SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended DECEMBER 31, 1996
-----------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________________ to _____________________
Commission file number 1-9917
CATALINA LIGHTING, INC.
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(Exact name of registrant as specified in its chapter)
FLORIDA
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(State or other jurisdiction of incorporation or organization)
59-1548266
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(I.R.S. Employer Identification Number)
18191 NW 68TH AVENUE, MIAMI, FLORIDA 33015
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(Address of principal executive offices) (Zip Code)
(305) 558-4777
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Registrant's telephone number, including area code
Former name, former address and former fiscal
year, if changed since last report.
Indicate by check / whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO__
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date. OUTSTANDING ON FEBRUARY 4, 1997: 7,064,587 SHARES.
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
Condensed consolidated balance sheets -
December 31, 1996 and September 30, 1996................. 3-4
Condensed consolidated statements of operations -
Three months ended December 31, 1996 and 1995............ 5
Condensed consolidated statements of cash flows -
Three months ended December 31, 1996 and 1995............ 6-7
Notes to condensed consolidated financial statements....... 8-10
Management's discussion and analysis of financial
condition and results of operations...................... 11-17
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings.................................. 18
ITEM 4 Submission of Matters to a Vote of Security Holders 18
ITEM 6 Exhibits and Reports on Form 8-K................... 18
2
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
ASSETS 1996 1996
- ------ ------------ -------------
(UNAUDITED) *
Current assets
Cash and cash equivalents $ 1,065 $ 1,766
Restricted cash equivalents and short-term
investments 607 378
Accounts receivable, net of
allowances of $8,089 and $7,313, respectively 26,726 29,644
Inventories 39,994 39,648
Other current assets 4,945 5,009
---------- ----------
Total current assets 73,337 76,445
Property and equipment, net 27,890 26,003
Goodwill, net 11,236 11,344
Other assets 3,624 3,670
---------- ----------
$ 116,087 $ 117,462
========== ==========
(continued on page 4)
3
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
- ------------------------------------ ------------ -------------
(UNAUDITED) *
Current liabilities
Notes payable - credit lines $ 4,455 $ 3,963
Accounts and letters of credit payable 22,108 25,289
Current maturities of bonds payable 970 970
Other current liabilities 6,250 5,884
----------- ----------
Total current liabilities 33,783 36,106
Notes payable - credit lines 17,627 17,044
Convertible subordinated notes 7,600 7,600
Bonds payable 10,095 10,165
Other liabilities 2,983 2,573
----------- ----------
Total liabilities 72,088 73,488
----------- ----------
Commitments and contingencies
Stockholders' equity
Common stock 71 71
Additional paid-in capital 26,138 26,135
Retained earnings 17,790 17,768
----------- ----------
Total stockholders' equity 43,999 43,974
----------- ----------
$ 116,087 $ 117,462
=========== ==========
*Condensed from audited financial statements
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
Net sales $ 45,095 $ 50,180
Cost of sales 37,138 41,991
---------- ----------
Gross profit 7,957 8,189
Selling, general and administrative
expenses 7,083 6,563
---------- ----------
Operating income 874 1,626
---------- ----------
Other income (expenses)
Interest expense (843) (796)
Other income (expenses) (2) 150
---------- ----------
Total other income (expenses) (845) (646)
---------- ----------
Income before income taxes 29 980
Income tax provision 7 392
---------- ----------
Net income $ 22 $ 588
========== ==========
Weighted average number of
shares outstanding
Primary 7,808 7,756
Fully diluted 7,808 7,756
Earnings per share
Primary $ 0.01 $ 0.08
Fully diluted $ 0.01 $ 0.08
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
1996 1995
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 22 $ 588
Adjustments for non-cash items 2,101 2,402
Change in assets and liabilities (1,153) 4,794
---------- ---------
Net cash provided by (used in) operating activities 970 7,784
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (2,257) (3,216)
Payments for acquisitions (15) (40)
Decrease (increase) in restricted cash equivalents and
short-term investments - 2,771
---------- ---------
Net cash provided by (used in) investing activities (2,272) (485)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 3 -
Payments on other liabilities (182) (115)
Proceeds from issuance of bonds - 70
Payments on bonds (70) -
Proceeds from notes payable - credit lines 6,800 8,277
Payments on notes payable - credit lines (5,311) (12,600)
Net proceeds from (payments on) notes payable - credit lines
due on demand (414) (1,048)
Sinking fund redemption payments on bonds (225) (225)
---------- ---------
Net cash provided by (used in) financing activities 601 (5,641)
---------- ---------
Net increase (decrease) in cash and cash equivalents (701) 1,658
Cash and cash equivalents at beginning of period 1,766 807
---------- ---------
Cash and cash equivalents at end of period $ 1,065 $ 2,465
========== =========
</TABLE>
(continued on page 7)
6
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
1996 1995
------------ -----------
(IN THOUSANDS)
Cash paid for:
Interest $ 761 $ 753
Income taxes $ 229 $ 455
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the three months ended December 31, 1996, total capital lease
obligations incurred for new office, machinery and warehouse equipment
aggregated $607,000.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the accounting policies described in the Company's
annual report for the fiscal year ended September 30, 1996 and should be read in
conjunction with the consolidated financial statements and notes which appear in
that report. These statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments, which consist mostly of normal,
recurring accruals, considered necessary for a fair presentation have been
included. The results of operations for the three months ended December 31, 1996
may not necessarily be indicative of operating results to be expected for the
full fiscal year due, in part, to seasonal fluctuations in the Company's
business and changes in economic conditions.
Certain amounts previously presented in the financial statements of prior
periods have been reclassified to conform to the current period's presentation.
2. INVENTORIES
Inventories consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -----------
(IN THOUSANDS)
Raw materials $ 4,896 $ 5,075
Work-in-progress 1,351 1,342
Finished goods 33,747 33,231
----------- ----------
Total Inventories $ 39,994 $ 39,648
=========== ==========
8
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. PROPERTY AND EQUIPMENT, NET
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a cooperative joint
venture subsidiary of the Company's wholly-owned subsidiary Go-Gro Industries
Ltd. ("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.
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.
4. CONTINGENCIES
On June 4, 1991, the Company was served with a copy of the Complaint in the
matter of Browder vs. Catalina Lighting, Inc., Robert Hersh, Dean S. Rappaport
and Henry Gayer, Case No. 91-23683, in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida. The plaintiff in the action, the former
President and Chief Executive Officer of the Company, contends that his
employment was wrongfully terminated and as such brought action for breach of
contract, defamation, slander, libel and intentional interference with business
and contractual relationships. On June 11, 1992, the Court dismissed the
Complaint and on June 17, 1992, the plaintiff filed an amended Complaint
including claims for damages in excess of $5 million against the Company and
declaratory relief as well as claims for damages in excess of $3 million against
the named directors. On November 24, 1992, the Company filed a Counterclaim in
the action. The Counterclaim alleges damages for in excess of $1 million arising
out of actions which the Company alleges constituted violation of federal and
state securities laws, breach of fiduciary duty, breach of contract, breach of
constructive trust, conversion, civil theft, negligence, fraudulent inducement,
fraud and extortion. On December 21, 1992, Mr. Browder filed his Answer denying
the allegations of the Counterclaim. On March 1, 1993, Mr. Browder voluntarily
dismissed Count II of his Complaint which sought a Declaratory Judgment. In
June, 1995, the Court granted the Company's Motion for Summary Judgment on the
plaintiff's claims of libel, on January 31, 1997, the Court granted summary
judgment on count VIII for indemnification and on February 3, 1997, the
plaintiff voluntarily dismissed counts 3, 4 and 6 concerning defamation against
both the Company and certain directors. The case is presently in trial and
plaintiff is now seeking damages for breach of contract for approximately $4
million.
9
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONTINGENCIES (CONTINUED)
The Company's legal counsel has opined that, based on their understanding of
the facts, the legal elements necessary to justify a termination of John
Browder's employment for "Cause" existed at the time his employment was
terminated. Thus, the Company believes that the possibility is remote that any
amounts claimed to be due by Mr. Browder will be paid by the Company.
Accordingly, no provisions for any amounts which Mr. Browder claims are owed
under his employment agreement nor any liability that may result from this
litigation have been recorded in the accompanying condensed consolidated
financial statements.
On February 23, 1993, Dana Lighting (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. Management 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. The Company intends to defend this case vigorously. The
Company believes that the possibility is remote that any significant damages
will be paid by the Company in connection with this litigation. Accordingly, no
provision for any liability that may result from this litigation has been
recorded in the accompanying condensed consolidated financial statements.
On August 8, 1996, the Company was served with a copy of the Complaint in the
matter of Black & Decker (U.S.), Inc. vs. Catalina Lighting, Inc., Case No.
96-1042-A, 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. In January 1997, a subsidiary of the Company was served
with a complaint on the same matter in Hong Kong. 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 condensed 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.
10
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In the following comparison of the results of operations, the three
months ended December 31, 1996 and 1995 are referred to as 1996 and 1995,
respectively.
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Net sales and gross profit for 1996 were $45.1 million and $8 million,
respectively, as compared to $50.2 million and $8.2 million, respectively, for
1995. The Company generated net income of $22,000 ($.01 per share) in 1996
compared to $588,000 ($.08 per share) in 1995.
In 1996 and 1995, Home Depot accounted for 13.8% and 8.4%,
respectively, of the Company's net sales. In addition, in 1995 Price Costco
accounted for 10.2% of net sales and Kmart and its affiliate accounted for 12.9%
of net sales.
DISTRIBUTION OPERATIONS
Distribution operations generated a pretax loss of $1.1 million in 1996
as compared to pretax income of $1.5 million in 1995.
Net sales from distribution operations aggregated $32.8 million in
1996, a $10.1 million decrease from the prior year. Functional lighting/lamp
sales decreased by $3.3 million while net sales for the Company's other
principal line of products, lighting fixtures, decreased by $6.8 million. The
decline in distribution sales is attributable to (i) a weakened sales base
arising from the continuing financial difficulties experienced by several
customers; (ii) a decline in sales to Kmart of $1.6 million (consisting
principally of lighting fixtures),which is transitioning its lighting business
to lamps and is ceasing the sale of lighting fixtures and (iii) reduced sales of
$2.6 million to warehouse clubs which purchased several new items in 1995 and
whose business with the Company can fluctuate from period to period as they
typically purchase on an item, not program, basis. Functional lighting/lamps and
lighting fixtures accounted for 68% and 32%, respectively, of distribution sales
in both 1996 and 1995.
Gross profit from distribution operations decreased to $4.8 million in
1996 from $6.9 million in 1995. The $2.1 million decrease in gross profit is
primarily attributable to lost contributions resulting from lower sales. As a
percentage of net sales, gross profit from distribution operations was 14.6% and
16.1% for 1996 and 1995, respectively. The 1.5 point decrease in the gross
profit percentage is due to (1) the decline in sales, which increased the impact
on the gross profit percentage of purchasing and warehousing costs as most of
such costs are fixed and (2) lower margins earned on sales shipped from the
Orient directly to customers reflecting a less profitable product mix and
increases in the price charged for certain products purchased from the Company's
manufacturing subsidiary, Go-Gro. The impact from such decreases in the gross
profit percentage was partially offset by lower provisions for sales incentives
as a percentage of net sales, stemming from favorable incentive experience.
Selling, general and administrative expenses ("SG&A") for distribution
operations amounted to $5.3 million in 1996 and $4.8 million in 1995. The
$500,000 increase reflects approximately $900,000 in legal fees associated with
the Company's aggressive defense of a lawsuit filed by Black & Decker, the
impact of which
11
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION (CONTINUED)
was partially offset by lower merchandising and customer display costs
($220,000) and lower depreciation expense ($168,000) principally attributable to
the accelerated depreciation of the Company's computer system during the prior
year in connection with the purchase of a new system during fiscal 1997.
Interest expense on distribution-related financing decreased to
$555,000 in 1996 from $572,000 in 1995 due to a lower weighted average cost of
funds.
MANUFACTURING OPERATIONS
Excluding certain administrative costs incurred at the corporate
headquarters, in 1996 the Company's manufacturing operations recorded pretax
income of $1.1 million. This compares to a pretax loss of $569,000 in 1995. An
analysis of the Company's two manufacturing subsidiaries is as follows:
GO-GRO
On a pretax basis, Go-Gro Industries Limited ("Go-Gro") generated $1.7
million in pretax income in 1996 while reporting a pretax loss of $6,000 in
1995. Sales by Go-Gro to non-related companies, the majority of which were made
in the European market, increased by approximately $4.8 million, or 71%, in 1996
to $11.5 million. Intercompany sales by Go-Gro to the Company's subsidiaries
(which are eliminated for financial statement purposes and the profit on such
sales deferred until the goods are sold to third parties) were $11 million in
1996 and $5.2 million in 1995 for total sales of $22.5 million and $12 million
in 1996 and 1995, respectively. Gross profit increased in total dollars in 1996
by $1.9 million to $3.5 million as a result of the increase in total shipments
and a price increase for certain products sold to other Company subsidiaries.
SG&A expenses remained stable at $1.6 million. Interest expense
increased in 1996 by $35,000 due to higher outstanding borrowings needed to
finance increased production. Other income decreased by $167,000 due to the sale
in 1995 of certain intangible assets.
MERIDIAN
The pretax loss for Meridian Lamps, Inc. was $571,000 for 1996 and
$563,000 for 1995. Net sales increased to $696,000 in 1996 from $499,000 in 1995
resulting from an increase in unit sales.
Cost of sales in 1996 was $1,052,000 and exceeded sales by $356,000.
The following factors negatively affected gross profit during 1996:
(i) a sales volume insufficient to avoid significant under
utilization of plant capacity resulting in manufacturing
variances;
(ii) provisions for inventory, discontinued products and sales
discounts; and
(iii) costs required to develop new products.
12
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
MERIDIAN (CONTINUED)
Cost of sales exceeded sales by $347,000 in 1995 mainly due to
unplanned manufacturing variances arising principally from underutilization of
plant capacity, a provision for inventory, research and development costs,
additional storage expenses, and the amortization of start up costs.
Other expenses for 1996 and 1995 were $210,000 and $216,000,
respectively, consisting mostly of administrative payroll and benefits,
marketing and merchandising expenses, and interest expense.
INCOME TAX PROVISION
The effective income tax rates for 1996 and 1995 were 25% and 40%,
respectively. The lower effective tax rate for 1996 reflects the impact on
projected pretax income for the fiscal year ended September 30, 1997 of higher
proportionate foreign income, which is taxed at a lower rate than U.S. income.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its short-term liquidity needs through cash provided
by operations, accounts payable, borrowings under various credit facilities with
banks, and the use of letters of credit from customers to fund certain of its
direct sales activities. Lease obligations, mortgage notes, convertible
subordinated notes, bonds and capital stock are additional sources for the
longer-term liquidity and financing needs of the Company. Management believes
the Company's available sources of cash will enable it to fulfill its liquidity
requirements for the next year.
CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
The Company's operating, investing and financing activities resulted in
a net decrease in cash and cash equivalents of $701,000 from September 30, 1996
to December 31, 1996.
Net cash of $974,000 was provided by operating activities. Such cash
was used in conjunction with borrowings from credit lines and the $701,000 net
decrease in cash and cash equivalents to pay for certain capital expenditures.
Capital expenditures during the period aggregated $2.3 million, and
included $1.6 million in costs incurred by Go-Gro for the construction of a
factory and a dormitory and the purchase of machinery, molds and equipment. In
addition, machinery for the Go-Gro factory amounting to $506,000 was acquired
and financed by one of the Company's leasing facilities with a Hong Kong
financial institution.
CREDIT FACILITIES, CONVERTIBLE SUBORDINATED NOTES AND BONDS
The Company has a $65 million credit facility with a group of
commercial banks. This facility provides credit in the form of a $7.6 million
non-revolving loan and $57.4 million in revolving loans, acceptances, and trade
and stand-by letters of credit, matures March 31, 1999 and provides for
quarterly principal payments of $950,000 commencing on June 1, 1997 on the
non-revolving loan. The non-revolving loan bears interest at prime plus 1% and
other borrowings under the facility bear interest, payable monthly, at the
Company's preference of either the prime rate or the LIBOR rate plus a variable
spread based upon
13
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
earnings, debt and interest expense levels defined under the credit agreement.
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 December 31,
1996, the Company had used $31.9 million under its credit facility.
The Company's Canadian and Hong Kong subsidiaries have credit
facilities with foreign banks of $2.9 million and $4.5 million, respectively.
Borrowings under the Canadian facility are secured by substantially all of the
assets of the Canadian subsidiary and are limited under a borrowing base defined
as the aggregate of certain percentages of accounts receivable and inventory.
Advances up to $1.1 million bear interest at the Canadian prime rate (4.75% at
December 31, 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 December 31, 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 December 31, 1996 were $941,000 and $1.7 million,
respectively.
The Company has outstanding $7.6 million of 8% convertible subordinated
notes due on March 15, 2002. The notes are convertible into common shares of the
Company's stock at a conversion price of $7.31 per share, subject to certain
anti-dilution adjustments (as defined in the Note Agreement), at any time prior
to maturity. The notes are subordinated in right of 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 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.
14
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 (5.9% at December 31, 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 6.36% and a contractual maturity
of 15 years. The bonds are secured by a first mortgage on land, building and
improvements and a $1,713,000 standby letter of credit which is not part of the
Company's credit line. Interest on the bonds is payable semiannually and
principal payments are due annually.
The Company has a $1 million leasing facility with a financial
institution to finance the purchase of equipment in the United States, of which
$534,000 was available at December 31, 1996. In addition, the Company has
leasing facilities for $9.8 million Hong Kong dollars (U.S. $1.3 million) with
Hong Kong financial institutions to finance the purchase of machinery and
equipment for its China facilities of which U.S. $687,000 was available at
December 31, 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 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.
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.
15
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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. 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.
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 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 is engaged in an aggressive defense against litigation
initiated by Black & Decker. Legal fees associated with this litigation were
approximately $900,000 during the quarter ended December 31, 1996 and additional
legal fees associated with this litigation are presently estimated at
approximately $1.5 million, barring appeals. The Company anticipates completion
of this litigation by the end of fiscal 1997.
RENEWAL OF CHINA'S MOST FAVORED NATION STATUS
During the fiscal year ended September 30, 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 in the U.S. The continued importation into the U.S. of products
manufactured in China 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
16
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RENEWAL OF CHINA'S MOST FAVORED NATION STATUS - CONTINUED
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.
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
and financial position.
17
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. 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 relationships. On June 11, 1992, the Court dismissed
the Complaint and on June 17, 1992, the plaintiff filed an amended Complaint
including claims for damages in excess of $5 million against the Company and
declaratory relief as well as claims for damages in excess of $3 million against
the named directors. On November 24, 1992, the Company filed a Counterclaim in
the action. The Counterclaim alleges damages for in excess of $1 million arising
out of actions which the Company alleges constituted violation of federal and
state securities laws, breach of fiduciary duty, breach of contract, breach of
constructive trust, conversion, civil theft, negligence, fraudulent inducement,
fraud and extortion. On December 21, 1992, Mr. Browder filed his Answer denying
the allegations of the Counterclaim. On March 1, 1993, Mr. Browder voluntarily
dismissed Count II of his Complaint which sought a Declaratory Judgment. In
June, 1995, the Court granted the Company's Motion for Summary Judgment on the
plaintiff's claims of libel and on January 31, 1997, the Court granted summary
judgment on Count VIII for indemnification and on February 3, 1997, the
plaintiff voluntarily dismissed Counts 3, 4 and 6 against both the Company and
certain directors. The case is presently in trial and plaintiff is now seeking
damages for breach of contract for approximately $4 million.
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. In January 1997, a subsidiary of the Company was
served with a Complaint on the same matter in Hong Kong. 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 cause vigorously. No provision for any
liability that may result from this litigation has been recorded in the
accompanying condensed consolidated financial statements.
The Company is a defendant in legal proceedings arising in the normal
course of business. In the opinion of management, based upon advice of legal
counsel, their ultimate resolution will not have a material adverse effect on
the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.139 Eighth Amendment to third Amended and Restated Credit
Agreement, Third Amendment to Second Amended and
Restated Security Agreement, and Fourth Amendment to
Third Amended and Restated Stock and Notes Pledge
dated October 4, 1996 between Catalina Lighting, Inc.
and SunTrust Bank, Central Florida, National
Association.
11 Schedule of Computation of Earnings per Share
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
/s/ DEAN S. RAPPAPORT
-----------------------------------
Dean S. Rappaport
Executive Vice President, and
Chief Operating Officer
/s/ DAVID W. SASNETT
-----------------------------------
David W. Sasnett
Chief Financial Officer
Date: February 13, 1997
19
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.139 Eight Amendment to third Amended and Restated Credit, Agreement,
third Amendment to Second Amended and Restated Security Agreement,
and Fourth Amendment to third Amended and Restated Stock and Notes
Pledge dated October 4, 1996 between Catalina Lighting, Inc. and
SunTrust Bank, Central Florida, National Association.
11 Schedule of Computation of Earnings per Share
27 Financial Data Schedule
EIGHTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT,
THIRD AMENDMENT TO SECOND AMENDED
AND RESTATED SECURITY AGREEMENT,
AND FOURTH AMENDMENT TO THIRD AMENDED
AND RESTATED STOCK AND NOTES PLEDGE
THIS EIGHTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT,
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED SECURITY AGREEMENT, AND FOURTH
AMENDMENT TO THIRD AMENDED AND RESTATED STOCK AND NOTES PLEDGE (the "Eighth
Amendment") dated as of October 4, 1996, by and among CATALINA LIGHTING, INC., a
Florida corporation (the "Borrower"), the corporations listed on ANNEX I thereto
(the "Guarantors"), the Banks signatories to the Credit Agreement (as
hereinafter defined) (the "Banks") and SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL
ASSOCIATION, a national banking association, as Agent (the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent have
entered into that certain Third Amended and Restated Credit Agreement dated as
of May 12, 1994, as amended by that certain First Amendment to Third Amended and
Restated Credit Agreement, Second Amended and Restated Security Agreement, Third
Amended and Restated Stock and Notes Pledge, Third Amended and Restated
Agreement Regarding Factoring Proceeds, Consent and Waiver dated as of August
12, 1994, as further amended by that Second Amendment to Third Amended and
Restated Credit Agreement, and Third Amended and Restated Stock and Notes
Pledge, dated as of February 23, 1995, as further amended by that Third
Amendment to Third Amended and Restated Credit Agreement and Consent, dated as
of May l, 1995, as further amended by that Fourth Amendment to the Third Amended
and Restated Credit Agreement dated as of June 30, 1995, as further amended by
that Fifth Amendment to Third Amended and Restated Credit Agreement, dated as of
December 4, 1995, as further amended by that Sixth Amendment to Third Amended
and Restated Credit Agreement, Second Amendment to Second Amended and Restated
Security Agreement and Second Amendment to Third Amended and Restated Stock and
Notes Pledge, dated as of December 28, 1995, and as further amended by that
Seventh Amendment to Third Amended and Restated Credit Agreement, dated as of
March 18, 1996 (as so amended, the "Credit Agreement"); and
WHEREAS, the Borrower and the Guarantors have requested that the Credit
Agreement be amended to permit the guaranty of additional indebtedness of Go-Gro
Industries Limited in conjunction with its financing the purchase of equipment,
to reflect the additional pledge of stock of Catalina Lighting
<PAGE>
Canada, (1992) Inc. and to clarify the effective date of the change in certain
interest rates; and
WHEREAS, the Borrower has formed an additional domestic subsidiary,
Catalina Merchandising, Inc., a Florida corporation ("Catalina Merchandising");
and
WHEREAS, Catalina Merchandising, which became a domestic Subsidiary
after the date of the Credit Agreement, is required, pursuant to Section 5.19 of
the Credit Agreement, to become a Guarantor under the Credit Agreement and to
become a party to the Second Amended and Restated Security Agreement by and
between Catalina Lighting, Inc., the Guarantors, and the Agent dated as of May
12, 1994, as amended by the First Amendment thereto dated as of August 12, 1994
and as amended by the Second Amendment thereto dated as of December 28, 1995
(the "Security Agreement"), and to the Third Amended and Restated Stock and
Notes Pledge by and between the Borrower, the Guarantors, and the Agent dated as
of May 12, 1994, as amended by that First Amendment thereto dated as of August
12, 1994 and as amended by the Second Amendment thereto dated as of February 23,
1995 and as amended by the Third Amendment thereto dated as of December 28, 1995
(the "Stock and Notes Pledge") and the Borrower is required to pledge one
hundred percent (100%) of the capital stock of Catalina Merchandising owned by
it and to pledge, or cause Catalina Merchandising, to pledge, all Notes from
Catalina Merchandising to the Borrower and all Notes from the Borrower to
Catalina Merchandising, to the Agent to secure the Obligations; and
WHEREAS, the Banks and the Agent have agreed to amend the Credit
Agreement to provide for the foregoing, subject to the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged; the parties hereto agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended as
follows:
a. Section 2.3(a) of the Credit Agreement is hereby amended as follows:
Section 2.3 INTEREST AND FEES ON LOANS.
a. Rates on Loans Except for the Non-Revolving Advance, each Loan shall
bear interest on the unpaid principal amount thereof until due whether by
acceleration or otherwise at a rate determined by reference to Prime Rate Loan
or LIBOR Loan.
2
<PAGE>
The applicable basis for determining the rate of interest shall be selected by
Borrower, at the time that the Notice of Borrowing is given pursuant to Section
2.2 or at the time a Notice of Conversion/Continuation is given pursuant to
Section 2.2. If on any Day any Loan is outstanding with respect to which such a
notice has not been delivered to Agent in accordance with the terms of this
Agreement specifying the basis for determining the rate of interest then for
that Day the Loan shall bear interest as set forth herein for a Prime Rate Loan.
The Loan shall bear interest as follows:
(i) A Prime Rate Loan at a fluctuating rate per annum equal to the
Prime Rate; or
(ii) Through June 30, 1996, a LIBOR Loan at a rate per annum equal
to the sum of the LIBOR plus 220 basis points (2.2%); or
(iii) After June 30, 1996, a LIBOR Loan at a rate per annum equal
to the sum of the LIBOR plus the LIBOR Spread (basis points) determined in
accordance with the Senior Funded Debt to Earnings Before Interest, Taxes,
Depreciation and Amortization (Sr. FD/EBITDA) ratio and the Earnings Before
Interest and Taxes to Interest (EBIT/I) ratio indicated below determined as of
the end of the preceding calendar quarter and calculated on an annualized basis
for the quarter ending June 30, 1996 and calculated on a rolling four (4)
quarter basis for the end of each quarter thereafter, any such change in the
rate per annum to be effective on the first day of the fiscal quarter after the
fiscal quarter in which financial statements are required to be furnished to the
Agent as provided herein:
<TABLE>
<CAPTION>
SR. FD/EBITDA EBIT/I LIBOR Spread
(basis points)
<S> <C> <C>
/greater than/2.0:1/less than equal to/3.0:1 /more than/3.0:1 160
/greater than/2.0:1/less than equal to/3.0:1 /less than equal to/3.0:1 180
/greater than/3.0:1/less than equal to/4.0:1 --- 200
/greater than/4.0:1/less than equal to/5.0:1 --- 220
/greater than/5.0:1 --- 250
</TABLE>
The Non-Revolving Advance at a fluctuating rate per annum equal to the Prime
Rate plus one hundred (100) basis points (1.0%), effective October 31, 1995.
3
<PAGE>
b. Section 2.13(b) of the Credit Agreement is hereby deleted, and in
lieu thereof, there is substituted the following:
"(b) STANDBY LETTERS OF CREDIT. Each Standby Letter of Credit shall
(i) have an expiration date not later than the earlier of (A) 365
days after the date of issuance of such Letter of Credit (not
including any provision, consented to by the Banks, providing for
the automatic extension of the term of such Letter of Credit for an
additional period of time unless the Agent gives notice to the
beneficiary and the Borrower of its election not to extend the term
of such Letter of Credit), or (B) the Termination Date, and (ii) be
used only to secure (A) bid, tender, customs, surety, payment,
performance or similar bonds required by the Borrower or its
Subsidiaries in the ordinary course of business, (B) to partially
secure the obligations of Catalina Canada in an amount not to exceed
One Million One Hundred Thousand Dollars ($1,100,000.00) in
connection with the financing of the operating requirements and
currency conversion risks for Catalina Canada, (C) to partially
secure the guaranty of the Borrower to the Agent of the obligation
of Meridian to the Agent in an amount not to exceed Six Hundred
Thousand Dollars ($600,000.00) in connection with a direct-pay
letter of credit issued by the Agent to secure tax exempt bonds
issued by the State of Mississippi for the purpose of financing the
construction of a manufacturing facility for Meridian in Meridian,
Mississippi, (D) partially secure the obligations of Catalina
Industries, Inc. d/b/a Dana Lighting to the Agent in an amount not
to exceed One Million Two Hundred Thousand Dollars ($1,200,000.00)
in connection with a direct-pay letter of credit issued by the Agent
to secure taxable variable rate industrial development revenue bonds
issued by the Mississippi Business Finance Corporation for the
purpose of financing the acquisition, construction and equipping of
a distribution facility for Catalina Industries, Inc. d/b/a Dana
Lighting in Tupelo, Mississippi (the "Tupelo Project") and (E) with
the consent of all the Banks, for other general corporate purposes."
c. Section 5.7 of the Credit Agreement is hereby deleted, and in lieu
thereof, there is substituted the following:
"Section 5.7 TRANSACTIONS WITH AFFILIATES.
Effect any transaction with any Affiliate [except for transactions
among the Borrower and Guarantors (a) involving Inventory at not
less than cost or (b)
4
<PAGE>
involving Accounts at not less than the face value thereof) on a
basis less favorable to such Borrower, Guarantor or Subsidiary, as
the case may be, than would at the time be obtainable for a
comparable transaction in arms-length dealing with an unrelated
third party, except this Section 5.7 shall not prohibit any
transaction permitted pursuant to Section 5.18(a) or (g) . "
d. The definition of "Permitted Guaranty" as defined in Section 11.1(a)
of the Credit Agreement is hereby deleted and, in lieu thereof, there is
substituted the following:
"PERMITTED GUARANTY" means a Guaranty that is (i) an endorsement of
a negotiable instrument for collection in the ordinary course of
business, (ii) subject to the limitations contained in Section
5.11, a Guaranty of any Debt of any Guarantor, (iii) a Guaranty by
the Borrower of Operating Leases of any Guarantor reasonably
required in its ordinary operations, (iv) a Guaranty of the Debt of
Go-Gro Industries Limited, a Hong Kong corporation, for loans not in
excess of Four Million Four Hundred Thousand Dollars
($4,400,000.00), to fund its working capital needs, (v) a Guaranty
of the Debt of Go-Gro Industries Limited, or the debt of a Chinese
cooperative joint venture controlled by Go-Gro Industries Limited,
for loans not in excess of $1,200,000.00 to fund equipment
purchases, or (vi) a Guaranty of the Debt of Foreign Subsidiaries
(other than Catalina Canada and Go-Gro Industries Limited) provided
that such Debt of said Foreign Subsidiaries shall not exceed at any
time the total amount of $1,000,000 and further provided that
Borrower shall notify the Agent in writing prior to guaranteeing any
Debt of said Foreign Subsidiaries."
e. Annex I to the Credit Agreement is hereby deleted, and in lieu
thereof, there is substituted Annex I attached hereto as Exhibit "A."
2. AMENDMENTS TO SECURITY AGREEMENT. The Security Agreement is hereby amended as
follows;
a. The Security Agreement, a copy of which is attached as Exhibit "B,"
is hereby amended to add as a signatory thereto and as a Pledgor, as defined in
said Security Agreement, Catalina Merchandising, Inc., a Florida corporation,
and by executing this Eighth Amendment, said Catalina Merchandising, Inc. hereby
mortgages, pledges and collaterally assigns to the Agent, and grants to the
Agent, for the benefit of the Banks, a continuing
5
<PAGE>
security interest in, and a continuing lien upon, all of the Collateral and
agrees to all of the terms and conditions of said Security Agreement and hereby
acknowledges and represents that it is a Pledgor under said Security Agreement
and that all covenants and representations and warranties of the Pledgor
contained in said Security Agreement are true and correct as of the date hereof.
b. Annex I to said Security Agreement is hereby deleted and, in lieu
thereof, there is substituted Annex I attached hereto as Exhibit "C."
3. AMENDMENTS TO STOCK AND NOTES PLEDGE. The Stock and Notes Pledge is hereby
amended as follows:
a. The Stock and Notes Pledge, a copy of which is attached as Exhibit
"D," is hereby amended to add as a signatory thereto and as a Pledgor, as
defined in said Stock and Notes Pledge, Catalina Merchandising, Inc., a Florida
corporation, and by executing this Eighth Amendment, said Catalina
Merchandising, Inc. hereby pledges and deposits with the Agent all of such
Pledgor's right, title and interest in and to the Securities (as defined in said
Stock and Notes Pledge) and agrees to all of the terms and conditions of said
Stock and Notes Pledge and hereby acknowledges and represents that it is a
Pledgor under said Stock and Notes Pledge and that all covenants and
representations and warranties of the Pledgor contained in said Stock and Notes
Pledge are true and correct as of the date hereof.
b. Annex I to the Stock and Notes Pledge is hereby deleted and, in lieu
thereof, there is substituted Annex I attached hereto as Exhibit "E."
c. Annex II to the Stock and Notes Pledge is hereby deleted and, in
lieu thereof, there is substituted Annex II attached hereto as Exhibit "F."
d. Annex III to the Stock and Notes Pledge is hereby deleted and, in
lieu thereof, there is substituted Annex III attached hereto as Exhibit "G."
4. COUNTERPARTS. The Eighth Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties, their successors and permitted assigns.
5. CAPITALIZED TERMS. All capitalized terms contained herein shall have the
meanings assigned to them in the Credit Agreement unless the context herein
otherwise dictates or unless different meanings are specifically assigned to
such terms herein.
6
<PAGE>
6. RATIFICATION OF LOAN DOCUMENTS: MISCELLANEOUS. The Credit Agreement as
amended hereby, and all other Loan Documents shall remain in full force and
effect in this Eighth Amendment to Credit Agreement shall not be deemed a
novation. Each and every reference to the Credit Agreement and any other Loan
Documents shall be deemed to refer to the Credit Agreement as amended by the
Eighth Amendment. The Borrower and the Guarantors hereby acknowledge and
represent that the Loan Documents, as amended, are, as of the date hereof, valid
and enforceable in accordance with their respective terms and are not subject to
any defenses, counterclaims or right of set-offs whatsoever.
7. GOVERNING LAW. THIS EIGHTH AMENDMENT SHALL BE EFFECTIVE UPON ACCEPTANCE BY
THE BANKS IN FLORIDA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Eighth Amendment as
of the day and year first above written.
BORROWER:
CATALINA LIGHTING, INC.
By: /s/ DEAN RAPPAPORT
---------------------------------
Dean Rappaport,
Executive Vice President
(CORPORATE SEAL)
GUARANTORS:
EACH OF THE CORPORATIONS LISTED
ON ANNEX I HERETO
CATALINA INDUSTRIES, INC., d/b/a Dana
Lighting
By: /s/ DEAN RAPPAPORT
---------------------------------
Dean Rappaport,
Vice President
CATALINA REAL ESTATE TRUST, INC.
By: /s/ DEAN RAPPAPORT
---------------------------------
Dean Rappaport,
Vice President
ANGEL STATION, INC.
By: /s/ DEAN RAPPAPORT
---------------------------------
Dean Rappaport,
Vice President
8
<PAGE>
MERIDIAN LAMPS, INC.
By: /s/ DEAN RAPPAPORT
---------------------------------
Dean Rappaport,
Vice President
MERIDIAN LAMPS DEVELOPMENT, INC.
By: /s/ DEAN RAPPAPORT
---------------------------------
Dean Rappaport,
Vice President
CATALINA ADMINISTRATIVE CORPORATION
By: /s/ DEAN RAPPAPORT
---------------------------------
Dean Rappaport,
Vice President
CATALINA MERCHANDISING, INC.
By: /s/ DEAN RAPPAPORT
---------------------------------
Dean Rappaport,
Vice President
9
<PAGE>
ACKNOWLEDGEMENT
DISTRICT OF COLUMBIA, ss.:
WASHINGTON, D.C.
On this the 4th day of October, 1996, personally appeared Dean
Rappaport, as the Executive Vice President of CATALINA LIGHTING, INC., a Florida
corporation, and before me executed the attached Eighth Amendment to Third
Amended and Restated Credit Agreement, Third Amendment to Second Amended and
Restated Security Agreement and Fourth Amendment to Third Amended and Restated
Stock and Notes Pledge dated as of October 4, 1996, by and among Catalina
Lighting, Inc. (the "Borrower"), the corporations listed on ANNEX I thereto (the
"Guarantors"), the Banks signatories to the Credit Agreement (the "Banks") and
SunTrust Bank, Central Florida, National Association, a national banking
association, as Agent, acting in his corporate capacity on behalf of the
Borrower and he was so authorized to do.
IN WITNESS WEEREOF, I have hereunto set my hand and official seal, in
the state and county aforesaid.
/s/ EVELYN W. WRIGHT
------------------------------------------
Signature of Notary Public, District of
Columbia
/s/ EVELYN W. WRIGHT
------------------------------------------
(Print, Type or Stamp Commissioned Name of
Notary Public)
Personally known _____ ; OR Produced
identification __X__
Type of identification produced: Drivers
License from State of Florida
(Notarial Seal)
<PAGE>
AGENT:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATI0N
By: /s/ DAVID E. CROW
----------------------------------
David E. Crow
First Vice President
THE BANKS:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By: /s/ DAVID E. CROW
----------------------------------
David E. Crow
First Vice President
FIRST UNION NATIONAL BANK OF FLORIDA
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
NATIONAL CANADA FINANCE CORP.
By:
-----------------------------------
Michael S. Bloomenfeld
Vice President
10
<PAGE>
ACKNOWLEDGMENT
STATE OF GEORGIA
COUNTY OF FULTON
On this the 10th day of October, 1996, personally appeared David E.
Crow, as a First Vice President of SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL
ASSOCIATION, a national banking association (the "Bank"), and before me executed
the attached Eighth Amendment to Third Amended and Restated Credit Agreement,
Third Amendment to Second Amended and Restated Security Agreement and Fourth
Amendment to Third Amended and Restated Stock and Notes Pledge dated as of
October 4, 1996, by and among Catalina Lighting, Inc. (the "Borrower"), the
corporations listed on ANNEX I thereto (the "Guarantors"), the Banks signatories
to the Credit Agreement (the "Banks") and SunTrust Bank, Central Florida,
National Association, a national banking association, as Agent (the "Agent"),
acting in his corporate capacity on behalf of the Bank and the Agent and he was
so authorized to do.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in
the state and county aforesaid.
/s/ Susan C. Pilcher
--------------------------------------------
Signature of Notary Public, State of Georgia
/s/ Susan C. Pilcher
---------------------------------------------
(Print, Type or Stamp Commissioned Name of
Notary Public)
Personally known X; OR Produced
identification _____
Type of identification produced:____________
____________________________________________
(Notarial Seal)
<PAGE>
AGENT:
SUNTRUST BANK CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By:
-------------------------------------
David E. Crow
First Vice President
THE BANKS:
SUNTRUST BANK CENTRAL FLORIDA
NATIONAL ASSOCIATION
By:
-------------------------------------
David E. Crow
First Vice President
FIRST UNION NATIONAL BANK OF FLORIDA
By: /s/ MARGARITA M. ALFONSO
-------------------------------------
Name: Margarita M. Alfonso
Title: Vice President
NATIONAL CANADA FINANCE CORP.
By:
-------------------------------------
Michael S. Bloomenfeld
Vice President
10
<PAGE>
AGENT:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By:
-------------------------------------
David E. Crow
First Vice President
THE BANKS:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By:
-------------------------------------
David E. Crow
First Vice President
FIRST UNION NATIONAL BANK OF FLORIDA
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
NATIONAL CANADA FINANCE CORP.
By: /s/ MICHAEL S. BLOOMENFELD
-------------------------------------
Michael S. Bloomenfeld
Vice President
10
<PAGE>
EXHIBIT "A"
ANNEX I TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
GUARANTORS
CAPITAL STOCK
AUTHORIZED ISSUED AND
NAME CAPITAL STOCK OUTSTANDING*
- ---- ------------- ------------
Catalina Industries, Inc.
f/k/a Dana Lighting, Inc., 10,000 shares 100 shares
d/b/a Dana Lighting Common Stock
$1 par value
Catalina Real Estate
Trust, Inc. 10,000 shares 100 shares
Common Stock
$1 par value
Angel Station, Inc. 1000 shares 1000 shares
Common Stock
$0.01 par value
Meridian Lamps, Inc. 1000 shares 1000 shares
Common Stock
$0.01 par value
Meridian Lamps 1000 shares 1000 shares
Development, Inc. Common Stock
$0.01 par value
Catalina Administrative 1000 shares 1000 shares
Corporation Common Stock
$0.01 par value
Catalina Merchandising, 1000 shares 1000 shares
Inc. Common Stock
$0.01 par value
* All issued and outstanding Capital Stock is owned by the Borrower.
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PRIMARY EARNINGS PER SHARE
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
1996 1995
------------ -----------
Net income $ 22,000 $ 588,000
Add: Interest on debt assumed to be repaid 24,000 23,000
----------- ----------
Net income for primary earnings per
common share $ 46,000 $ 611,000
=========== ==========
Weighted average number of common shares
outstanding during the period 7,064,000 6,994,000
Add: Common equivalent shares determined
using the "Modified Treasury Stock"
method representing shares issuable
upon exercise of stock options
and warrants 744,000 762,000
----------- ----------
Weighted average number of shares used in
calculation of primary earnings
per share 7,808,000 7,756,000
=========== ==========
Primary earnings per common share $ 0.01 $ 0.08
=========== ==========
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11 (continued)
SCHEDULE OF COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
1996 1995
------------ -----------
Net income $ 22,000 $ 588,000
Add: Interest on debt assumed to be repaid 21,000 22,000
----------- ----------
Net income for fully diluted earnings per
common share $ 43,000 $ 610,000
=========== ==========
Weighted average number of common shares
outstanding during the period 7,064,000 6,994,000
Add: Common equivalent shares determined
using the "Modified Treasury Stock"
method representing shares issuable
upon exercise of stock options
and warrants 744,000 762,000
----------- ----------
Weighted average number of shares used in
calculation of fully diluted earnings
per share 7,808,000 7,756,000
=========== ==========
Fully diluted earnings per common share $ 0.01 $ 0.08
=========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,065
<SECURITIES> 0
<RECEIVABLES> 26,726
<ALLOWANCES> 8,089
<INVENTORY> 39,994
<CURRENT-ASSETS> 73,337
<PP&E> 27,890
<DEPRECIATION> 0
<TOTAL-ASSETS> 116,087
<CURRENT-LIABILITIES> 33,783
<BONDS> 10,095
0
0
<COMMON> 71
<OTHER-SE> 43,928
<TOTAL-LIABILITY-AND-EQUITY> 116,087
<SALES> 45,095
<TOTAL-REVENUES> 45,095
<CGS> 37,138
<TOTAL-COSTS> 37,138
<OTHER-EXPENSES> 7,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 843
<INCOME-PRETAX> 29
<INCOME-TAX> 7
<INCOME-CONTINUING> 22
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
