with the cash purchase rate of the Bank at about 10:30 a.m.
8.4 CURRENCY AND PLACE OF PAYMENT
All amounts due by the Borrower under this Offer shall be paid by the
Borrower to the Bank in Canadian dollars in the case of a financing
granted in Canadian dollars, or in U.S. dollars in the case of a
financing granted in U.S. dollars.
Should the amount of principal of the indebtedness owing to the bank
exceed the credit limit efectively granted hereunder, the Borrower shall
reimburse the Bank, on demand, an amount equal to such excess amount.
8.5 CALCULATION OF INTEREST AND ARREARS
8.5.1 Unless otherwise provided for herein, interest on any amount due
hereunder shall be calculated daily and not in advance on the
basis of a 365-day year.
8.5.2 For the purposes of the Interest Act (Canada) in the case of a
leap year, the annual interest rate corresponding to the interest
calculated on the basis of a 365-day year is equal to the interest
rate thus calculated multiplied by 366 and divided by 365.
8.5.3 any amount of principal, interest, commission, discount or of any
other nature remaining unpaid at maturity, shall bear interest
at the rate provided for herein.
8.5.4 Interest on arrears shall be compounded monthly and payable on
demand.
8.6 RECORDS
The Bank shall keep records evidencing the transactions effected under
this financing. such records shall be resumed to reflect these
transactions and the amounts due to the Bank.
<PAGE>
Page 13
8.7 LEGAL COUNSEL
The Bank reserves its right to choose its legal counsel for the purposes
hereof.
The legal fees and expenses relating to the registration of the deeds and
documents required in connection herewith shall be at the Borrower's
expense, whether the financing contemplated herein is completed or not,
provided, however, the maximum legal fee shall be one thousand dollars.
8.8 NON-BUSINESS DAYS
Should any payment of capital or interest hereunder become due on a day
which is not a Business Day, the due date thereof shall be extended to
the immediately following Business Day.
8.9 INVALIDITY OF ANY PROVISIONS HEREUNDER
Any decision of a court to the effect that any of the provisions
hereunder are null and void or non-executory shall in no way affect,
invalidate or render unenforceable the other provisions hereunder.
8.10 FINAL AGREEMENT AND INTERPRETATION
As soon as this Offer has been signed by the Borrower, it shall
constitute the final agreement between the parties hereto and replaces
and supersedes any prior offers, agreements or discussions between the
parties.
Notwithstanding the foregoing, this Offer does not create novation and
does not constitute any derogation to the rights, privileges and remedies
of the Bank under the terms of any agreements, promissory notes and/or
any instruments or contracts creating the security contemplated herein
and executed by the Borrower prior to the date of this Offer. The
Borrower represents and warrants that the rights, privileges and remedies
of the Bank under these agreements, promissory notes and security
documents have not been modified and cover the Borrower's obligations
comtemplated herein.
8.11 MODIFICATIONS
Any modifications hereto or waiver of a right thereunder is without
effect if it is not expressly made and evidenced in a written document
executed between the parties hereto.
<PAGE>
Page 14
8.12 OTHER DOCUMENTS
The Borrower shall do all things and sign all documents which may be
deemed necessary or appropriate by the Bank for the purposes of giving
full effect to the terms, conditions, undertakings and security provided
herein.
8.13 ADDITIONAL CHARGES
The Borrower undertakes to pay the Bank for the following charges, as
determined by the Bank:
8.13.1 in the event that the cost for the Bank of the credit were to
increase as a result of a law, regulation or administrative
guideline or decision (including, without limitation, as a result
of the application of reserves, taxes or requirements regarding
the capital adequacy of the Bank), the Borrower shall pay such
additional cost on demand; and
8.13.2 the Borrower shall pay all taxes and additional fees that could
result from the application of the Goods and Services Tax (Canada)
and of any applicable provincial taxes of a similar nature.
8.14 ASSIGNMENT
All rights and obligations of the Borrower hereunder and all proceeds of
the financings may not be transferred or assigned by the Borrower, any
such transfer or assignment being null and void insofar as the Bank is
concerned and rendering any balance then outstanding of the financings
immediately due and exigible at the option of the Bank and relieving the
Bank from the obligation of making any further advances hereunder.
8.15 COUNTERPARTS
This Offer may be executed in any number of counterparts, and each of
which so executed shall be deemed to be original, and all such
counterparts taken together shall be deemed to constitute one and the
same instrument.
9. REVIEW
Notwithstanding any provisions to the contrary, the terms and conditions
provided for herein are subject by the Bank on January 31, 1997, based
upon the Borrower's annual audited financial statements which it shall
furnish the Bank, in accordance with Section 6.1.3. of the present Offer.
<PAGE>
Page 15
10. FEES
Non-refundable commitment and set-up fees of $15,000 including, without
limitation, the preparation and the execution of this Offer and the
security documents required herein shall be payable by the Borrower upon
acceptance of this Offer of financing.
11. GOVERNING LAW
This Offer shall be construed and interpreted in accordance with the
laws of the Province of Quebec.
12. LANGUAGE (QUEBEC)
The parties declare that they have requested and do hereby confirm their
request that the present Offer and the ancillary documents related
thereto be in English; les parties declarent qu'elles ont exige et par la
presente confirment leur demande que la presente offre ainsi que les
documents connexes soient rediges en anglais.
<PAGE>
SCHEDULE B
TERMS AND CONDITIONS OF BANKING SERVICES
1. ACCOUNTS NUMBER COVERED BY THIS AGREEMENT
U.S. $ account number: 772-60
Can $ accounts number: 518-21,602-27
2. SERVICES INCLUDED
2.1 certified cheques;
2.2 items, bank notes and coin deposited;
2.3 stop payments;
2.4 commercial inter-access deposits;
2.5 cheques items returned unpaid;
2.6 current account management fees;
2.7 transactions Dt/Ct (CAN & US).
3. INTEREST PAYMENT ON THE COVERED ACCOUNTS
Can $ account: Canadian Prime Rate less 3.50%
U.S. $ Account: U.S. Base Rate less 3.50%
4. SERVICE CHARGES
Fixed monthly charges of $145 plus $50 for each wire transfers.
EXHIBIT 10.138
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
[LETTERHEAD]
Ref: Corporate Banking Centre
CONFIDENTIAL
The Directors
Go-Gro Industries Ltd
6/F Kenning Ind Bldg
19 Wang Hoi Road
Kowloon Bay Kowloon
30 October 1996
ATTN: MR CLARENCE NQ
Dear Sir
LEASE FINANCE FACILITY
(A/C No. 030-322689)
With reference to our recent discussion, we are pleased to offer you the
following lease finance facility for the below-mentioned Goods.
HIBOR LEASING LINE HKD9,000,000.-
1) Lessee Go-Gro Industries Ltd
2) Details of Goods Machinery (subject to the Lease
Agreements)
3) Location of Goods China
4) Cost of Goods HKD9,000,000.- to be amortised
by rental payments over the
Primary Period.
5) Lease Period - Primary Period 60 months
6) Initial Rental NIL
7) Rental - Primary Period up to approximately
HKD179,275.- per month if
the leasing line is fully
drawn (adjusted according
to individual drawdown)
including interest at 2.5%
over 1 month HIBOR (Hong
Kong Interbank Money Market
Offer Rate), currently
5.3125% per annum, and
payable monthly in arrears
to the debit of your
Current Account
030-322689-001 with us. The
Lease Agreement provides
for the adjustment of
rental in certain
instances, including an
alteration in the Cost of
the Goods and a change in
HIBOR.
Page 1 of 3
<PAGE>
Go-Gro Industries Ltd -2- 30 October 1996
- --------------------------------------------------------------------------------
8) Arrangement Fee HKD45,000.- (to be collected
upon acceptance of this
facility letter)
9) Condition Precedent The Lease will come into effect
upon receipt by us of:-
a) a HIBOR Lease Agreement
as referred to below duly
executed on behalf of the
Lessee; and
b) the documents and
evidence referred to in the
Appendix to this letter, in
form and content
satisfactory to us.
10) Other Conditions
This facility will be made available to you on our standard Terms and Conditions
as set out in the attached HIBOR Lease Agreement.
The terms and conditions of this offer are based on the current laws and
regulations. In the event of any material change in any law or regulation which
takes place between the date of the offer and the drawdown under the relevant
Lease Agreement and which may affect this facility, the Bank reserves the right
to renegotiate the said terms and conditions.
Your acceptance of this offer will confirm your agreement that, if when the
Lease Agreement is signed the exact Hong Kong Dollar Cost of the leased goods is
not known, the bank is authorised to complete the Terms Sheets of the Lease
Agreement in this regard once the Hong Kong Dollar cost is known (by the Bank
converting the Cost of Goods referred to in this letter in foreign currency to a
Hong Kong Dollar amount using an exchange rate determined by the Bank in good
faith) and to calculate the Lease Rentals.
As security for the foregoing facility, we require to hold:-
1) a Corporate Guarantee for HKD9,000,000.- from Catalina Lighting Inc together
with:-
(i) a certified copy of a Board Resolution, signed sealed by the Secretary
or Assistant Secretary of Catalina Lighting Inc authorising a named
person to execute the guarantee.
(ii) a Certificate of Incumbency signed sealed by the Secretary or Assistant
Secretary identifying the individual authorized to issue the guarantee.
(iii) a Counsel Opinion in the form substantially similar to that attached.
Page 2 of 3
<PAGE>
Go-Gro Industries Ltd -3- 30 October 1996
- --------------------------------------------------------------------------------
2) a Letter of Undertaking from the company to maintain a minimum net worth of
HKD50,000,000.- and that no dividends in excess of 40% of recurrent profit
should be paid/declared without our written consent.
If you wish to accept this offer, the authorised signatories of your Company, in
accordance with the terms of the mandate given to the Bank, must sign and return
the attached copy of this letter to us by 29 November 1996. If no acceptance is
received by that date, this offer will be deemed to have lapsed.
We look forward to the development of a mutually beneficial and lasting
relationship.
Yours faithfully
For and on behalf of
GO-GRO INDUSTRIES LIMITED
/s/ Robert Hersh
-----------------------------
AUTHORIZED SIGNATURE
/s/ SAM CY LEUNG
- ------------------------------
Sam C Y Leung
Corporate Relationship Manager
PC/uw
Encl
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
Years Ended September 30,
-----------------------------------
1996 1995 1994
----------- ----------- ----------
Net income $1,603,000 $ 400,000 $5,510,000
Add: Interest on debt assumed to be repaid
(net of income taxes) 59,000 - -
---------- ---------- ----------
Net income for primary earnings per
common share $1,662,000 $ 400,000 $5,510,000
========== ========== ==========
Weighted average number of common
shares outstanding during the year 7,016,500 6,960,933 6,129,257
Add: Common equivalent shares determined
using the "Modified Treasury Stock" method
representing shares issuable upon exercise
of stock options and warrants and shares
issuable under contractual agreements 781,000 839,536 1,188,084
---------- ---------- ----------
Weighted average number of shares used in
calculation of primary earnings per share 7,797,500 7,800,469 7,317,341
========== ========== ==========
Primary earnings per common share $ 0.21 $ 0.05 $ 0.75
========== ========== ==========
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
(CONTINUED)
SCHEDULE OF COMPUTATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
Years Ended September 30,
-----------------------------------
1996 1995 1994
----------- ----------- ----------
Net income $1,603,000 $ 400,000 $5,510,000
Add: Interest on convertible subordinated
notes (net of income taxes) - - 434,000
Interest on debt assumed to be repaid
(net of income taxes) 49,000 - -
Net income for primary earnings per ---------- ---------- ----------
common share $1,652,000 $ 400,000 $5,944,000
========== ========== ==========
Weighted average number of common
shares outstanding during the year 7,016,500 6,960,933 6,129,257
Add: Common equivalent shares determined
using the "Modified Treasury Stock"
method representing shares
issuable upon exercise of stock
options and warrants and shares
issuable under contractual agreements 788,000 839,536 1,277,320
Shares issuable upon conversion of
convertible subordinated notes - - 643,523
---------- ---------- ----------
Weighted average number of shares used in
calculation of fully diluted earnings
per share 7,804,500 7,800,469 8,050,100
========== ========== ==========
Fully diluted earnings per common share $ 0.21 $ 0.05 $ 0.74
========== ========== ==========
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT*
Catalina Industries, Inc.(formerly Dana Lighting, Inc.), a Florida corporation
Catalina Real Estate Trust, Inc., a Florida corporation
Catalina Merchandising, Inc., a Florida corporation
Catalina Realty Trust, a Hong Kong Trust
Catalina Realty Hong Kong Limited, a Hong Kong company
Catalina Industrial, Ltd., a Hong Kong company
Catalina Lighting Canada (1992), Inc., a Quebec corporation
Trade World Industrial, Ltd., a Hong Kong company
Angel Station, Inc., a Florida corporation
Go-Gro Industries Limited, a Hong Kong company
Lamp Depot Limited, a Hong Kong company
Meridian Lamps, Inc., a Florida corporation
Meridian Lamps Development, Inc., a Florida corporation
Catalina Asia, a Hong Kong partnership
Audiopro Ltd., a Hong Kong company
Catalina Lighting Mexico, S.A. de C.V., a Mexican corporation
Golda Metal Industries Limited, a Hong Kong company
Shenzhen Jiadianbao Electrical Products Company, Limited ("SJE"), a cooperative
joint venture organized under
the laws of the People's Republic of China
* All subsidiaries, except for Golda Metal Industries which is 50% owned and the
SJE joint venture which is 100% owned as to production and 70% owned as to real
estate, are wholly-owned by the registrant.
INDEPENDENT AUDITORS' CONSENT
Catalina Lighting, Inc.
We consent to the incorporation by reference in Registration Statement Nos.
33-23900, 33-33292 and 33-62378 of Catalina Lighting, Inc. on Form S-8 of our
report dated December 12, 1996 appearing in this Annual Report on Form 10-K of
Catalina Lighting, Inc. for the year ended September 30, 1996.
/s/ Deloitte & Touche LLP
Miami, Florida
December 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information
extracted from 10-K and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,766
<SECURITIES> 0
<RECEIVABLES> 29,644
<ALLOWANCES> 7,313
<INVENTORY> 39,648
<CURRENT-ASSETS> 76,067
<PP&E> 26,003
<DEPRECIATION> 7,099
<TOTAL-ASSETS> 117,462
<CURRENT-LIABILITIES> 36,106
<BONDS> 11,927
0
0
<COMMON> 71
<OTHER-SE> 43,903
<TOTAL-LIABILITY-AND-EQUITY> 117,462
<SALES> 184,630
<TOTAL-REVENUES> 184,630
<CGS> 153,698
<TOTAL-COSTS> 153,698
<OTHER-EXPENSES> 25,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,254
<INCOME-PRETAX> 2,452
<INCOME-TAX> 849
<INCOME-CONTINUING> 1,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,603
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
