UNITED STATES
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 MARCH 31, 1999
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
----------------------
(Exact name of registrant as specified in its chapter)
FLORIDA
-------
(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
-----------------------------------------------
(Address of principal executive offices) (Zip Code)
(305) 558-4777
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Registrant's telephone number, including area code
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check 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
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 MAY 5, 1999: 6,941,969 SHARES.
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
--------
Condensed consolidated balance sheets -
March 31, 1999 and September 30, 1998............................ 3
Condensed consolidated statements of operations -
Three and six months ended March 31, 1999 and 1998............... 5
Condensed consolidated statements of cash flows -
Six months ended March 31, 1999 and 1998......................... 6
Notes to condensed consolidated financial statements............... 8
Management's discussion and analysis of financial
condition and results of operations.............................. 13
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings.......................................... 20
ITEM 4 Submission of Matters to a Vote of Security Holders........ 20
ITEM 6 Exhibits and Reports on Form 8-K........................... 21
2
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
----------- -------------
(Unaudited) *
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,854 $ 1,790
Restricted cash equivalents and short-term investments 2,152 377
Accounts receivable, net of allowances
of 8,994 and 8,408, respectively 20,942 18,395
Inventories 26,007 28,257
Other current assets 8,087 6,897
-------- --------
Total current assets 60,042 55,716
Property and equipment, net 26,502 27,922
Restricted cash equivalents and short-term investments -- 1,430
Goodwill, net 10,789 11,017
Other assets 2,763 2,875
======== ========
$100,096 $ 98,960
======== ========
</TABLE>
(continued on page 4)
3
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
----------- -------------
(Unaudited) *
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Notes payable - credit lines $ -- $ 3,428
Accounts and letters of credit payable 14,607 12,423
Current maturities of convertible subordinated notes 2,500 --
Current maturities of bonds payable-real estate related 2,210 975
Current maturities of other long-term debt 476 485
Accrued litigation judgment under appeal 5,121 4,909
Other current liabilities 5,444 5,827
--------- ---------
Total current liabilities 30,358 28,047
Notes payable - credit lines 12,200 10,500
Convertible subordinated notes 5,100 7,600
Bonds payable - real estate related 6,900 8,215
Other long-term debt 1,669 1,909
Other liabilities 235 365
--------- ---------
Total liabilities 56,462 56,636
--------- ---------
Stockholders' equity
Common stock, issued and outstanding 7,256
shares and 7,175 shares, respectively 73 72
Additional paid-in capital 26,617 26,475
Retained earnings 17,439 15,777
Treasury stock, 178 shares (495) --
--------- ---------
Total stockholders' equity 43,634 42,324
--------- ---------
$ 100,096 $ 98,960
========= =========
</TABLE>
*Condensed from audited financial statements
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 42,128 $ 40,246 $ 84,931 $ 77,229
Cost of sales 32,947 31,959 67,621 62,367
-------- -------- -------- --------
Gross profit 9,181 8,287 17,310 14,862
Selling, general and administrative
expenses 7,089 6,665 13,900 12,998
-------- -------- -------- --------
Operating income 2,092 1,622 3,410 1,864
-------- -------- -------- --------
Other income (expenses):
Interest expense (671) (1,023) (1,400) (2,047)
Other income (expenses) 186 104 298 398
-------- -------- -------- --------
Total other income (expenses) (485) (919) (1,102) (1,649)
-------- -------- -------- --------
Income before income taxes 1,607 703 2,308 215
Income tax provision (448) (167) (646) (60)
======== ======== ======== ========
Net income $ 1,159 $ 536 $ 1,662 $ 155
======== ======== ======== ========
Weighted average number of
shares outstanding
Basic 7,080 7,109 7,127 7,107
Diluted 8,561 7,421 8,454 7,600
Earnings per share
Basic $ 0.16 $ 0.08 $ 0.23 $ 0.02
Diluted $ 0.15 $ 0.07 $ 0.22 $ 0.02
</TABLE>
5
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,662 $ 155
Adjustments for non-cash items 3,494 2,385
Change in assets and liabilities (393) 1,190
-------- --------
Net cash provided by (used in) operating activities 4,763 3,730
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (815) (1,037)
Decrease (increase) in restricted cash equivalents and
short-term investments 105 96
-------- --------
Net cash provided by (used in) investing activities (710) (941)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 143 57
Net payments to repurchase common stock (495) --
Payments on other liabilities (379) (364)
Payments on bonds payable -real estate related (80) (75)
Proceeds from notes payable - credit lines 17,900 12,600
Payments on notes payable - credit lines (18,100) (14,800)
Net proceeds from (payments on) notes payable - credit lines
due on demand (1,528) 25
Sinking fund redemption payments on bonds (450) (450)
-------- --------
Net cash provided by (used in) financing activities (2,989) (3,007)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,064 (218)
Cash and cash equivalents at beginning of period 1,790 1,847
-------- --------
Cash and cash equivalents at end of period $ 2,854 $ 1,629
======== ========
</TABLE>
(continued on page 7)
6
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION
SIX MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
-------- --------
(IN THOUSANDS)
Cash paid for:
Interest $ 1,206 $ 2,057
Income taxes $ 1,635 $ 141
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the six months ended March 31, 1998, total capital lease obligations
incurred for new office, machinery and warehouse equipment aggregated $124,000.
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
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 on Form 10-K for the fiscal year ended September 30, 1998 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, the condensed consolidated financial statements
include all adjustments (which consist mostly of normal, recurring accruals)
considered necessary for a fair presentation. The results of operations for the
three and six months ended March 31, 1999 may not necessarily be indicative of
operating results to be expected for the full fiscal year due to seasonal
fluctuations in the Company's business, changes in economic conditions and other
factors.
Certain amounts previously presented in the financial statements of prior
periods have been reclassified to conform to the current period's presentation.
COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes
standards for reporting and display of comprehensive income and its components.
The Company's net income for the three and six months ended March 31, 1999
equals comprehensive income for the same period.
2. INVENTORIES
Inventories consisted of the following:
MARCH 31, SEPTEMBER 30,
1999 1998
---------- -------------
(In thousands)
Raw materials $ 3,400 $ 3,777
Work-in-progress 818 713
Finished goods 21,789 23,767
---------- ----------
Total inventories $ 26,007 $ 28,257
========== ==========
3. PROPERTY AND EQUIPMENT, NET
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 non-transferable rights to
use this land until January 18, 2042. 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, as amended, SJE is
obligated to construct approximately 500,000 square feet of factory buildings
and 211,000 square feet of dormitories and offices, of which 40 percent was
required to be and was completed by April 1, 1997. The remainder of the
construction is required to be completed by December 31, 1999. The Company plans
to file an application to extend the completion deadline of December 1999. The
total cost for this project is estimated at $15.5 million (of which $10 million
had been expended as of March 31, 1999) and includes approximately $1 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
8
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. PROPERTY AND EQUIPMENT, NET (CONTINUED)
beginning in January 1997 of which $164,000 had been paid as of March 31, 1999.
A 162,000 square foot factory, 77,000 square foot warehouse and 60,000 square
foot dormitory became fully operational in June 1997.
4. CONTINGENCIES
LEGAL
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, contended 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, including claims for damages in excess of $5
million against the Company and $3 million against the named directors. During
the course of the litigation the Company prevailed on its Motions for Summary
Judgment and the Court dismissed the plaintiff's claims of libel and
indemnification. On February 3, 1997, the plaintiff voluntarily dismissed the
remaining defamation claims against the Company and directors. The breach of
contract claim was tried in February, 1997 and the jury returned a verdict
against the Company for total damages of $2.4 million (including prejudgment
interest). On July 14, 1997, the Court also granted plaintiff's motion for
attorney fees and costs of $1.9 million. A provision of $4.3 million was
recorded by the Company during the quarter ended March 31, 1997 and a $893,000
provision for post-judgment interest was recorded through March 31, 1999. The
Company is appealing the verdict and attorney fee award and the appeal was
argued before the Third District Court of Appeal on December 18, 1998. The
Company believes its arguments are meritorious. No decision from the District
Court has been received to date.
On December 17, 1996 White Consolidated Industries, Inc. ("White"), which has
acquired certain limited trademark rights from Westinghouse Electric Corp.
("Westinghouse") to market certain household products under the
White-Westinghouse trademark, notified the Company of a lawsuit against
Westinghouse and the Company filed in the United States District Court, for the
Northern District of Ohio. The lawsuit challenged the Company's right to use the
Westinghouse trademarks on its lighting products and alleges trademark
infringement. 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. in the United States District Court,
Eastern District of Pennsylvania, Case No. 96-2294 alleging that the defendants
had violated Westinghouse's trademark rights, breached the Agreement between
Westinghouse and White and sought an injunction to enjoin White against
interference with their contractual arrangements. In October 1997, the cases
were consolidated in the Pennsylvania case and on November 7, 1997 White filed a
Counterclaim and Third Party Claims against Westinghouse, Catalina and Minami
International Corporation alleging trademark infringement, trademark dilution,
false designation of origin, false advertising and unfair competition and
seeking injunctive relief and damages. Both the Company and Westinghouse
vigorously dispute White's allegations. Pursuant to the License Agreement
between Westinghouse and the Company, Westinghouse defended and indemnified the
Company for all costs and expenses for claims, damages and losses, including the
costs of litigation. White has agreed to withdraw its claims against the
Company.
During fiscal 1998 the Company received a number of product liability claims
relating to halogen torchieres sold by the Company to various retailers.
Management does not currently believe these claims will result in a material
uninsured liability to the Company. As a result of these claims the Company
experienced an increase in its liability insurance premiums effective for the
1999 calendar year and will now be self-insuring up to a maximum of $10,000 for
each incident occurring in calendar 1999. Based upon its experience during the
first six months of fiscal 1999, the Company does not believe that this
self-insurance provision will have a material adverse impact on the Company's
financial position or annual results of operations for fiscal 1999. However, no
assurance can be given that claims will not exceed available insurance coverage
or that the Company will be able to maintain the same level of insurance.
9
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONTINGENCIES (CONTINUED)
The Company is also a defendant in other legal proceedings arising in the course
of business. In the opinion of management the ultimate resolution of these other
legal proceedings will not have a material adverse effect on the financial
position or annual results of operations of the Company.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has developed and is currently executing a plan to make its computer
systems Year 2000 ready. The plan consists of five phases: (1) an inventory of
all systems and applications, including non-information technology systems; (2)
an assessment of the Year 2000 readiness of these existing systems and
applications; (3) remediation of Year 2000 problems identified in the assessment
phase; (4) testing of all systems and applications to verify the success of the
remediation phase and, if necessary (5) the implementation of contingency plans
for all significant systems and applications.
Phases 1 and 2 of the Company's plan were completed as of September 1, 1998. The
Company is presently engaged in phases 3 and 4 and expects to complete these
phases by July 1, 1999.
The Company has determined that its non-information technology systems are not
significantly affected by the Year 2000 Issue. With respect to information
technology systems, in 1997 the Company, during the normal course of upgrading
its systems to address its business needs and add functionality and efficiency
to its business processes, began the implementation of a new enterprise software
to replace the business applications supporting sales, distribution, inventory
management, finance and accounting for the Company's North American businesses.
The majority of the remainder of the Company's North American systems will be
made Year 2000 ready through purchased upgrades of commercial third-party
software packages. Go-Gro's systems and applications will be made Year 2000
ready through a combination of internal reprogramming/modification and purchased
upgrades of commercial third-party software packages. The internal
reprogramming/modifications of Go-Gro's systems and applications are presently
undergoing testing by an independent third party.
The Company has initiated communications with the customers, suppliers and other
companies important to its business to attempt to determine the extent to which
the Company is vulnerable to such parties' failure to resolve their own Year
2000 issues.
The Company is currently and will continue utilizing both internal and external
resources to implement its Year 2000 plan. The total incremental cost to the
Company for the Year 2000 project (excluding internal resources, the costs
associated with the new enterprise system and scheduled hardware replacements
which would have been incurred regardless of the Year 2000 Issue), all of which
will be expensed as incurred, is approximately $150,000, $19,000 of which has
been incurred as of March 31, 1999. The Company plans to fund these costs with
cash flows from operations. The costs of the Year 2000 project and the timetable
in which the Company expects to finish its Year 2000 project are based on
management's best estimates and are dependent on a number of factors, including
the continued availability of personnel and external resources.
The Company expects to be Year 2000 compliant by October 1, 1999 and has
established contingency plans in the event remediation and testing efforts
indicate any of the Company's planned systems and applications will not be Year
2000 ready. The Company's new enterprise software has been represented as Year
2000 ready by its manufacturer but should such software prove to have Year 2000
problems, the existing legacy systems will be made Year 2000 compliant through
the upgrade of the underlying database product and a limited amount of
additional programming. Contingency plans for the Company's other systems and
applications contemplate additional purchases of third-party software packages
and expanded use of external resources in remediation efforts.
10
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONTINGENCIES (CONTINUED)
Year 2000 compliance is critical to the Company due to the importance of its
computer systems and applications to its business. The Company may also be
vulnerable to the failure of significant third parties with which the Company
does business to resolve their own Year 2000 issues. The impact on the Company
of failure by either the Company or the significant third parties with which it
does business to achieve Year 2000 compliance is not reasonably estimable,
however, the Year 2000 Issue could have a material impact on the operations of
the Company.
OTHER
As a result of recent Internal Revenue Service rulings and proposed and
temporary regulations, the Company is in the process of restructuring its
international operations in order to retain favorable U.S. tax treatment of
foreign source income. The Company believes it should be successful in this
restructuring. However, in the event the Company is unsuccessful in this effort,
the Company will likely experience an increase in its consolidated effective
income tax rate.
5. FINANCIAL INSTRUMENT
In January 1999, the Company entered into an interest rate swap agreement
maturing May 1, 2004, to manage its exposure to interest rate movements by
effectively converting its $7.8 million debt related to the state of Mississippi
variable rate Industrial Revenue Development Bonds from a variable interest rate
to a fixed interest rate of 5.52%. Interest rate differentials paid or received
under the agreement are recognized as adjustments to interest expense.
6. CHANGE IN CONTROL AGREEMENTS
The Company entered into Change in Control Agreements with David W. Sasnett and
Thomas M. Bluth. The Agreements expire in March 2001. Such Agreements provide
that, in the event of a change in control of the Company, if the Company
terminates the employment of either employee within certain time periods or the
Company fails to negotiate an acceptable employment agreement with the employee,
the Company shall pay the employee two times his annual base salary. In
addition, the agreements with Messrs. Bluth and Sasnett, respectively, provide
that in the event they are terminated "without cause" where there has been no
change in control, Messrs. Bluth and Sasnett, respectively, are entitled to a
severance payment equal to their annual base salary.
7. COMMITMENT
On April 26, 1996, and as subsequently amended, 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, 2002. 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.
Commencing September 30, 2000 either party has the right to terminate the
agreement during fiscal years 2000 to 2002 if the Company does not meet the
minimum net shipments of $25 million for fiscal 2000, $40 million for fiscal
2001, and $60 million for fiscal 2002. Net sales of Westinghouse branded
products amounted to $6.5 million and $3.5 million for the six months ended
March 31, 1999 and 1998, respectively.
11
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997. SFAS No. 131 establishes standards for
the way that public companies report selected information about operating
segments in annual financial statements and requires that those companies report
selected information about segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131,
which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", but retains the requirement to report information about major
customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. However, SFAS No. 131 does not require the reporting of
information that is not prepared for internal use if reporting it would be
impracticable. SFAS No. 131 also requires that a public company report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997, with disclosures in interim financial statements not required in the year
of adoption. The Company has not determined the effects, if any, that SFAS No.
131 will have on the disclosures in its consolidated financial statements.
12
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, including without limitation
expectations as to future sales and profitability, 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 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; advertising and promotional efforts; brand awareness; the
existence or absence of adverse publicity; acceptance of new product offerings;
changing trends in customer tastes; availability, terms and deployment of
capital; availability and cost of raw materials and supplies; the costs and
other effects of legal and administrative proceedings; foreign exchange rates;
changes in the Company's effective tax rate (which is dependent on the Company's
U.S. and foreign source income) and other factors referenced in this Form 10-Q
and in the Company's annual report on Form 10-K for the year ended September 30,
1998. The Company will not undertake and specifically declines any obligation to
update or correct 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.
In the following comparison of the results of operations, the three and
six months ended March 31, 1999 and 1998 are referred to as 1999 and 1998,
respectively.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Net sales and gross profit for 1999 were $42.1 million and $9.2
million, respectively, as compared to $40.2 million and $8.3 million,
respectively, for 1998. The Company generated net income of $1.2 million, ($.15
per share) in 1999 compared to $536,000 ($.07 per share) in 1998.
The $1.9 million increase in net sales from the prior year is
attributable to higher unit sales to U.S. customers reflecting additions to core
programs and new product placements. Lamp sales decreased by $464,000 to $26.3
million and net sales for the Company's other principal line of products,
lighting fixtures, increased by $2.3 million to $15.8 million. Lamps and
lighting fixtures accounted for 62% and 38%, respectively, of net sales in 1999
compared to 66% and 34% in 1998, respectively. In 1999 and 1998, Home Depot
accounted for 28.6% and 24%, respectively, of the Company's net sales and
Wal-Mart accounted for 15.9% and 6% of net sales, respectively.
Gross profit increased by $894,000 in 1999 due to improved margins
earned on direct sales attributable to new product placement, a more profitable
product mix and the increase in net sales. The gross profit percentage increased
from 20.6% in 1998 to 21.8% in 1999. The improvement in the gross profit
percentage is attributable to the improved margins earned on direct sales.
Many of the Company's major customers (most notably Home Depot and
Wal-Mart) purchase from the Company primarily on a direct basis, whereby the
merchandise is shipped directly from the factory to the customer, rather than
from the Company's warehouses. Approximately 76% of the Company's sales in 1999
were made on a direct basis as compared to 56% in 1998. Sales made by the
Company on a direct basis typically generate lower per unit margins than sales
of the same items from the Company's warehouses. The amount of the Company's
sales made on a direct basis is dependent upon customer buying preferences,
which are influenced by a number of factors that vary from customer to customer.
Sales from the Company's warehouses declined during the fiscal year ended
September 30, 1998 as compared to the fiscal year ended September 30, 1997. The
Company is attempting to compensate for this decline by pursuing new channels of
distribution which will be serviced out of the Company's U.S. warehouse.
However, there can be no assurance these efforts will be successful, and the
Company may experience further declines in sales made from its U.S. warehouse.
13
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Selling, general and administrative expenses ("SG&A") increased by
$424,000 from the prior year reflecting an increase in the provision for
uncollectible accounts receivable ($285,000) and an increase in expenses related
to the Company's operations in Mexico ($168,000).
Interest expense decreased to $671,000 in 1999 from $1 million in 1998
due to lower average outstanding borrowings and a lower average interest rate.
Other income for 1999 consisted primarily of investment and other
miscellaneous income.
The effective income tax rates for 1999 and 1998 were 27.9% and 23.8%,
respectively and reflect the projected impact of foreign income, which is taxed
at a significantly lower rate than U.S. income. As a result of recent Internal
Revenue Service rulings and proposed and temporary regulations, the Company is
in the process of restructuring its international operations in order to retain
favorable U.S. tax treatment of foreign source income. The Company believes it
should be successful in this restructuring. However, in the event the Company is
unsuccessful in this effort, the Company will likely experience an increase in
its consolidated effective income tax rate.
COMPARISON OF SIX MONTHS ENDED MARCH 31, 1999 AND 1998
Net sales and gross profit for 1999 were $84.9 million and $17.3
million, respectively, as compared to $77.2 million and $14.9 million,
respectively, for 1998. The Company generated net income of $1.7 million ($.22
per share) in 1999 compared to $155,000 ($.02 per share) in 1998.
The $7.7 million increase in net sales from the prior year reflects
higher unit sales to U.S. customers attributable to additions to core programs,
promotional opportunities and new product placements. Lamp sales increased by
$5.4 million and net sales for the Company's other principal line of products,
lighting fixtures, increased by $2.3 million. Lamps and lighting fixtures
accounted for 64% and 36%, respectively, of net sales in 1999 and 63% and 37% in
1998, respectively. In 1999 and 1998, Home Depot accounted for 24.1% and 25%,
respectively, of the Company's net sale and Wal-Mart accounted for 10.4% and
5.1% of net sales, respectively.
Gross profit increased by $2.4 million in 1999 due to the increase in
net sales. The gross profit percentage increased from 19.2% in 1998 to 20.4% in
1999. The improvement in the gross profit percentage from 1998 to 1999 was
attributable to the increase in net sales, which lessened the effect on such
percentage of purchasing and warehousing costs as most of these costs are fixed,
and improved margins on direct sales.
Many of the Company's major customers (most notably Home Depot and
Wal-Mart) purchase from the Company primarily on a direct basis, whereby the
merchandise is shipped directly from the factory to the customer, rather than
from the Company's warehouse. Approximately 74% of the Company's sales in 1999
were made on a direct basis as compared to 62% in 1998. Sales made by the
Company on a direct basis typically generated lower margins than sales from
Company's warehouses. The amount of the Company's sales made on a direct basis
is dependent upon customer buying preferences, which are influenced by a number
of factor that vary from customer to customer.
Selling, general and administrative expenses ("SG&A") increased by
$902,000 reflecting an increase in expenses related to the Company's operations
in Mexico ($180,000) an increase in the provision for uncollectible accounts
receivable ($426,000), and an increase in professional fees ($266,000). However,
SG&A expenses were 16.4% of sales in 1999 compared to 16.8% in 1998 as a result
of the increase in sales.
Interest expense decreased to $1.4 million in 1999 from $2 million in
1998 due to lower average outstanding borrowings and a lower average interest
rate.
Other income for 1999 consisted primarily of investment and other
miscellaneous income.
14
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The effective income tax rates for 1999 and 1998 were 28% and 27.9%,
respectively and reflect the projected impact of foreign income, which is taxed
at a significantly lower rate than U.S. income. As a result of recent Internal
Revenue Service rulings and proposed and temporary regulations, the Company is
in the process of restructuring its international operations in order to retain
favorable U.S. tax treatment of foreign source income. The Company believes it
should be successful in this restructuring. However, in the event the Company is
unsuccessful in this effort, the Company will likely experience an increase in
its consolidated effective income tax rate.
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 import 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 SIX MONTHS ENDED MARCH 31, 1999
The Company's operating, investing and financing activities resulted in
a net increase in cash and cash equivalents of $1.1 million from September 30,
1998 to March 31, 1999.
The net cash of $4.8 million provided by operating activities was used
primarily to pay for capital expenditures aggregating $815,000, to pay down
credit lines, to make sinking fund redemption payments on outstanding bonds and
to repurchase Company common stock.
CREDIT AND LEASING FACILITIES, BONDS, MORTGAGE AND CONVERTIBLE
SUBORDINATED NOTES
The Company has a $35 million credit facility with a group of
commercial banks. This facility provides credit in the form of revolving loans,
acceptances, and trade and stand-by letters of credit and matures on September
30, 2000. 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 (LIBOR plus 1.8% at March 31, 1999). 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 March 31, 1999, the Company had used
$13.4 million under this credit facility (loans amounted to $12.2 million) and
$7 million was available for additional borrowings under the borrowing base
calculation.
The Company's Canadian and Hong Kong subsidiaries have credit
facilities with foreign banks of 4 million Canadian dollars (approximately U.S.
$2.6 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. Canadian dollar advances bear interest at the Canadian
prime rate plus .5% (7.25% at March 31, 1999) and all U.S. dollar advances bear
interest at the U.S. base rate of the bank (8.25% at March 31, 1999). At March
31, 1999, there were no borrowings under this facility and U.S. $2.2 million was
available for additional borrowings under the borrowing base calculation. 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% (9% at March 31, 1999). Each
of these credit
15
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CREDIT AND LEASING FACILITIES, BONDS, MORTGAGE AND CONVERTIBLE
SUBORDINATED NOTES (CONTINUED)
facilities are payable upon demand and are subject to annual reviews by the
banks. At March 31, 1999, there were no borrowings under the Hong Kong facility
and U.S. $1.7 million was available for borrowings. 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 requires Go-Gro to maintain a minimum net worth,
prohibits the payment of dividends by Go-Gro without the prior consent of the
lender, and limits the amount of advances or loans from Go-Gro to the Company at
any time to 50% of Go-Gro's pre-tax profits for the previous 12 months.
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 $6.68 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 limits the purchase or retirement
of any shares of capital stock or other capital distributions.
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) its warehouse located near Tupelo, Mississippi. 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 (4.95% at March 31, 1999) 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 an $8 million
direct pay letter of credit which is not part of the Company's credit line. The
unpaid balance of these bonds was $7.8 million at March 31, 1999. In January
1999, the Company entered into an interest rate swap agreement maturing May 1,
2004, to manage its exposure to interest rate movements for these bonds by
effectively converting its $7.8 million debt from a variable interest rate to a
fixed interest rate of 5.52%. Interest rate differentials paid or received under
the agreement are recognized as adjustments to interest expense.
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. In June 1997, the Company ceased
manufacturing operations at Meridian and leased the facility to a
non-manufacturing entity and in August 1997 made a $1.5 million payment to
escrow on the bonds. The Company plans to redeem the bonds at their earliest
redemption date, approximately November 1, 1999.
16
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CREDIT AND LEASING FACILITIES, BONDS, MORTGAGE AND CONVERTIBLE
SUBORDINATED NOTES (CONTINUED)
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 $486,000 was
available at March 31, 1999. In addition, the Company has a leasing facility for
$9 million Hong Kong dollars (approximately U.S. $1.2 million) with a Hong Kong
financial institution to finance the purchase of equipment for its China
facilities of which $370,000 was available at March 31, 1999.
The Company financed its corporate headquarters in Miami, Florida with
a loan payable monthly through 2004, based on a 15 year amortization schedule,
with a balloon payment in 2004. The loan bears interest at 8% and is secured by
a mortgage on the land and building. The unpaid balance of this loan was
$986,000 at March 31, 1999.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company has developed and is currently executing a plan to make its
computer systems Year 2000 ready. The plan consists of five phases: (1) an
inventory of all systems and applications, including non-information technology
systems; (2) an assessment of the Year 2000 readiness of these existing systems
and applications; (3) remediation of Year 2000 problems identified in the
assessment phase; (4) testing of all systems and applications to verify the
success of the remediation phase and, if necessary (5) the implementation of
contingency plans for all significant systems and applications.
Phases 1 and 2 of the Company's plan were completed as of September 1,
1998. The Company is presently engaged in phases 3 and 4 and expects to complete
these phases by July 1, 1999.
The Company has determined that its non-information technology systems
are not significantly affected by the Year 2000 Issue. With respect to
information technology systems, in 1997 the Company, during the normal course of
upgrading its systems to address its business needs and add functionality and
efficiency to its business processes, began the implementation of a new
enterprise software to replace the business applications supporting sales,
distribution, inventory management, finance and accounting for the Company's
North American businesses. The majority of the remainder of the Company's North
American systems will be made Year 2000 ready through purchased upgrades of
commercial third-party software packages. Go-Gro's systems and applications will
be made Year 2000 ready through a combination of internal
reprogramming/modification and purchased upgrades of commercial third-party
software packages. The internal reprogramming/modifications of Go-Gro's systems
and applications are presently undergoing testing by an independent third party.
The Company has initiated communications with the customers, suppliers
and other companies important to its business to attempt to determine the extent
to which the Company is vulnerable to such parties' failure to resolve their own
Year 2000 issues.
The Company is currently and will continue utilizing both internal and
external resources to implement its Year 2000 plan. The total incremental cost
to the Company for the Year 2000 project (excluding internal resources, the
costs associated with the new enterprise system and scheduled hardware
replacements which would have been incurred regardless of the Year 2000 Issue),
all of which will be expensed as incurred, is approximately $150,000, $19,000 of
which has been incurred as of March 31, 1999. The Company plans to fund these
costs with cash flows from operations. The costs of the Year 2000 project and
the timetable in which the Company expects to finish its Year 2000 project are
based on management's best estimates and are dependent on a number of factors,
including the continued availability of personnel and external resources.
17
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 (CONTINUED)
The Company expects to be Year 2000 compliant by October 1, 1999 and
has established contingency plans in the event remediation and testing efforts
indicate any of the Company's planned systems and applications will not be Year
2000 ready. The Company's new enterprise software has been represented as Year
2000 ready by its manufacturer but should such software prove to have Year 2000
problems, the existing legacy systems will be made Year 2000 compliant through
the upgrade of the underlying database product and a limited amount of
additional programming. Contingency plans for the Company's other systems and
applications contemplate additional purchases of third-party software packages
and expanded use of external resources in remediation efforts.
Year 2000 compliance is critical to the Company due to the importance
of its computer systems and applications to its business. The Company may also
be vulnerable to the failure of significant third parties with which the Company
does business to resolve their own Year 2000 issues. The impact on the Company
of failure by either the Company or the significant third parties with which it
does business to achieve Year 2000 compliance is not reasonably estimable,
however, the Year 2000 Issue could have a material adverse impact on the
operations of the Company.
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
non-transferable rights to use this land until January 18, 2042. 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, as amended, SJE is obligated to construct approximately 500,000
square feet of factory buildings and 211,000 square feet of dormitories and
offices, of which 40 percent was required to be and was completed by April 1,
1997. The remainder of the construction is required to be completed by December
31, 1999. The Company plans to file an application to extend the completion
deadline of December 1999. The total cost for this project is estimated at $15.5
million (of which $10 million had been expended as of March 31, 1999) and
includes approximately $1 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 of which $164,000 had been paid as of March 31, 1999. A 162,000 square foot
factory, 77,000 square foot warehouse and 60,000 square foot dormitory became
fully operational in June 1997.
On April 26, 1996, and as subsequently amended, 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, 2002. 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.
Commencing September 30, 2000 either party has the right to terminate the
agreement during fiscal years 2000 to 2002 if the Company does not meet the
minimum net shipments of $25 million for fiscal 2000, $40 million for fiscal
2001, and $60 million for fiscal 2002. Net sales of Westinghouse branded
products amounted to $6.5 million and $3.5 million for the six months ended
March 31, 1999 and 1998, respectively.
As a result of recent Internal Revenue Service rulings and proposed and
temporary regulations, the Company is in the process of restructuring its
international operations in order to retain favorable U.S. tax treatment of
foreign source income. The Company believes it should be successful in this
restructuring. However, in the event the Company is unsuccessful in this effort,
the Company will likely experience an increase in its consolidated effective
income tax rate.
18
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OTHER (CONTINUED)
On June 3, 1998, 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, 1998.
The MFN trade status has been renamed "Normal Trade Relations" because it
applies to all but a handful of U.S. trading partners. In the context of United
States tariff legislation, such treatment means that products are subject to
favorable duty rates upon entry into the United States. On July 22, 1998 the
House of Representatives supported the President's decision and rejected a bill
to impose trade sanctions against China due to alleged human rights abuses,
nuclear proliferation policies and a growing U.S. trade deficit with China.
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. 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.
During fiscal 1998 the Company received a number of product liability
claims relating to halogen torchieres sold by the Company to various retailers.
Management does not currently believe these claims will result in a material
uninsured liability to the Company. As a result of these claims the Company
experienced an increase in its liability insurance premiums effective for the
1999 calendar year and will now be self-insuring up to a maximum of $10,000 for
each incident occurring in calendar 1999. Based upon its experience during the
first six months of fiscal 1999, the Company does not believe that this
self-insurance provision will have a material adverse impact on the Company's
financial position or annual results of operations for fiscal 1999. However, no
assurance can be given that claims will not exceed available insurance coverage
or that the Company will be able to maintain the same level of insurance.
The Company's board of directors has authorized the repurchase of up to
$2 million of common shares of the Company from time to time in the open market
or in negotiated purchases. As of March 31, 1999, the Company had repurchased
177,500 shares for $495,000.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was also issued in June 1997. SFAS No. 131 establishes standards
for the way that public companies report selected information about operating
segments in financial statements and requires that those companies report
selected information about segments in interim and annual financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS No.
131, which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise", but retains the requirement to report information about
major customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. However, SFAS No. 131 does not require the reporting of
information that is not prepared for internal use if reporting it would be
impracticable. SFAS No. 131 also requires that a public company report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement, of segment amounts from period to period. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. The Company has not determined the effects, if any, that SFAS No. 131 will
have on the disclosures in its consolidated financial statements.
19
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 17, 1996 White Consolidated Industries, Inc. ("White"),
which has acquired certain limited trademark rights from Westinghouse Electric
Corp. ("Westinghouse") to market certain household products under the
White-Westinghouse trademark, notified the Company of a lawsuit against
Westinghouse and the Company filed in the United States District Court, for the
Northern District of Ohio. The lawsuit challenged the Company's right to use the
Westinghouse trademarks on its lighting products and alleges trademark
infringement. 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. in the United States District Court,
Eastern District of Pennsylvania, Case No. 96-2294 alleging that the defendants
had violated Westinghouse's trademark rights, breached the Agreement between
Westinghouse and White and sought an injunction to enjoin White against
interference with their contractual arrangements. In October 1997, the cases
were consolidated in the Pennsylvania case and on November 7, 1997 White filed a
Counterclaim and Third Party Claims against Westinghouse, Catalina and Minami
International Corporation alleging trademark infringement, trademark dilution,
false designation of origin, false advertising and unfair competition and
seeking injunctive relief and damages. Both the Company and Westinghouse
vigorously dispute White's allegations. Pursuant to the License Agreement
between Westinghouse and the Company, Westinghouse defended and indemnified the
Company for all costs and expenses for claims, damages and losses, including the
costs of litigation. White has agreed to withdraw its claims against the Company
and the legal documents are being prepared and will be filed shortly .
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Company's Annual Meeting of Stockholders, held on May 10,
1999, the stockholders voted on the following matters:
(i) to elect the following seven persons to serve as directors of
the Company until the 2000 Annual Meeting of Stockholders:
Robert Hersh
Ryan Burrow
Henry Latimer
Jesse Luxton
Leonard Sokolow
Howard Steinberg
Brion Wise
(ii) to ratify the appointment of Deloitte & Touche LLP to serve as
the Company's auditors for the fiscal year ending September
30, 1999 by a vote of 6,879,699 (97.2%) shares cast for the
proposal in favor and 14,330 (.2%) shares against.
20
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
(CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.168 Fifteenth Amendment to Third Amended and Restated Credit
Agreement between Catalina Lighting, Inc. and SunTrust Bank,
Central Florida, N.A. dated March 31, 1999.
10.169 Tenth Amendment to Letter of Credit Agreement between Catalina
Industries, Inc. and SunTrust Bank, Central Florida, N.A. dated
March 31, 1999.
10.170 Amendment No.1 to Change in Control Agreement between Thomas M.
Bluth and Catalina Lighting, Inc., dated March 3, 1999.
10.171 Amendment No. 1 to Change in Control Agreement between David W.
Sasnett and Catalina Lighting, Inc., dated March 3, 1999.
10.172 First Amendment to License Agreement between CBS Corporation
(formerly Westinghouse Electric Corporation) and Catalina
Lighting, Inc., dated March 1, 1999.
10.173 Lease Agreement dated April 30, 1999 between Catalina
Industries, Inc. and Dana Realty Trust.
11 Schedule of Computation of Diluted Earnings per Share.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On April 21, 1999, the Company filed a Report on Form 8-K concerning an
Amendment to section 2.9 of the Company's By-laws - Quorum of
Stockholders.
On April 30, 1999, the Company filed a Report on Form 8-K concerning
the Settlement Agreement of a potential proxy contest between Catalina
Lighting, Inc. and David M. Moss.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
/s/ ROBERT HERSH
----------------
Robert Hersh
Chief Executive Officer and
President
/s/ DAVID W. SASNETT
--------------------
David W. Sasnett
Chief Financial Officer and
Chief Accounting Officer
Date: May 12, 1999
22
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.168 Fifteenth Amendment to Third Amended and Restated Credit
Agreement between Catalina Lighting, Inc. and SunTrust Bank,
Central Florida, N.A. dated March 31, 1999.
10.169 Tenth Amendment to Letter of Credit Agreement between Catalina
Industries, Inc. and SunTrust Bank, Central Florida, N.A. dated
March 31, 1999.
10.170 Amendment No.1 to Change in Control Agreement between Thomas M.
Bluth and Catalina Lighting, Inc., dated March 3, 1999.
10.171 Amendment No. 1 to Change in Control Agreement between David W.
Sasnett and Catalina Lighting, Inc., dated March 3, 1999.
10.172 First Amendment to License Agreement between CBS Corporation
(formerly Westinghouse Electric Corporation) and Catalina
Lighting, Inc., dated March 1, 1999.
10.173 Lease Agreement dated April 30, 1999 between Catalina
Industries, Inc. and Dana Realty Trust.
11 Schedule of Computation of Diluted Earnings per Share.
27 Financial Data Schedule
EXHIBIT 10.168
FIFTEENTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTEENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
(the "Fifteenth Amendment") dated as of March 31, 1999, 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 1,
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, as further amended by that Seventh
Amendment to Third Amended and Restated Credit Agreement, dated as of March 18,
1996, as further amended by that 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, as further amended by that Ninth Amendment
to Third Amended and Restated Credit Agreement, dated as of December 30, 1996,
as further amended by that Tenth Amendment to Third Amended and Restated Credit
Agreement, dated as of March 31, 1997, as further amended by that Eleventh
Amendment to Third Amended and Restated Credit Agreement, dated as of September
30, 1997, as further amended by that Twelfth
<PAGE>
Amendment to Third Amended and Restated Credit Agreement, dated as of December
31, 1997, as farther amended by that Thirteenth Amendment to Third Amended and
Restated Credit Agreement, dated as of March 31, 1998, and as further amended by
that Fourteenth Amendment to Third Amended and Restated Credit Agreement, dated
as of September 30, 1998 (as so amended, the "Credit Agreement"); and
WHEREAS, the Borrower and the Guarantors have requested that the Credit
Agreement be amended to revise certain financial and other covenants; 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 5.12 of the Credit Agreement is hereby deleted, and in lieu
thereof, there is substituted the following:
"Section 5.12. MINIMUM CONSOLIDATED TANGIBLE NET WORTH PLUS
SUBORDINATED DEBT. Permit its Minimum Consolidated Tangible
Net Worth Plus Subordinated Debt as of the last day of any
fiscal quarter to be less than (a) $42,691,000 PLUS (b) 75% of
cumulative Consolidated Net Income after December 31, 1998
PLUS (c) Subordinated Debt LESS (d) intangible assets LESS (e)
Consolidated Mandatorily Redeemable Stock, provided, however,
in the event Catalina Lighting, Inc. purchases up to
$2,000,000.00 worth of its issued and outstanding publicly
traded common stock and at the time of said purchase there is
no default under any other provision of the Credit Agreement,
then the Minimum Consolidated Tangible Net Worth Plus
Subordinated Debt covenant amounts provided above shall be
reduced by the amount of said stock purchases up to, but not
to exceed, $2,000,000.00."
2
<PAGE>
b. Section 5.14 of the Credit Agreement is hereby deleted, and in lieu
thereof, there is substituted the following:
"Section 5.14. INTEREST COVERAGE RATIO. Permit the ratio of
(a) the sum of (i) Consolidated Pre-tax Income PLUS (ii)
Consolidated Interest Charges to (b) Consolidated Interest
Charges, to be less than 1.0:1 for the one (1) calendar
quarterly period ending December 31, 1995; less than 0.60:1
for the immediately preceding two (2) calendar quarterly
periods ending March 31, 1996; less than 1.25:1 for the
immediately preceding three (3) calendar quarterly periods
ending June 30, 1996; less than 1.75:1 for the immediately
preceding four (4) calendar quarterly period ending September
30, 1996; less than 1.25:1 for the immediately preceding four
(4) calendar quarterly periods ending December 31, 1996;
excluding the effect of the actual pretax charge to earnings
previously disclosed to the Agent and the Banks not to exceed
$9,859,826.00 incurred during the quarterly period ending
March 31, 1997, less than 1.00:1 for the immediately preceding
four (4) calendar quarterly periods ending March 31, 1997;
excluding the effect of the actual pretax charge to earnings
not to exceed $432,000.00 incurred during the quarterly period
ending June 30, 1997 for all calculations for which said
quarterly period is included, less than 1.50:1 for the one (1)
calendar quarterly period ending June 30, 1997; less than
1.75:1 for the immediately preceding two (2) calendar
quarterly periods ending September 30, 1997; less than 1.40:1
for the immediately preceding three (3) calendar quarterly
periods ending December 31, 1997; less than 1.30:1 for the
immediately preceding four (4) calendar quarterly periods
ending March 31, 1998; less than 1.35:1 for the immediately
preceding four (4) calendar quarterly periods ending June 30,
1998; less than 1.35:1 for the immediately preceding four (4)
calendar quarterly periods ending September 30, 1998; less
than 1.35:1 for the immediately preceding four (4) calendar
quarterly periods ending December 31, 1998; less than 1.60:1
for the immediately preceding four (4) calendar quarterly
periods ending March 31, 1999; less than 1.75:1 for the
immediately preceding
3
<PAGE>
four (4) calendar quarterly periods ending June 30, 1999; and
less than 2.00:1 for the immediately preceding four (4)
calendar quarterly periods ending on the last day of each
calendar quarter thereafter."
c. Section 5.18(g) of the Credit Agreement is hereby deleted, and in
lieu thereof, there is substituted the following:
"the Borrower and any of its Subsidiaries may make other
investments, loans and advances in addition to those permitted
by the foregoing provisions of this Section 5.18 from time to
time, provided that the aggregate amount of such investments,
loans and advances shall not exceed $21,000,000.00 without the
prior written consent of all Banks and, further provided that
not more than $4,250,000.00 of said aggregate amount shall
represent the aggregate amount of investments, loans and
advances made to Catalina Lighting Mexico, S.A. DE C.V. For
the purpose of this subsection, the $21,000,000.00 limitation
referred to above shall not include the net note receivable
from Catalina Asia in the amount not to exceed $1,000,000.00."
2. COUNTERPARTS. The Fifteenth 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.
3. 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.
4. 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 Fifteenth 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
Fifteenth 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.
4
<PAGE>
5. GOVERNING LAW. THIS FIFTEENTH 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.
IN WITNESS WHEREOF, the parties have executed this Fourteenth Amendment
as of the day and year first above written.
(BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK)
5
<PAGE>
SIGNATURE PAGE TO FIFTEENTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
BY AND BETWEEN SUNTRUST, AS AGENT,
THE CATALINA ENTITIES AND THE BANKS
BORROWER:
CATALINA LIGHTING, INC.
By: /s/ THOMAS M. BLUTH
------------------------------------------
Thomas M. Bluth
Vice President, Secretary,
Treasurer
GUARANTORS:
EACH OF THE CORPORATIONS LISTED
ON ANNEX I HERETO
CATALINA INDUSTRIES, INC.,
D/B/A DANA LIGHTING
By: /s/ THOMAS M. BLUTH
------------------------------------------
Thomas M. Bluth
Secretary, Treasurer
CATALINA REAL ESTATE TRUST, INC.
By: /s/ THOMAS M. BLUTH
------------------------------------------
Thomas M. Bluth
Secretary, Treasurer
ANGEL STATION, INC.
By: /s/ THOMAS M. BLUTH
------------------------------------------
Thomas M. Bluth
Secretary, Treasurer
MERIDIAN LAMPS, INC.
By: /s/ THOMAS M. BLUTH
------------------------------------------
Thomas M. Bluth
Secretary, Treasurer
<PAGE>
SIGNATURE PAGE TO FIFTEENTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
BY AND BETWEEN SUNTRUST, AS AGENT,
THE CATALINA ENTITIES AND THE BANKS
MERIDIAN LAMPS DEVELOPMENT, INC.
By: /s/ THOMAS M. BLUTH
------------------------------------------
Thomas M. Bluth
Secretary, Treasurer
CATALINA ADMINISTRATIVE CORPORATION
By: /s/ THOMAS M. BLUTH
------------------------------------------
Thomas M. Bluth
Assistant Secretary
CATALINA MERCHANDISING, INC.
By: /s/ THOMAS M. BLUTH
------------------------------------------
Thomas M. Bluth
Secretary, Treasurer
<PAGE>
SIGNATURE PAGE TO FIFTEENTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
BY AND BETWEEN SUNTRUST, AS AGENT,
THE CATALINA ENTITIES AND THE BANKS
AGENT:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By: /s/ RANDY P. CHESAK
------------------------------------------
Randy P. Chesak
Vice President
BANK
Amount of SUNTRUST BANK, CENTRAL FLORIDA,
Commitment: $22,000,000* NATIONAL ASSOCIATION, f/k/a SUN
BANK, NATIONAL ASSOCIATION
By: /s/ RANDY P. CHESAK
------------------------------------------
Randy P. Chesak
Vice President
Lending Office:
501 East Las Olas Boulevard
7th Floor
Ft. Lauderdale, Florida 33301
Address for purposes of Section 12.1:
SunTrust Banks, Inc.
501 East Las Olas Boulevard
7th Floor
Ft. Lauderdale, Florida 33301
Telex No.: 4415-11 SunBank
Telecopier No.: (954) 765-7240
Telephone No.: (954) 765-7608
Attention: Mr. Randy P. Chesak
*($1,194,340.00 of which shall consist
only of the Non-Revolving Advance)
<PAGE>
SIGNATURE PAGE TO FIFTEENTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
BY AND BETWEEN SUNTRUST, AS AGENT,
THE CATALINA ENTITIES AND THE BANKS
BANK:
NATIONAL BANK OF CANADA,
a Canadian chartered bank
Amount of By: /s/ MICHAEL S. BLOOMENFELD
Commitment: $13,000,000* ------------------------------------------
Michael S. Bloomenfeld
Vice President and Manager
Lending Office:
5100 Town Center Circle
Suite 430
Boca Raton, Florida 33486
Attention: Michael S. Bloomenfeld
Reference: Catalina Lighting, Inc.
Address for purposes of Section 12.1:
National Bank of Canada
5100 Town Center Circle
Suite 430
Boca Raton, Florida 33486
Attention: Michael S. Bloomenfeld
Telecopier: (407) 367-1705
Telephone: (407) 367-1700
*($705,660.00 of which shall consist
only of the Non-Revolving Advance)
EXHIBIT 10.169
TENTH AMENDMENT TO
LETTER OF CREDIT AGREEMENT
THIS TENTH AMENDMENT TO LETTER OF CREDIT AGREEMENT (the "Tenth
Amendment") dated as of March 31, 1999 by and among CATALINA INDUSTRIES, INC.
D/B/A DANA LIGHTING, a Florida corporation (the "Company"), the corporations
designated as guarantors (collectively, the "Guarantors") and SUNTRUST BANK,
CENTRAL FLORIDA, NATIONAL ASSOCIATION F/K/A SUN BANK, NATIONAL ASSOCIATION, a
national banking association (the "Bank").
W I T N E S S E T H:
WHEREAS, the Company, Guarantors and the Bank have entered into that
certain Letter of Credit Agreement dated as of May 1, 1995, as amended by that
certain First Amendment to Letter of Credit Agreement dated as of June 30, 1995,
as further amended by that certain Second Amendment to Letter of Credit
Agreement and First Amendment to Security Agreement dated as of December 28,
1995, as further amended by that certain Third Amendment to Letter of Credit
Agreement dated as of March 27, 1996, as further amended by that certain Fourth
Amendment to Letter of Credit Agreement dated as of December 30, 1996, as
further amended by that certain Fifth Amendment to Letter of Credit Agreement
dated as of March 31, 1997, as further amended by that certain Sixth Amendment
to Letter of Credit Agreement dated as of September 30, 1997, as further amended
by that certain Seventh Amendment to Letter of Credit Agreement dated as of
December 31, 1997, as further amended by that certain Eighth Amendment to Letter
of Credit Agreement dated as of March 31, 1998, and as further amended by that
certain Ninth Amendment to Letter of Credit Agreement dated as of September 30,
1998 (as amended, the "Letter of Credit Agreement"); and
WHEREAS, the Company and the Guarantors have requested that the Letter
of Credit Agreement be amended to revise certain financial covenants contained
in Annex VI attached to said Letter of Credit Agreement and incorporated therein
by reference; and
WHEREAS, the Bank has agreed to amend the Letter of 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:
<PAGE>
1. Amendments to Letter of Credit Agreement. The Letter of Credit Agreement is
amended as follows:
a. Section 5.12, contained in Annex VI attached to the Letter of Credit
Agreement, is hereby deleted and, in lieu thereof, there is substituted the
following:
"Section 5.12. MINIMUM CONSOLIDATED TANGIBLE NET WORTH PLUS
SUBORDINATED DEBT. Permit its Minimum Consolidated Tangible Net Worth
Plus Subordinated Debt as of the last day of any fiscal quarter to be
less than (a) $42,691,000 PLUS (b) 75% of cumulative Consolidated Net
Income after December 31, 1998 PLUS (c) Subordinated Debt LESS (d)
intangible assets LESS (e) Consolidated Mandatorily Redeemable Stock,
provided, however, in the event Catalina Lighting, Inc. purchases up to
$2,000,000.00 worth of its issued and outstanding publicly traded
common stock and at the time of said purchase there is no default under
any other provision of the Credit Agreement, then the Minimum
Consolidated Tangible Net Worth Plus Subordinated Debt covenant amounts
provided above shall be reduced by the amount of said stock purchases
up to, but not to exceed, $2,000,000.00."
b. Section 5.14, contained in Annex VI attached to the Letter of Credit
Agreement, is hereby deleted and, in lieu thereof, there is substituted the
following:
"Section 5.14. INTEREST COVERAGE RATIO. Permit the ratio of (a) the sum
of (i) Consolidated Pre-tax Income PLUS (ii) Consolidated Interest
Charges to (b) Consolidated Interest Charges, to be less than 1.0:1 for
the one (1) calendar quarterly period ending December 31, 1995; less
than 0.60:1 for the immediately preceding two (2) calendar quarterly
periods ending March 31, 1996; less than 1.25:1 for the immediately
preceding three (3) calendar quarterly periods ending June 30, 1996;
less than 1.75:1 for the immediately preceding four (4) calendar
quarterly period ending September 30, 1996; less than 1.25:1 for the
2
<PAGE>
immediately preceding four (4) calendar quarterly periods ending
December 31, 1996; excluding the effect of the actual pretax charge to
earnings previously disclosed to the Agent and the Banks not to exceed
$9,859,826.00 incurred during the quarterly period ending March 31,
1997, less than 1.00:1 for the immediately preceding four (4) calendar
quarterly periods ending March 31, 1997; excluding the effect of the
actual pretax charge to earnings not to exceed $432,000.00 incurred
during the quarterly period ending June 30, 1997 for all calculations
for which said quarterly period is included, less than 1.50:1 for the
one (1) calendar quarterly period ending June 30, 1997; less than
1.75:1 for the immediately preceding two (2) calendar quarterly periods
ending September 30, 1997; less than 1.40:1 for the immediately
preceding three (3) calendar quarterly periods ending December 31,
1997; less than 1.30:1 for the immediately preceding four (4) calendar
quarterly periods ending March 31, 1998; less than 1.35:1 for the
immediately preceding four (4) calendar quarterly periods ending June
30, 1998; less than 1.35:1 for the immediately preceding four (4)
calendar quarterly periods ending September 30, 1998; less than 1.35:1
for the immediately preceding four (4) calendar quarterly periods
ending December 31, 1998; less than 1.60:1 for the immediately
preceding four (4) calendar quarterly periods ending March 31, 1999;
less than 1.75:1 for the immediately preceding four (4) calendar
quarterly periods ending June 30, 1999; and less than 2.00:1 for the
immediately preceding four (4) calendar quarterly periods ending on the
last day of each calendar quarter thereafter."
c. Section 5.18(g), contained in Annex VI attached to the Letter of
Credit Agreement, is hereby deleted and, in lieu thereof, there is substituted
the following:
"the Borrower and any of its Subsidiaries may make other investments,
loans and advances in addition to those
3
<PAGE>
permitted by the foregoing provisions of this Section 5.18 from time to
time, provided that the aggregate amount of such investments, loans and
advances shall not exceed $21,000,000.00 without the prior written
consent of all Banks and, further provided that not more than
$4,250,000.00 of said aggregate amount shall represent the aggregate
amount of investments, loans and advances made to Catalina Lighting
Mexico, S.A. DE C.V. For the purpose of this subsection, the
$21,000,000.00 limitation referred to above shall not include the net
note receivable from Catalina Asia in the amount not to exceed
$1,000,000.00."
2. COUNTERPARTS. The Tenth 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.
3. CAPITALIZED TERMS. All capitalized terms contained herein shall have the
meanings assigned to them in the Letter of Credit Agreement unless the context
herein otherwise dictates or unless different meanings are specifically assigned
to such terms herein.
4. RATIFICATION OF LOAN DOCUMENTS: MISCELLANEOUS. The Letter of Credit Agreement
as amended hereby shall remain in full force and effect and this Tenth Amendment
to Letter of Credit Agreement shall not be deemed a novation. Each and every
reference to the Letter of Credit Agreement and any other Operative Documents
shall be deemed to refer to the Letter of Credit Agreement as amended by the
Tenth Amendment. The Company and the Guarantors hereby acknowledge and represent
that the Operative 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.
5. GOVERNING LAW. THIS TENTH AMENDMENT SHALL BE EFFECTIVE UPON ACCEPTANCE BY THE
BANK 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)
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Tenth Amendment as
of the day and year first above written.
COMPANY:
CATALINA INDUSTRIES, INC.
d/b/a Dana Lighting
By: /s/ THOMAS M. BLUTH
-------------------------------------
Thomas M. Bluth
Secretary/Treasurer
GUARANTORS:
CATALINA LIGHTING, INC.
By: /s/ THOMAS M. BLUTH
-------------------------------------
Thomas M. Bluth
Vice President,
Secretary/Treasurer
CATALINA REAL ESTATE TRUST, INC.
By: /s/ THOMAS M. BLUTH
-------------------------------------
Thomas M. Bluth
Secretary/Treasurer
ANGEL STATION, INC.
By: /s/ THOMAS M. BLUTH
-------------------------------------
Thomas M. Bluth
Secretary/Treasurer
MERIDIAN LAMPS, INC.
By: /s/ THOMAS M. BLUTH
-------------------------------------
Thomas M. Bluth
Secretary/Treasurer
5
<PAGE>
MERIDIAN LAMPS DEVELOPMENT, INC.
By: /s/ THOMAS M. BLUTH
-------------------------------------
Thomas M. Bluth
Secretary/Treasurer
CATALINA ADMINISTRATIVE CORPORATION
By: /s/ THOMAS M. BLUTH
-------------------------------------
Thomas M. Bluth
Assistant Secretary
BANK:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION F/K/A SUN BANK,
NATIONAL ASSOCIATION
By: /s/ RANDY P. CHESAK
-------------------------------------
Randy P. Chesak
Vice President
EXHIBIT 10.170
AMENDMENT NO. 1
This Amendment No. 1 dated March 3, 1999 is an Amendment No. 1 to that certain
agreement dated May 7, 1998, by and between Catalina Lighting, Inc., a Florida
corporation (the "Company") and Thomas Bluth (the "Executive") (the
"Agreement").
A. Section 1 of the Agreement is deleted in its entirety and replaced by
the following Section 1:
1. TERM OF AGREEMENT
This Agreement shall be effective on April 1, 1998 (the
"Effective Date") and shall continue in effect through March
31, 2000 provided however, if a change in control of the
Company shall have occurred during the term of this Agreement,
this Agreement shall continue in effect until all payments, if
any, required to be made by the Company or otherwise to the
Executive under this Agreement shall have been paid in full.
B. The following provision shall be added as Section 8 to the Agreement:
8. Severance compensation when there is no change in control. In
the event there is no change in control as defined in Section
2(I) of the Agreement, and the Executive is terminated without
"cause" (as defined in Section 8 (iii) below), the Executive
shall be entitled to the following benefits:
(i) payment of an amount equal to the Executive's then
current annual salary, such amount to be paid in four
(4) equal quarterly payments;
(ii) the Executive shall not be entitled to receive this
severance amount if the Executive is terminated with
"cause";
(iii) "Cause" shall mean any action by the Executive or any
inaction by the Executive which is reasonably
believed by the Company to constitute:
(a) fraud, embezzlement, misappropriation,
dishonesty or breach of trust;
(b) a felony or moral turpitude;
(c) material breach or violation of any or all
of the covenants, agreements and obligations
of the Executive set forth in this
Agreement, other than as the result of the
Executive's death or Disability (as
hereinafter defined);
<PAGE>
(d) a willful or knowing failure or refusal by
the Executive to perform any or all of his
material duties and responsibilities as an
officer of the Company, other than as the
result of the Executive's death or
Disability; or
(e) gross negligence by the Executive in the
performance of any or all of his material
duties and responsibilities as an officer of
the Company, other than as the result of the
Executive's death or disability; provided,
however, that in the event that the basis
for any termination of the Executive's
employment by the Company as set forth in
the Termination Notice (as hereinafter
defined) delivered by the Company to the
Employee is any or all of the definitions of
Cause set forth in Section 5.1(a)(iii) or
Section 5.1(a)(iv) of this Agreement, then,
in such event, the Employee shall have
thirty (30) days from and after the date of
his receipt of such Termination Notice to
cure the action or inaction specified
therein to the reasonable satisfaction of
the Company.
In witness whereof, the parties have signed this Amendment No. 1 to the
Agreement this 3rd day of March, 1999.
CATALINA LIGHTING, INC.
By: /s/ ROBERT HERSH
-------------------------
Robert Hersh
Chairman, President and
Chief Executive Officer
ACCEPTED AND AGREED:
By: /s/ THOMAS BLUTH
-------------------------
Thomas Bluth
EXHIBIT 10.171
AMENDMENT NO. 1
This Amendment No. 1 dated March 3, 1999 is an Amendment No. 1 to that certain
agreement dated May 7, 1998, by and between Catalina Lighting, Inc., a Florida
corporation (the "Company") and David Sasnett (the "Executive") (the
"Agreement").
A. Section 1 of the Agreement is deleted in its entirety and replaced by
the following Section 1:
1. TERM OF AGREEMENT
This Agreement shall be effective on April 1, 1998 (the
"Effective Date") and shall continue in effect through March
31, 2000 provided however, if a change in control of the
Company shall have occurred during the term of this Agreement,
this Agreement shall continue in effect until all payments, if
any, required to be made by the Company or otherwise to the
Executive under this Agreement shall have been paid in full.
B. The following provision shall be added as Section 8 to the Agreement:
8. Severance compensation when there is no change in control. In
the event there is no change in control as defined in Section
2(I) of the Agreement, and the Executive is terminated without
"cause" (as defined in Section 8 (iii) below), the Executive
shall be entitled to the following benefits:
(i) payment of an amount equal to the Executive's then
current annual salary, such amount to be paid in four
(4) equal quarterly payments;
(ii) the Executive shall not be entitled to receive this
severance amount if the Executive is terminated with
"cause";
(iii) "Cause" shall mean any action by the Executive or any
inaction by the Executive which is reasonably
believed by the Company to constitute:
(a) fraud, embezzlement, misappropriation,
dishonesty or breach of trust;
(b) a felony or moral turpitude;
(c) material breach or violation of any or all
of the covenants, agreements and obligations
of the Executive set forth in this
Agreement, other than as the result of the
Executive's death or Disability (as
hereinafter defined);
<PAGE>
(d) a willful or knowing failure or refusal by
the Executive to perform any or all of his
material duties and responsibilities as an
officer of the Company, other than as the
result of the Executive's death or
Disability; or
(e) gross negligence by the Executive in the
performance of any or all of his material
duties and responsibilities as an officer of
the Company, other than as the result of the
Executive's death or disability; provided,
however, that in the event that the basis
for any termination of the Executive's
employment by the Company as set forth in
the Termination Notice (as hereinafter
defined) delivered by the Company to the
Employee is any or all of the definitions of
Cause set forth in Section 5.1(a)(iii) or
Section 5.1(a)(iv) of this Agreement, then,
in such event, the Employee shall have
thirty (30) days from and after the date of
his receipt of such Termination Notice to
cure the action or inaction specified
therein to the reasonable satisfaction of
the Company.
In witness whereof, the parties have signed this Amendment No. 1 to the
Agreement this 3rd day of March, 1999.
CATALINA LIGHTING, INC.
By: /s/ ROBERT HERSH
-------------------------
Robert Hersh
Chairman, President and
Chief Executive Officer
ACCEPTED AND AGREED:
By: /s/ DAVID SASNETT
-------------------------
David Sasnett
EXHIBIT 10.172
FIRST AMENDMENT TO THE LICENSE AGREEMENT
This First Amendment is made by and between CBS Corporation, formerly
Westinghouse Electric Corporation, a Pennsylvania corporation, having a place of
business at 11 Stanwix Street, Pittsburgh, Pennsylvania, 15222-1384,
(hereinafter "WESTINGHOUSE") and Catalina Lighting, Inc., a Florida corporation,
having a place of business at 16191 N.W. 66th Avenue, Miami, Florida 33015
(hereinafter "LICENSEE").
WHEREAS, WESTINGHOUSE and LICENSEE entered into a license agreement
dated April 26, 1996 wherein WESTINGHOUSE granted LICENSEE certain license to
use the famous WESTINGHOUSE trademarks (hereinafter "ORIGINAL AGREEMENT");
WHEREAS, Westinghouse Electric Corporation changed its name to CBS
Corporation on December 1, 1997; and
WHEREAS, LICENSEE and WESTINGHOUSE desire to amend certain provisions
of the ORIGINAL AGREEMENT while maintaining the remaining provisions thereof
unchanged.
NOW, THEREFORE, in consideration of the mutual promises made herein,
the sufficiency of which is hereby acknowledged, the parties agree as follows:
1.0 Exhibit A showing the trademarks licensed under the ORIGINAL
AGREEMENT is attached hereto and made a part hereof.
<PAGE>
2.0 LICENSEE hereby forever releases, terminates and discharges its
right of first refusal on any license by WESTINGHOUSE for the Lighting Related
Products - right of First Refusal set forth in Exhibit B of the ORIGINAL
AGREEMENT.
3.0 A new "Exhibit D" attached hereto and made a part hereof is hereby
substituted for the Exhibit D of the ORIGINAL AGREEMENT.
4.0 The reference to "Exhibit C" in Article 4 of the ORIGINAL AGREEMENT
is hereby amended to be "Exhibit D" attached hereto.
5.0 Article 9 "Term" of the ORIGINAL AGREEMENT is hereby deleted and
replaced with the following:
9. TERM.
(a) The initial term of this agreement (the "Contract Period")
shall be for a period of approximately 78 months commencing as
of April 1, 1996 and ending on September 30, 2002; provided,
however, if Licensee fails to meet the minimum net shipments
set forth on Exhibit D during years 4, 5 and 6, either party
shall have the right to terminate this License Agreement.
(b) WESTINGHOUSE hereby grants to Licensee the option to extend the
term of this agreement for up to two (2) five (5) year periods
(the "Extension Periods") commencing on September 30, 2002
unless sooner terminated. Such Extension Periods are subject to
the same terms and conditions as provided herein. Such options
to extend the term of this Agreement must be exercised by
Licensee, if at all, by giving written notice to Westinghouse
at least 90 days prior the expiration of the then preceding
Contract or Extension Period.
6.0 The notice address for WESTINGHOUSE in Article 12(e) of the
ORIGINAL AGREEMENT is hereby amended to be:
Attention:
Office of General Counsel
CBS Corporation
11 Stanwix Street
Pittsburgh, PA 15222-1384
7.0 All other provisions of the ORIGINAL AGREEMENT remain as stated
therein.
2
<PAGE>
8.0 Upon execution by both parties the effective date of this First
Amendment shall be March 1, 1999.
In WITNESS WHEREOF and intending to be legally bound, the parties
hereto have caused these presents to be signed by their proper officers
thereunto duly authorized.
CATALINA LIGHTING, INC. WITNESS:
By: /s/ ROBERT HERSH /s/ [ILLEGIBLE]
----------------------------------------- ---------------------------
Robert Hersh
Chairman and Chief Executive Officer
CBS CORPORATION WITNESS:
By: /s/ LOUIS J. BRISKMAN /s/ BARBARA PLECO
----------------------------------------- ---------------------------
Louis J. Briskman
Executive Vice President
and General Counsel
Date: 3/29/99
3
<PAGE>
EXHIBIT A
Circle W Logo Mark
[GRAPHIC OMITTED]
Logotype
Westinghouse
EXHIBIT 10.173
LEASE AGREEMENT
THIS LEASE AGREEMENT, dated April 30, 1999 is made and entered into by
and between Dana Realty Trust, a Massachusetts Trust hereinafter referred to as
"Lessor", and Catalina Industries, Inc., a Florida corporation hereinafter
referred to as "Lessee."
W I T N E S S T H
1. PREMISES AND TERM. In consideration of the mutual obligations of
Lessor and Lessee set forth herein, Lessor leases to Lessee, and Lessee leases
from Lessor the approximately 37,000 square foot building (the "Premises") known
and numbered as 55 Norfolk Avenue, Easton, Massachusetts, together with all
rights, privileges, easements, appurtenances, and amenities belonging to or in
any way pertaining to the Premises, to have and to hold, subject to the terms,
covenants and conditions in this Lease. The term of this Lease shall commence on
July 1, 1999 and shall terminate on June 30, 2000.
2. RENT. Lessee agrees to pay to Lessor rent for the Premises, in
advance, without demand, at the rate of Eleven Thousand Dollars ($11,000.00) per
month during the term of this Lease. The above $11,000.00 monthly rent will be
adjusted, prospectively, for any increases and/or decreases in real estate
taxes, property insurance premiums (assuming the same coverage as currently
existing) and/or mortgage interest rates (assuming the present mortgage
agreement) with respect to the Premises. Notwithstanding the above, no changes
will be made in the monthly rent due to the refinancing of the real estate
mortgage.
3. REPAIRS. Lessor, at its own cost and expense, shall maintain the
roof, foundation and structural soundness of the exterior walls of the building
of which the Premises are a part in good repair, reasonable wear and tear
excluded. Lessee, at its own cost and expense, shall maintain all parts of the
Premises (except those for which Lessor is expressly responsible hereunder) in
good condition.
4. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, sewer and other utilities and services used on or at the Premises for
the term of this Lease.
5. FIRE AND CASULATY DAMAGE. If the Premises should be damaged or
destroyed by fire or other peril so that the Premises are unusable by Lessee for
a period exceeding thirty (30) days, this Lease shall become void.
6. SUBLETTING. Lessee shall have the right to sublet any or all of the
Premises during the term of this Lease.
7. QUIET ENJOYMENT. Lessor covenants that it has good title to the
Premises, free and clear of all liens and encumbrances, expecting only the lien
for current taxes not yet due, mortgages, government ordinances, and easements,
restrictions and other conditions of public record.
<PAGE>
8. TAXES AND INSURANCE. Lessor shall be responsible for all real estate
taxes with respect to the Premises. Lessor shall be responsible for insuring the
physical structure of the Premises. Lessee shall pay all taxes charged against
any personal property owned by the Lessee. Lessee shall be responsible for
insuring all of Lessee's personal property contained in the Premises.
9. OPTION. This Lease may be extended for an one (1) year period upon
the mutual written agreement of Lessee and Lessor.
10. MUTUAL RELEASES. Lessor agrees to hold Lessee harmless from any
loss or claim arising out of the negligence of Lessor or its agents, employees,
representatives or invitees. Lessee agrees to hold Lessor harmless from any loss
or claim arising out of the negligence of Lessee or its agents, employees,
representatives or invitees.
11. SALE OF BUILDING. Upon the execution of a purchase contract with
respect to the Premises, Lessor shall have the right to cancel this Lease upon
ninety (90) days written notice to Lessee.
EXECUTED THIS 30TH DAY OF APRIL, 1999.
DANA REALTY TRUST
/S/ NATHAN KATZ
By:
CATALINA INDUSTRIES, INC.
/S/ ROBERT HERSH
By:
EXHIBIT 11
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF DILUTED EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $1,159 $ 536 $1,662 $ 155
Interest on convertible subordinated notes, net of
income taxes 103 -- 206 --
------ ------ ------ ------
Net income for diluted earnings per common
share $1,262 $ 536 $1,868 $ 155
====== ====== ====== ======
Weighted average number of common shares
outstanding during the period 7,080 7,109 7,127 7,107
Common equivalent shares determined
using the "Treasury Stock" method
representing shares issuable upon exercise
of stock options and warrants 343 312 189 493
Shares issuable upon conversion of convertible
subordinated notes 1,138 -- 1,138 --
------ ------ ------ ------
Weighted average number of shares used in
calculation of diluted earnings per share 8,561 7,421 8,454 7,600
====== ====== ====== ======
Diluted earnings per common share $ 0.15 $ 0.07 $ 0.22 $ 0.02
====== ====== ====== ======
</TABLE>
NOTE
Subordinated notes convertible into 1,040,000 common shares in 1998 were not
included because their effect was anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Form 10-Q and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 2,854
<SECURITIES> 0
<RECEIVABLES> 20,942
<ALLOWANCES> 8,994
<INVENTORY> 26,007
<CURRENT-ASSETS> 60,042
<PP&E> 26,502
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,096
<CURRENT-LIABILITIES> 30,358
<BONDS> 6,900
0
0
<COMMON> 73
<OTHER-SE> 43,561
<TOTAL-LIABILITY-AND-EQUITY> 100,096
<SALES> 84,931
<TOTAL-REVENUES> 84,931
<CGS> 67,621
<TOTAL-COSTS> 67,621
<OTHER-EXPENSES> 13,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,400
<INCOME-PRETAX> 2,308
<INCOME-TAX> 646
<INCOME-CONTINUING> 1,662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,662
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.22
</TABLE>
