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, 2000
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
----------
(I.R.S. Employer Identification Number)
18191 NW 68TH AVENUE, MIAMI, FLORIDA 33015
------------------------------------------
(Address of principal executive offices) (Zip Code)
(305) 558-4777
--------------
Registrant's telephone number, including area code
----------------------------------------------------------------------
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, 2000: 7,182,380 SHARES.
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
--------
Condensed consolidated balance sheets -
March 31, 2000 and September 30, 1999.............................3
Condensed consolidated statements of operations -
Three and six months ended March 31, 2000 and 1999................5
Condensed consolidated statements of cash flows -
Six months ended March 31, 2000 and 1999..........................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...........................20
2
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS MARCH 31, SEPTEMBER 30,
------ 2000 1999
------------------ ----------------
(Unaudited) *
<S> <C> <C>
Current assets
Cash and cash equivalents $ 8,609 $ 7,253
Restricted cash equivalents and short-term investments 2,327 1,721
Accounts receivable, net of allowances
of $7,562 and $8,591, respectively 17,770 20,150
Inventories 26,319 28,668
Other current assets 5,129 6,435
------------------ ----------------
Total current assets 60,154 64,227
Property and equipment, net 24,234 24,737
Goodwill, net 10,333 10,561
Other assets 2,936 2,372
------------------ ----------------
$ 97,657 $ 101,897
================== ================
</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,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------------------------------ ---------------- ------------
(Unaudited) *
<S> <C> <C>
Current liabilities
Accounts and letters of credit payable $ 12,549 $ 14,939
Notes payable - credit lines 1,932 2,200
Note payable - other 1,404 -
Current maturities of subordinated notes 2,500 2,500
Current maturities of bonds payable-real estate related 900 2,210
Current maturities of other long-term debt 483 487
Other current liabilities 3,766 6,437
------------- -----------
Total current liabilities 23,534 28,773
Notes payable - credit lines 14,400 12,150
Convertible subordinated notes 2,566 5,100
Bonds payable - real estate related 6,000 6,000
Other long-term debt 1,274 1,524
Other liabilities 734 293
------------- -----------
Total liabilities 48,508 53,840
Commitments and contingencies
Stockholders' equity
Common stock, issued and outstanding 7,712
shares and 7,373 shares, respectively 77 74
Additional paid-in capital 27,729 26,927
Retained earnings 23,555 22,266
Treasury stock, 580 shares and 378 shares, respectively (2,212) (1,210)
------------- -----------
Total stockholders' equity 49,149 48,057
------------- -----------
$ 97,657 $ 101,897
============= ===========
</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,
------------------------------------- -------------------------------------
2000 1999 2000 1999
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 42,033 $ 42,128 $ 85,241 $ 84,931
Cost of sales 34,032 32,947 68,345 67,621
----------------- ---------------- ---------------- -----------------
Gross profit 8,001 9,181 16,896 17,310
Selling, general and administrative
expenses 6,696 7,089 13,477 13,900
Executive management reorganization - - 788 -
----------------- ---------------- ---------------- -----------------
Operating income 1,305 2,092 2,631 3,410
----------------- ---------------- ---------------- -----------------
Other income (expenses):
Interest expense (564) (671) (1,108) (1,400)
Other income (expenses) 365 186 372 298
----------------- ---------------- ---------------- -----------------
Total other income (expenses) (199) (485) (736) (1,102)
----------------- ---------------- ---------------- -----------------
Income before income taxes 1,106 1,607 1,895 2,308
Income tax provision 354 448 606 646
----------------- ---------------- ---------------- -----------------
Net income $ 752 $ 1,159 $ 1,289 $ 1,662
================= ================ ================ =================
Weighted average number of
shares outstanding
Basic 6,931 7,080 6,962 7,127
Diluted 8,761 8,561 8,830 8,454
Earnings per share
Basic $ 0.11 $ 0.16 $ 0.19 $ 0.23
Diluted $ 0.10 $ 0.15 $ 0.17 $ 0.22
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31,
------------------------------------------
2000 1999
---------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,289 $ 1,662
Adjustments for non-cash items 2,749 2,487
Change in assets and liabilities 541 614
---------------- --------------
Net cash provided by (used in) operating activities 4,579 4,763
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (1,597) (815)
Decrease (increase) in restricted cash equivalents and
short-term investments (156) 105
---------------- --------------
Net cash provided by (used in) investing activities (1,753) (710)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 805 143
Payments to repurchase common stock (1,002) (495)
Payments on other long term debt and other liabilities (365) (379)
Payments on bonds payable (1,310) (80)
Payment on convertible subordinated notes (2,534) -
Proceeds from notes payable - credit lines 23,800 17,900
Payments on notes payable - credit lines (21,550) (18,100)
Proceeds from note payable - other 1,404 -
Net proceeds from (payments on) notes payable - credit lines
due on demand (268) (1,528)
Sinking fund redemption payments on bonds (450) (450)
---------------- --------------
Net cash provided by (used in) financing activities (1,470) (2,989)
---------------- --------------
Net increase (decrease) in cash and cash equivalents 1,356 1,064
Cash and cash equivalents at beginning of period 7,253 1,790
---------------- --------------
Cash and cash equivalents at end of period $ 8,609 $ 2,854
================ ==============
</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,
-----------------------------------
2000 1999
---------------- ----------------
(IN THOUSANDS)
Cash paid (received) for:
Interest $ 1,146 $ 1,206
Income taxes $ (473) $ 1,635
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, 1999 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, 2000 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 No. 130, "Reporting Comprehensive Income ("SFAS 130")," 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, 2000 equals comprehensive income for the same periods.
2. INVENTORIES
Inventories consisted of the following:
MARCH 31, SEPTEMBER 30,
2000 1999
----------------- ------------------
(In thousands)
Raw materials $ 4,522 $ 4,050
Work-in-progress 920 932
Finished goods 20,877 23,686
----------------- ------------------
Total inventories $ 26,319 $ 28,668
================= ==================
Costs capitalized in finished goods associated with acquiring, storing and
preparing inventory for distribution amounted to approximately $1.9 million and
$2.2 million at March 31, 2000 and September 30, 1999, respectively.
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 the right to use the above
land until January 18, 2042. The land use rights are non-transferable. Under the
terms of the SJE joint venture agreement, ownership of the land and buildings of
SJE is divided 70% to Go-Gro and 30% to the other joint venture partner. Land
costs, including the land use rights, approximated $2.6 million of which Go-Gro
has paid its 70% proportionate share of $1.8 million. Under the terms of this
agreement, 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% was required to be and was completed by April 1, 1997. The
remainder of the construction was to be completed by December 31, 1999; however,
the Company has exercised its rights to extend the construction date to December
31, 2000 by incurring an extension fee. The total cost for this project is
estimated at $16.5 million (of which $10.6 million had been expended as of March
31, 2000) and includes approximately $1 million for a Municipal Coordination
Facilities Fee (MCFF). The MCFF is based upon the square footage to be
constructed. The
8
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
agreement calls for the MCFF to be paid in installments beginning in January
1997 of which $589,000 had been accrued as of March 31, 2000. A 162,000 square
foot factory, 77,000 square foot warehouse and 60,000 square foot dormitory
became fully operational in June 1997. SJE began construction of the final phase
of this facility in December 1999.
4. NOTE PAYABLE - OTHER
In October 1999, the Company borrowed 11.7 million in Chinese Renminbi
(approximately U.S. $1.4 million) from a Chinese Bank. The loan bears interest
at 5.85%, payable monthly, and repayment is due in October 2000. The agreement
requires the Company to maintain U.S. $1.5 million in collateral.
5. COMMITMENT
In January 2000, the Company renewed a consulting agreement for a two-year
period beginning April 1, 2000, for an annual fee of $140,000 payable monthly.
6. SEGMENT INFORMATION
Information on operating segments and a reconciliation to income before income
taxes for the three and six months ended March 31, 2000 and 1999 are as follows
(in thousands):
NET SALES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
EXTERNAL EXTERNAL
CUSTOMERS INTERSEGMENT TOTAL CUSTOMERS INTERSEGMENT TOTAL
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 27,256 $ 276 $ 27,532 $ 32,147 $ 301 $ 32,448
China 6,735 23,150 29,885 4,722 26,865 31,587
Other segments 8,042 - 8,042 5,259 161 5,420
Elimination - (23,426) (23,426) - (27,327) (27,327)
------------------------------------- -------------------------------------
Total $ 42,033 $ - $ 42,033 $ 42,128 $ - $ 42,128
===================================== =====================================
<CAPTION>
SIX MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
EXTERNAL EXTERNAL
CUSTOMERS INTERSEGMENT TOTAL CUSTOMERS INTERSEGMENT TOTAL
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 56,633 $ 550 $ 57,183 $ 64,415 $ 760 $ 65,175
China 12,402 52,016 64,418 10,004 55,086 65,090
Other segments 16,206 121 16,327 10,512 161 10,673
Elimination - (52,687) (52,687) - (56,007) (56,007)
------------------------------------- -------------------------------------
Total $ 85,241 $ - $ 85,241 $ 84,931 $ - $ 84,931
===================================== =====================================
</TABLE>
9
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. SEGMENT INFORMATION (CONTINUED)
NET SALES BY LOCATION OF EXTERNAL CUSTOMERS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------------ -----------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
United States $ 27,319 $ 32,264 $ 56,739 $ 64,640
Canada 6,732 4,585 13,692 8,979
Other countries 7,982 5,279 14,810 11,312
-------------- -------------- -------------- --------------
Net sales $ 42,033 $ 42,128 $ 85,241 $ 84,931
============== ============== ============== ==============
</TABLE>
SEGMENT CONTRIBUTION:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------------ -----------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
United States $ 771 $ 1,495 $ 1,075 $ 2,126
China 996 1,755 2,804 3,035
Other segments 210 (536) 583 (1,106)
-------------- -------------- -------------- --------------
Subtotal for segments 1,977 2,714 4,462 4,055
Executive management reorganization - - (788) -
Parent/administrative expenses (871) (1,107) (1,779) (1,747)
-------------- -------------- -------------- --------------
Income (loss) before income taxes $ 1,106 $ 1,607 $ 1,895 $ 2,308
============== ============== ============== ==============
</TABLE>
INTEREST EXPENSE (1):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------------ -----------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
United States $ 115 $ 219 $ 272 $ 534
China 224 239 458 499
Other segments 123 108 269 215
-------------- -------------- -------------- --------------
Subtotal for segments 462 566 999 1,248
Parent interest expense 102 105 109 152
-------------- -------------- -------------- --------------
Total interest expense $ 564 $ 671 $ 1,108 $ 1,400
============== ============== ============== ==============
</TABLE>
TOTAL ASSETS:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
-------------- ---------------
<S> <C> <C>
United States $ 47,874 $ 55,411
China 48,327 47,316
Other segments 12,426 13,776
Eliminations (10,970) (14,606)
-------------- ---------------
Total assets $ 97,657 $ 101,897
============== ===============
</TABLE>
10
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. SEGMENT INFORMATION (CONTINUED)
LONG-LIVED ASSETS (2):
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
-------------- ---------------
<S> <C> <C>
United States $ 12,300 $ 12,634
China 11,626 11,747
Other segments 308 356
-------------- ---------------
Total long-lived assets $ 24,234 $ 24,737
============== ===============
</TABLE>
EXPENDITURES FOR ADDITIONS TO LONG-LIVED ASSETS:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
-------------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
United States $ 388 $ 355
China 1,159 390
Other segments 50 70
-------------- ---------------
Total expenditures $ 1,597 $ 815
============== ===============
</TABLE>
(1) Parent and inter-segment advances bear interest at the U.S. prime rate. The
interest expense shown for each segment is net of interest earned on
inter-segment advances.
(2) Represents property and equipment, net.
MAJOR CUSTOMERS
During the three months ended March 31, 2000 and 1999 one customer (with sales
included in United States and other segments) accounted for 33.3% and 28.6%,
respectively, of the Company's net sales and during the six months ended March
31, 2000 and 1999, accounted for 28.9% and 24.1% respectively, of the Company's
net sales. One other customer and an affiliate (with sales included in United
States and other segments) accounted for 8.9% and 15.9%, respectively, of net
sales for the three months ended March 31, 2000 and 1999 and for 7.8% and 10.4%,
respectively, for the six months ended March 31, 2000 and 1999.
7. CONTINGENCIES
LEGAL
During fiscal years 1998 and 1999 the Company received a number of 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. The Company experienced an increase in its
liability insurance premiums effective for the 1999 calendar year and is
required to self-insure up to $10,000 per incident occurring after January 1,
1999. Based upon its experience, the Company is presently accruing $120,000
annually for this self-insurance provision and has accrued $150,000 for this
contingency as of March 31, 2000. Management 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. However, no assurance can be
given that the number of claims will not exceed historical experience or that
claims will not exceed available insurance coverage or that the Company will be
able to maintain the same level of insurance.
11
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. 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 Company's
financial position or annual results of operations.
OTHER
As a result of recent Internal Revenue Service rulings and proposed and
temporary regulations, the Company has restructured its international operations
in order to retain favorable U.S. tax treatment of foreign source income. Should
this restructuring ultimately prove unsuccessful, the Company will likely
experience an increase in its consolidated effective income tax rate for its
1999 fiscal year and subsequent years.
On August 9, 1999 the New York Stock Exchange ("NYSE") notified the Company that
it had changed its rules regarding listing criteria for companies which have
shares traded on the NYSE. The new rules change and increase the requirements to
maintain a NYSE listing. As of March 31, 2000, the Company did not meet one of
the new rules, which requires that any NYSE listed company, which has a total
market capitalization of less than $50 million, maintain minimum total
stockholders' equity of $50 million. The Company's stockholders' equity as of
March 31, 2000 was $49.1 million. The Company believes it can meet the new
listing rules and, as requested by the NYSE, has provided the NYSE with its plan
to meet the new standard by February 2001. The Company's plan was accepted by
the NYSE in October 1999. However, no assurances can be given that the
objectives of the plan will be accomplished by February 2001. If the Company is
unable to achieve the plan's objectives, the Company's shares could be delisted
from the NYSE, however the Company believes other trading venues are available
for its stock.
7. NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
was issued in June 1998. SFAS 133 establishes standards for the accounting and
reporting of derivative instruments embedded in other contracts (collectively
referred to as derivatives) and of hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. This statement is effective
for fiscal years beginning after June 15, 2000. The Company has not determined
the effects, if any, that SFAS No.133 will have on the Company's financial
position or results of operations.
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 operating results, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Words such as "expects,"
"anticipates," "believes," "plans," "intends," "estimates," variations of such
words and similar expressions are intended to identify such forward-looking
statements. These 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; brand awareness;
the existence or absence of adverse publicity; acceptance of new product
offerings; changing trends in customer tastes; 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, 1999. 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, 2000 and 1999 are referred to as 2000 and 1999,
respectively.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net sales and gross profit for 2000 were $42.0 million and $8.0
million, respectively, as compared to $42.1 million and $9.2 million,
respectively, for 1999. The Company generated net income of $752,000 ($.10 per
share) in 2000 compared to $1.2 million ($.15 per share) in 1999.
The $95,000 decrease in net sales from the prior year reflects lower
unit sales to U.S. customers which were, for the most part, offset by higher
unit sales to Canadian, European and Mexican customers. The increase in
international sales is attributable to additions to core programs and new
product placements. In 2000, sales to U.S. customers and international customers
were $27.3 million and $14.7 million, respectively, and in 1999 such sales were
$32.3 million and $9.8 million, respectively. Approximately 72% of the Company's
sales in 2000 were made on a direct basis as compared to 76% in 1999. Lamp sales
decreased by $2.0 million and net sales for the Company's other principal line
of products, lighting fixtures, increased by $1.9 million. Lamps and lighting
fixtures accounted for 58% and 42% of net sales in 2000, respectively, compared
to 62% and 38% in 1999, respectively. In 2000 and 1999, Home Depot accounted for
33% and 29%, respectively, of the Company's net sales. Wal-Mart and an affiliate
accounted for 9% and 16% of net sales in 2000 and 1999, respectively.
Gross profit decreased by $1.2 million in 2000 and, as a percentage of
sales, from 21.8% in 1999 to 19.0% in 2000. In 1999, direct sales were comprised
of a more profitable product mix primarily resulting from the placement of a
significant amount of new products in the U.S. In addition, competitive
pressures and a less profitable customer mix lowered overall margins on European
sales.
Presently, most of the Company's major customers (including 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 75% of the Company's sales to U.S.
customers in 2000 were made on a direct basis as compared to 73% in 1999.
Warehouse sales to U.S. customers declined each fiscal year in the five year
period commencing fiscal 1995, when the Company's present warehouse was
constructed in Tupelo, Mississippi, and warehouse sales were 61% of U.S. sales
compared to the present 25%. This percentage decline represents a significant
decrease in sales dollars. The Company lowered its warehousing costs by
terminating its other U.S. warehouse operation located in Los Angeles effective
March 31, 1998. The Company is attempting to compensate further for the decline
in U.S.
13
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
warehouse sales by pursuing new customers for the U.S. warehouse. The Company is
also evaluating other strategic alternatives to reduce overall warehousing
costs. The Company may experience further declines in sales made from its U.S.
warehouse and in its U.S. warehouse inventories and, at least in the short term,
may be unable to reduce its overall U.S. warehousing costs.
Selling, general and administrative expenses ("SG&A") decreased by
$393,000 reflecting a decrease in the provision for uncollectible accounts
receivable ($248,000) and a decrease in payroll and bonuses for U.S. employees
($226,000).
Interest expense decreased to $564,000 in 2000 from $671,000 in 1999
primarily reflecting a $106,000 decrease in interest accrued on a litigation
judgment settled in June 1999.
Other income for 2000 consisted primarily of interest income ($97,000),
income from joint ventures ($44,000) and a net foreign currency gain ($230,000).
Other income in 1999 consisted primarily of interest income ($93,000), income
from joint ventures ($21,000) and other miscellaneous income and included a net
foreign currency loss of $3,000.
The effective income tax rates for 2000 and 1999 were 32.0% and 27.9%,
respectively. The increase in the tax rate from 1999 to 2000 reflects higher
anticipated proportionate U.S. source income, which is taxed at a higher rate
than foreign source income. The Company's effective income tax rate is dependent
both on the total amount of pretax income generated and the relative
distribution of such total income between domestic and foreign operations.
Consequently, the Company's effective tax rate may vary in future periods. As a
result of recent Internal Revenue Service ruling and proposed and temporary
regulations, the Company has restructured its international operations in order
to retain favorable U.S. tax treatment of foreign source income. Should this
restructuring ultimately prove unsuccessful, the Company will likely experience
an increase in its effective consolidated income tax rate for the 1999 fiscal
year and subsequent years.
COMPARISON OF SIX MONTHS ENDED MARCH 31, 2000 AND 1999
Net sales and gross profit for 2000 were $85.2 million and $16.9
million, respectively, as compared to $84.9 million and $17.3 million,
respectively, for 1999. The Company generated net income of $1.3 million ($.17
per share) in 2000 compared to $1.7 million ($.22 per share) in 1999. In 2000,
results from operations included a $788,000 charge related to the settlement of
the Company's contractual obligation with a former executive officer who left
the employ of the Company in December 1999 pursuant to a reorganization of the
Company's executive management structure. Diluted earnings per share, as
adjusted to exclude this non-recurring item, was $.23 in 2000 as compared to
$.22 in 1999.
The $310,000 increase in net sales from the prior year primarily
reflects higher unit sales to Canadian, European and Mexican customers
attributable to additions to core programs and new product placements. These
higher sales offset lower unit sales and an overall sales decline to U.S.
customers. In 2000, sales to U.S. customers and international customers were
$56.7 million and $28.5 million, respectively, and in 1999 such sales amounted
to $64.6 million and $20.3 million, respectively. Approximately 75% of the
Company's sales were made on a direct basis in 2000 and 1999. Lamp sales
decreased by $750,000 and net sales for the Company's other principal line of
products, lighting fixtures, increased by $1.1 million. Lamps and lighting
fixtures accounted for 63% and 37% of net sales in 2000 compared to 64% and 36%
in 1999, respectively. In 2000 and 1999, Home Depot accounted for 29% and 24%,
respectively, of the Company's net sales. Wal-Mart and an affiliate accounted
for 8% and 10% of net sales in 2000 and 1999, respectively.
Presently, most of the Company's major customers (including 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 75% of the Company's sales to U.S.
customers in 2000 were made on a direct basis as compared to 73% in 1999.
Warehouse sales to U.S. customers declined each fiscal year in the five year
period commencing fiscal 1995, when the Company's present warehouse was
constructed in Tupelo, Mississippi, and warehouse sales were 61% of U.S. sales
compared to the present 25%. This percentage decline represents a significant
decrease in sales dollars. The Company lowered its warehousing costs by
terminating its other U.S. warehouse operation located in Los Angeles effective
March 31, 1998. The Company is attempting to compensate further for the decline
in U.S. warehouse sales by pursuing new customers for the U.S. warehouse. The
Company is also evaluating other strategic alternatives to reduce overall
warehousing costs. The Company may experience further declines in sales made
from its U.S. warehouse and in its U.S. warehouse inventories and, at least in
the short term, may be unable to reduce its overall U.S. warehousing costs.
14
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative expenses ("SG&A") decreased by
$423,000 reflecting a decrease in the provision for uncollectible accounts
receivable ($409,000) and a decrease in payroll and bonuses for U.S. employees
($319,000). Such decreases were partially offset by an increase in professional
fees ($260,000).
Interest expense decreased to $1.1 million in 2000 from $1.4 million in
1999 reflecting a $211,000 decrease in interest accrued on a litigation judgment
settled in June 1999 and lower average outstanding borrowings.
Other income for 2000 consisted primarily of interest income
($223,000), income from joint ventures ($106,000) and a net foreign currency
gain ($60,000). Other income in 1999 consisted primarily of interest income
($140,000), income from joint ventures ($56,000) and other miscellaneous income.
Other income in 1999 was reduced by a net foreign currency loss of $150,000.
The effective income tax rates for 2000 and 1999 were 32.0% and 28.0%,
respectively. The increase in the tax rate from 1999 to 2000 reflects higher
anticipated proportionate U.S. source income, which is taxed at a higher rate
than foreign source income. The Company's effective income tax rate is dependent
both on the total amount of pretax income generated and the relative
distribution of such total income between domestic and foreign operations.
Consequently, the Company's effective tax rate may vary in future periods. As a
result of recent Internal Revenue Service ruling and proposed and temporary
regulations, the Company has restructured its international operations in order
to retain favorable U.S. tax treatment of foreign source income. Should this
restructuring ultimately prove unsuccessful, the Company will likely experience
an increase in its effective consolidated income tax rate for the 1999 fiscal
year and subsequent years.
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 foreseeable future.
CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2000
The Company's operating, investing and financing activities resulted in
a net increase in cash and cash equivalents of $1.4 million from September 30,
1999 to March 31, 2000.
The net cash of $4.6 million provided by operating activities, the
$805,000 provided by the issuance of common stock and the $2.3 million in
proceeds from the Company's U.S. credit facility were used primarily to pay for
capital expenditures aggregating $1.6 million, to make sinking fund redemption
payments of $450,000 on outstanding bonds, to make a $2.5 million scheduled
principal payment on the convertible subordinated notes and to repurchase $1
million in common stock under the Company's stock repurchase plan. Capital
expenditures included $778,000 related to construction of the Go-Gro
manufacturing facility. In addition, $1.3 million, which was held in escrow
since 1997, was used to redeem bonds which had financed the Company's purchase
and improvements of the Meridian manufacturing facility.
The Company's cash and cash equivalents were $8.6 million at March 31,
2000, of which $7.1 million was held in Hong Kong. Certain restrictions in the
Company's Hong Kong credit facility limit the Company's ability to transfer
these funds to other operations. The Company currently plans to use a portion of
its Hong Kong cash balance to fund the construction of phase III of its Go-Gro
manufacturing facility.
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
The Company has a $25 million credit facility with a group of U.S.
commercial banks. This facility provides credit in the form of revolving loans,
acceptances, and trade and stand-by letters of credit and matures March 31,
2002. 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% through March 31, 2000 and LIBOR plus 2.0%
beginning April 1, 2000). Obligations under this facility are secured by
substantially all of the Company's U.S. assets, including 100% of the common
stock of the Company's U.S. subsidiaries and 49% of the stock of the Company's
Canadian subsidiary. The Company is required to comply with various convenants
in connection with this facility. 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, 2000, the
Company had used $14.4 million under this credit facility and $10.6 million was
available for additional borrowings.
The Company has a credit facility with a Canadian bank which provides
four million Canadian dollars or U.S. equivalent (approximately U.S. $2.8
million) in revolving demand credit. Canadian dollar advances bear interest at
the Canadian prime rate plus .5% (7.5% at March 31, 2000) and U.S. dollar
advances bear interest at the U.S. base rate of the bank (9.5% at March 31,
2000). The credit facility is secured by substantially all of the assets of the
Company's Canadian subsidiary. The agreement contains certain minimum covenants
to be met by the Canadian subsidiary, prohibits the payment of dividends, and
limits advances by the bank to a borrowing base calculated based upon
receivables and inventory. This facility is payable upon demand and is subject
to an annual review by the bank. The Company pays an annual commitment fee of
.25% based on the unused portion of the facility. At March 31, 2000, total
Canadian and U.S. dollar borrowings amounted to U.S. $1.9 million (included in
current notes payable-credit lines) and U.S. $726,000 was available under the
borrowing base calculation.
The Company has a 35 million Hong Kong dollars (approximately U.S. $4.5
million) credit facility with a Hong Kong bank. The 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% (9.25% at March 31, 2000). The facility is secured by a guarantee
issued by the Company and requires Go-Gro to maintain a minimum level of equity.
This agreement prohibits the payment of dividends without the consent of the
bank and limits the amount of loans or advances from Go-Gro to the Company at
any time to 50% of Go-Gro's pre-tax profits for the previous 12 months. This
facility is repayable upon demand and is subject to an annual review by the
bank. At March 31, 2000, the Company had used $932,000 of this line for letters
of credit (there were no borrowings) and U.S. $3.6 million was available.
In October 1999, the Company borrowed 11.7 million in Chinese Renminbi
(approximately U.S. $1.4 million) from a Chinese bank. The loan bears interest
at 5.85%, payable monthly, and repayment is due in October 2000. The agreement
requires the Company to maintain U.S. $1.5 million in a bank account as
collateral.
The Company has outstanding $5.1 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 $6.63 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. A principal
payment of approximately $2.5 million is required on March 15, 2001 and the
remaining outstanding principal and interest are due in full on March 15, 2002.
Interest is payable semiannually. The Company expects to make its payments on
this debt with funds generated from operations and obtained from its $25 million
U.S. credit facility. 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.
16
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company arranged for the issuance in 1995 of $10.5 million in State
of Mississippi Variable Rate Industrial Revenue Development Bonds to finance
(along with internally generated cash flow and a $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 (6.2% at March 31, 2000) that is adjustable weekly to the rate the
remarketing agent for the bonds deems to be the market rate for such bonds. The
bonds are secured by a lien on the land, building, and all other property
financed by the bonds. Additional security is provided by a $7.1 million direct
pay letter of credit which is not included in the Company's $25 million U.S.
credit line. The unpaid balance of these bonds was $6.9 million at March 31,
2000. 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 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. 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 redeemed
the bonds on November 1, 1999.
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 $592,000 was
available at March 31, 2000. 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 which had no amounts available at March 31, 2000.
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
$927,000 at March 31, 2000.
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% was required to be and was completed by April 1, 1997. The
remainder of the construction was to be completed by December 31, 1999; however,
the Company has exercised its rights to extend the construction date to December
31, 2000 by incurring an extension fee. The total cost for this project is
estimated at $16.5 million (of which $10.6 million had been expended as of March
31, 2000) 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 $589,000 had been accrued as of March 31,
2000. A 162,000 square foot factory, 77,000 square foot warehouse and 60,000
square foot dormitory became fully operational in June 1997. SJE began
construction of the final phase of this facility in December 1999 and expects to
fund this construction with cash generated from operations.
On April 26, 1996, the Company entered into a license agreement with
Westinghouse Electric Corporation to market and distribute a full range of
lighting fixtures, lamps and other lighting products under the Westinghouse
brand name in exchange for royalty payments. The agreement terminates on
September 30, 2002. The Company has an option to extend the agreement for an
additional ten years. The royalty payments are due quarterly and are based on a
percent of the value of the Company's net shipments of Westinghouse branded
products, subject to annual minimum payments due. Commencing
17
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
September 30, 2000 either party has the right to terminate the agreement 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 $12.8 million and $6.5 million for the
six months ended March 31, 2000 and 1999, respectively.
As a result of recent Internal Revenue Service ruling and proposed and
temporary regulations, the Company has restructured its international operations
in order to retain favorable U.S. tax treatment of foreign source income. Should
this restructuring ultimately prove unsuccessful, the Company will likely
experience an increase in its consolidated effective income tax rate for the
1999 fiscal year and subsequent years.
On June 3, 1999, 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, 1999.
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 27, 1999 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 years 1998 and 1999 the Company received a number of
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. The Company experienced an increase in its
liability insurance premiums effective for the 1999 calendar year and is
required to self-insure up to $10,000 per incident occurring after January 1,
1999. Based upon its experience, the Company is presently accruing $120,000
annually for this self-insurance provision and has accrued $150,000 for this
contingency as of March 31, 2000. Management 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. However, no assurance can be
given that the number of claims will not exceed historical experience or that
claims will not exceed available insurance coverage or that the Company will be
able to maintain the same level of insurance.
In November 1998 the Company's Board of Directors 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. Subsequently the Company received
authorization from its Board and lenders to repurchase an additional $212,000.
As of May 5, 2000, the Company had repurchased 579,900 shares for approximately
$2.2 million.
Pursuant to a reorganization of the Company's executive management
structure, William D. Stewart, an Executive Vice-President of the Company left
the employ of the Company in December 1999 to pursue other interests. Under the
terms of the settlement agreement, Mr. Stewart will continue to provide
consulting services under a three-year non-compete and consulting agreement. The
Company has recorded a non-recurring pretax charge of $788,000 during the
quarter ended December 31, 1999 related to the settlement of its contractual
employment obligation to Mr. Stewart and is obligated to pay $250,000 annually
through December 2002 under the non-compete and consulting agreement.
On August 9, 1999 the New York Stock Exchange ("NYSE") notified the
Company that it had changed its rules regarding listing criteria for companies
which have shares traded on the NYSE. The new rules change and increase the
requirements to maintain a NYSE listing. As of March 31, 2000, the Company did
not meet one of the new rules, which requires that any NYSE listed company,
which has a total market capitalization of less than $50 million, maintain
minimum total stockholders' equity of $50 million. The Company's stockholders'
equity as of March 31, 2000 was $49.1 million. The Company believes it can meet
the new listing rules and, as requested by the NYSE, has provided the NYSE with
its plan to meet the new standard by February 2001. The Company's plan was
accepted by the NYSE in October 1999. However, no assurances can be given that
the objectives of the plan will be accomplished by February 2001. If the Company
is unable to achieve the plan's objectives, the Company's shares could be
delisted from the NYSE, however the Company believes other trading venues are
available for its stock.
18
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED
The Company maintains investments in subsidiaries in Canada, Mexico and
Chile and sells its products into these foreign countries. The Company also
sells into Europe and maintains major capital investments in manufacturing
facilities in China and supporting administrative offices in Hong Kong. Due to
the significance of its international sales and operations, the Company's
business and operating results are impacted by fluctuations in foreign currency
exchange rates. If any of the currencies of the foreign countries in which it
conducts business was to be devalued against the U.S. dollar the Company could
experience significant changes in its translations of assets, liabilities and
transactions denominated in foreign currencies, which could adversely impact the
Company's future earnings. Large fluctuations in currency exchange rates could
have a material adverse effect on the Company's cost of goods purchased (or
manufactured) or on the Company's selling prices thereby harming the Company's
competitive position. While the Company periodically borrows in Canadian
dollars, Hong Kong dollars and Chinese Renminbi, and will increase or decrease
these foreign borrowings for various business reasons (including anticipated
movements in foreign exchange rates) the Company does not otherwise hedge its
foreign currency exposure. During the six months ended March 31, 2000 the
Company recorded foreign currency gains or (losses) for its China, Canadian,
Mexican and Chilean operations of ($84,000), $77,000, $53,000 and $14,000,
respectively.
Go-Gro has periodically experienced price increases in the costs of
raw materials, which reduced Go-Gro's profitability due to an inability to
immediately pass on such price increases to its customers. The Company believes
that increased raw materials prices could have an initial adverse impact on the
Company's net sales and income from continuing operations but that, over time,
prices charged to its customers can be increased.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") was issued in June
1998. SFAS 133 establishes standards for the accounting and reporting of
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and of hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the balance sheet and
measures those instruments at fair value. This statement is effective for fiscal
years beginning after June 15, 2000. The Company has not determined the effects,
if any, that SFAS No.133 will have on the Company's financial position or
results of operations.
19
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Company's Annual Meeting of Stockholders, held on May 9,
2000, the stockholders voted on the following matters:
(i) to elect the following seven persons to serve as directors of
the Company until the 2001 Annual Meeting of Stockholders:
Robert Hersh
Ryan Burrow
Henry Latimer
Robert Lanzillotti
Jesse Luxton
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, 2000 by a vote of 6,678,192 (93.6%) shares cast for the
proposal in favor and 3,555 (.05%) shares against.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11 Schedule of Computation of Diluted Earnings per Share.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
20
<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, Chairman, President,
Chief Executive Officer and Director
/s/ DAVID W. SASNETT
---------------------
David W. Sasnett
Chief Financial Officer, Senior Vice President,
Chief Accounting Officer
Date: May 15, 2000
21
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
11 Schedule of Computation of Diluted Earnings per Share
27 Financial Data Schedule
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,
------------------------- --------------------------
2000 1999 2000 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 752 $ 1,159 $ 1,289 $ 1,662
Interest on convertible subordinated notes, net of
income taxes 90 103 186 206
------- -------- -------- --------
Net income for diluted earnings per share $ 842 $ 1,262 $ 1,475 $ 1,868
Weighted average number of common shares
outstanding for the period 7,460 7,206 7,426 7,194
Weighted average number of shares repurchased
for the period (529) (126) (464) (67)
Shares issuable upon conversion of convertible
subordinated notes 1,083 1,138 1,115 1,138
Common equivalent shares determined
using the "Treasury Stock" method
representing shares issuable upon exercise
of stock options and warrants and shares
issuable under contractual agreements 747 343 753 189
------- -------- -------- --------
Weighted average number of shares
used in calculation of diluted earnings
per share 8,761 8,561 8,830 8,454
======= ======== ======== ========
Diluted earnings per share $ 0.10 $ 0.15 $ 0.17 $ 0.22
======= ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 8,609
<SECURITIES> 0
<RECEIVABLES> 17,770
<ALLOWANCES> 7,562
<INVENTORY> 26,319
<CURRENT-ASSETS> 60,154
<PP&E> 24,234
<DEPRECIATION> 0
<TOTAL-ASSETS> 97,657
<CURRENT-LIABILITIES> 23,534
<BONDS> 6,000
0
0
<COMMON> 77
<OTHER-SE> 49,072
<TOTAL-LIABILITY-AND-EQUITY> 97,657
<SALES> 85,241
<TOTAL-REVENUES> 85,241
<CGS> 68,345
<TOTAL-COSTS> 68,345
<OTHER-EXPENSES> 14,265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,108
<INCOME-PRETAX> 1,895
<INCOME-TAX> 606
<INCOME-CONTINUING> 1,289
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,289
<EPS-BASIC> .19
<EPS-DILUTED> .17
</TABLE>
