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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000
OR
[ ] TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
---------------------- -----------------------
Commission File No: 1-9917
CATALINA LIGHTING, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1548266
State or other jurisdiction of (I.R.S Employer
incorporation or organization Identification Number)
18191 N.W. 68th Avenue, Miami, Florida 33015
(Address of principal executive offices, including zip code)
(305) 558-4777
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value New York Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
Page 1
The aggregate market value of voting stock held by non-affiliates of the
Registrant computed by reference to the closing price of such stock, as reported
by the New York Stock Exchange, on December 26, 2000 was $14.7 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Company for its 2001
Annual Meeting of Stockholders or the Company's Form 10K/A are incorporated by
reference into Part III.
Number of shares outstanding of Registrant's common stock, as of
December 26, 2000: 7,357,880.
Exhibit Index at Page 70
Page 2
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
- -------------------------------------------------
Certain statements in this Annual Report on Form 10-K (this "Form
10-K"), including statements under "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
including without limitation expectations as to future sales and operating
results as discussed under "Outlook," and the discussion under "Liquidity and
Capital Resources" 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 Catalina Lighting, Inc. and its subsidiaries (collectively,
the "Company") 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 key customers who may delay, cancel
or fail to place orders; consumer demand for lighting products; dependence on
third party vendors and imports from China which may limit the Company's margins
or affect the timing of revenue and sales recognition; general domestic and
international economic conditions which may affect consumer spending; brand
awareness, the existence or absence of adverse publicity, continued acceptance
of the Company's products in the marketplace, new products and technological
changes, and changing trends in customer tastes, each of which can effect demand
and pricing for the Company's products; pressures on product pricing and pricing
inventories; cost of labor and raw materials; the availability of capital, the
ability to satisfy covenants under credit and loan agreements and the impact of
increases in borrowing costs, each of which affect the Company's short-term and
long-term liquidity and ability to operate as a going concern; the costs and
other effects of legal and administrative proceedings; foreign currency 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-K. 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.
ITEM 1. BUSINESS.
---------
General
The Company designs, manufactures, contracts for the manufacture of,
imports, warehouses and distributes a broad line of lighting fixtures and lamps
under the Westinghouse(R) brand, and the Catalina(R), Dana(R), Ring and
Illuminada(R) trade names. The Company also functions as an original equipment
manufacturer, selling goods under its customers' private labels. The Company
sells in the United States through a variety of retailers including home
centers, national retail chains, office superstore chains, mass merchandisers,
warehouse clubs, discount department stores, and hardware stores. The Company
also sells its products in the United Kingdom, continental Europe, Canada,
Mexico and South America. Currently, its product line is comprised primarily of
lighting fixtures and lamps. The Company has supplemented its product lines
through acquisitions but has remained focused on lighting products. Catalina
Lighting, Inc. was incorporated under the laws of the state of Florida in 1974,
started selling lighting in 1985, and became a public company in 1988.
On July 5, 2000, the Company acquired Ring Limited, formerly Ring PLC
("Ring"), a leading supplier of lighting, automotive aftermarket products and
industrial consumables in the United Kingdom. The Company paid approximately
$33.8 million for Ring, and the acquisition has been accounted for under the
purchase method. Goodwill of $21.3 million was recorded as a result of this
transaction.
Ring had revenues of $116.3 million and operating income of $3.6
million for its most recent fiscal year ended June 30, 2000. Ring's total assets
and stockholders' equity as of June 30, 2000 were $49.2 million and $12.6
million, respectively. Operating results for Ring from the date of acquisition
to September 30, 2000 (excluding related goodwill amortization and financing
costs aggregating $1.1 million) and the results for the comparable prior year
quarter ended September 30, 1999, are as follows (in thousands):
Quarter Ended September 30,
---------------------------------
2000 1999
--------- ---------
Sales $ 24,529 $ 26,680
Gross profit $ 3,459 $ 4,583
Income (loss) before taxes $ (188) $ 846
Page 3
In July 2000, the Company entered into a five-year $75 million credit
facility with a bank syndication group to fund the Ring acquisition and the
Company's U.S. and U.K. operations (see "Liquidity and Capital Resources").
Products
The Company markets a diverse product line, consisting principally of
lighting products used primarily in residential and office environments. The
Company's product line consists mainly of two categories: lighting fixtures and
lamps. Lighting fixtures consist of outdoor/security lighting, chandeliers,
recessed and track lighting, and wall and ceiling lights. Lamps sold by the
Company include both table and floor models and may be either functional or
decorative. Functional lamps consist of halogen desk lamps, bankers lamps, swing
arm desk lamps, torchiere lamps, magnifier lamps, and any other lamps generally
used for task oriented functions. Decorative lamps are fashion oriented and made
of such materials as metal, ceramic, stained glass, and crystal glass. The
Company also sells other lighting-related products such as flashlights, and a
small portion of the Company's product line consists of industrial consumables,
products for the automotive aftermarket, and train and bus lighting. The Company
develops, manufactures and maintains separate product lines for sale in North
America, Europe and the United Kingdom due to the different consumer preferences
and electrical specifications of each of these markets. The Company may continue
to expand its product lines internally or through acquisitions.
Distribution Methods
The Company utilizes two distribution methods to sell products: direct
and warehouse. The backlogs of unshipped orders at September 30, 2000 and 1999
were approximately $25.1 million and $24.9 million, respectively, and at
December 15, 2000 and 1999 were approximately $22.0 million and $24.3 million,
respectively. Although these orders are subject to cancellation by the
customers, the Company believes substantially all such orders are firm.
The Company's direct sales are made either by delivering lighting
products to the customers' common carriers at a shipping point in China or by
shipping the products from China directly to customers' distribution centers,
warehouses or stores. Direct sales are made in large quantities (generally
container-sized lots) to customers, who pay pursuant to their own international,
irrevocable letters of credit (which may or may not be transferable) or on open
credit with the Company. Upon receipt of a customer's transferable letter of
credit, the Company transfers the portion of the letter of credit covering the
cost of merchandise to its supplier. The terms of the transfer provide that
draws may not be made by the supplier until the Company is entitled to be paid
pursuant to the terms of the customer's letter of credit. The Company has the
right to draw upon the customer's letter of credit once the products are
inspected by the Company or its agents, delivered to the port of embarkation and
the appropriate documentation has been presented to the issuing bank within the
time periods established by such letter of credit. With the exception of sales
made into Europe, direct sales are made by one of the Company's North American
subsidiaries. The Company's China manufacturing and sourcing subsidiary, Go-Gro
Industries, Ltd. ("Go-Gro"), either manufactures or procures the product for the
Company's North American subsidiaries, and records an intercompany sale when the
products are delivered to the carrier or shipped. For fiscal years ended
September 30, 2000 and 1999, 69% and 75%, respectively, of net sales were
attributable to direct sales.
The Company also purchases products for its own account and warehouses
the products for subsequent resale to customers. The Company is responsible for
costs of shipping, insurance, customs clearance and duties, storage and
distribution related to such warehouse products and therefore, warehouse sales
usually command higher per unit sales prices than direct sales of the same
items. The Company owns a 473,000 square foot warehouse facility near Tupelo,
Mississippi, leases warehousing facilities in Toronto and Mexico City and owns
and leases various warehouses facilities in the U.K. For the fiscal years ended
September 30, 2000 and 1999, warehouse sales accounted for 31% and 25%,
respectively, of net sales.
The relative proportion of the Company's sales generated by each method
is dependent upon customer buying preferences and Company sales strategies.
Purchasing on a direct basis allows the customer to generally pay a lower per
unit price than purchasing the same items from the warehouse, but such method
typically requires the customer to purchase in greater quantities and thus
assume the costs, risks and liquidity requirements associated with holding
larger inventories. Customer buying preferences are influenced by a number of
business, economic and other factors. The underlying factors driving customer
buying preferences often vary from customer to customer and are subject to
change. Over the past six years, the Company's larger U.S. customers have
greatly increased their direct business with the Company while reducing their
purchases from the warehouse. Substantially all of Ring's sales are warehouse
sales.
Page 4
Business Segments
For internal management reporting purposes the Company operates three
primary business segments, which also correspond to the major geographic
segments of the Company's business: Catalina Industries (United States), Go-Gro
Industries (China) and Ring Limited (United Kingdom). The Company added the
United Kingdom as a primary business segment with the acquisition of Ring PLC on
July 5, 2000. The Company also maintains parent company corporate administrative
offices in Miami, Florida and other operating subsidiaries in Canada (Catalina
Canada), Mexico (Catalina Mexico) and South America. Sales for each primary
segment for the fiscal years ended September 30, 2000, 1999 and 1998 (in
thousands) are set forth in the table below. Sales for Ring for 2000 represent
sales from July 5, 2000 to September 30, 2000.
Years Ended September 30,
-------------------------------------------------
2000 1999 1998
-------- -------- --------
Catalina Industries $122,222 $135,308 $123,385
Go-Gro Industries 141,356 136,945 111,344
Ring Limited 24,529 - -
Others 29,914 23,806 18,632
Intersegment eliminations (115,391) (119,498) (91,501)
-------- -------- --------
$202,630 $176,561 $161,860
======== ======== ========
See Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 15 of Notes to Consolidated Financial Statements for
financial information by primary segment.
Catalina Industries (United States)
- -----------------------------------
Catalina Industries designs, imports, warehouses and distributes
lighting fixtures and lamps in the United States to major retailers, including
home centers, office superstore chains, mass merchandisers, discount department
stores and warehouse clubs. Order entry, customer service and other support
functions for this segment are performed at the corporate headquarters in Miami,
Florida and at another office located in Boston, Massachusetts. To improve
customer service and lower costs the Company finalized plans in September 2000
to close the Boston office and consolidate its functions into its Miami
headquarters. This consolidation was completed in December 2000. Catalina
Industries also owns and operates a 473,000 square foot distribution facility
located near Tupelo, Mississippi.
Catalina Industries sells its products under the Westinghouse(R) brand,
the Catalina(R), Dana(R), and Illuminada(R) trade names, and also under its
customers' private labels. Catalina Industries markets a diverse product line
used primarily in residential and office settings. Its product line consists
mainly of two categories: lighting fixtures and lamps. Lighting fixtures consist
of outdoor/security lighting, chandeliers, recessed and track lighting, and wall
and ceiling lights. Lamps sold by Catalina Industries include both table and
floor models and may be either functional or decorative. Functional lamps
consist of halogen desk lamps, bankers lamps, swing arm desk lamps, torchiere
lamps, magnifier lamps, and other lamps generally used for task oriented
functions. Decorative lamps are fashion oriented and made of such materials as
metal, ceramic, stained glass, and crystal glass.
Catalina Industries purchases its products from Go-Gro, the Company's
China manufacturing and sourcing subsidiary. These products are manufactured by
Go-Gro or purchased from other factories by Go-Gro. Catalina Industries arranges
for the shipment of its products directly from Go-Gro or other China factories
to the customers' distribution centers or stores. Catalina Industries also sells
and ships from its Mississippi distribution facility (see "Distribution
Methods").
Catalina Industries' business is somewhat seasonal in nature.
Historically this segment's sales have been greater during the quarters ended
June 30 and September 30 due to home improvement activity occurring in the
spring and summer and retailer back-to-school promotions.
Catalina Industries competes on the basis of service, price and scope
of product offerings (see "Strategy"). Its industry is highly fragmented, with
no one competitor or small group of competitors possessing a dominant market
position (see "Competition").
Page 5
Home Depot and Wal-Mart represent the two largest customers of this
segment constituting 32.6% and 10.5% respectively, of this segment's sales, and
23.2% and 9.3%, respectively, of the Company's consolidated sales in fiscal
2000. These customers and two others constituted 63% of this segment's sales for
2000 and 1999.
At December 15, 2000 and 1999, the backlog of orders for Catalina
Industries amounted to $8.9 million and $13.6 million, respectively. While any
of these orders could be cancelled by the customer prior to shipment management
believes, based upon experience, substantially all of these orders will be
shipped.
Go-Gro Industries (China)
Catalina Industries, Catalina Canada and Catalina Mexico obtain almost
all of their lighting products from Go-Gro which both manufactures products and
purchases products from independent suppliers primarily located in China. In
addition, Ring has historically purchased a small amount of its products from
Go-Gro. Go-Gro maintains administrative offices in Hong Kong and manufacturing
facilities in the Guangdong Province of China.
Go-Gro's manufacturing operations are conducted through its Chinese
subsidiary, Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), which
both leases and owns factory buildings in the Guangdong Province. Through fiscal
2000, SJE was a cooperative joint venture between Go-Gro and Shenzhen Baoanqu
Fuda Industries Co., Ltd. ("Fuda"), a Chinese company. Under the terms of the
cooperative joint venture with Fuda, Go-Gro owned 70% of SJE's land use rights,
building and equipment, and received 100% of SJE's profits and losses. Fuda
owned the remaining 30% of SJE's land use rights and property, for which it
received a management fee of approximately $400,000 annually. SJE also leases
three factory buildings from Fuda. In September 2000 Go-Gro purchased Fuda's 30%
interest in SJE's land use rights and property for approximately $1.0 million.
Go-Gro's owned manufacturing facilities were constructed pursuant to a
Land Use Agreement entered into in April 1995 between SJE and the Bureau of
National Land Planning Bao-An Branch of Shenzhen City. This agreement provides
SJE with the non-transferable right to use approximately 467,000 square feet of
land in Bao-An County, China until January 18, 2042. Under this agreement SJE is
obligated to construct approximately 500,000 square feet of factory buildings
and 211,000 square feet of dormitories and offices. A 162,000 square foot
factory, 77,000 square foot warehouse and 60,000 square foot dormitory became
fully operational in June 1997, and the remainder of the construction is
underway and should be completed in 2001.
Go-Gro manufactures a wide range of products, including lamps, recessed
lighting fixtures, track lighting fixtures and flashlights. Goods produced by
Go-Gro constituted approximately 40% in 2000 and 1999 of the total products
either purchased or manufactured by the Company. Go-Gro sells the products it
manufactures to other Company subsidiaries at prices established by management
intended to provide an appropriate profit allocation between the manufacturing
and distribution activities of the Company.
The raw materials and components essential to Go-Gro's manufacturing
process are purchased from distributors and manufacturers located in various
countries as follows: plastic resin (Germany, China, Japan, Thailand, Korea and
Taiwan), steel (Korea, Japan, Taiwan and China), cable (China and Taiwan), light
bulbs (China, Taiwan, Germany, Indonesia and Hong Kong) and various other
components (China, Europe, U.S., Taiwan and others).
Through Go-Gro, Catalina Industries and other Company subsidiaries
arrange for, and coordinate, the purchase of a significant volume of products
from independent Chinese manufacturers. See "Dependence on China".
The Company chooses its contract manufacturers based on price, quality
of merchandise, reliability and ability to meet the Company's timing
requirements for delivery. Manufacturing commitments are made on a purchase
order basis. Go-Gro, Ring Limited, or the customer is often required to post a
letter of credit prior to shipment.
Go-Gro employees supervise the Company's manufacturing contractors.
These employees' responsibilities include the establishment and ongoing
development of close relationships with the manufacturers, setting product and
manufacturing standards, performing quality assurance functions including
inspection at various stages, tracking costs, performing and/or working with
engineering, and oversight of the manufacturing processes. The Company maintains
a quality control and quality assurance program and has established inspection
and test criteria for each of its products. These methods are applied by Go-Gro
or its agents regularly to product samples in each manufacturing location prior
to shipment and shipments are tested for quality control inspection.
Page 6
In addition to its sales to other Company subsidiaries, Go-Gro sells
directly for its own account to European distributors and retailers. Such sales
were approximately $27 million and $19.5 million in 2000 and 1999, respectively.
At December 15, 2000 and 1999, Go-Gro's backlog of orders to third parties
amounted to $5.5 million and $6.3 million, respectively.
Ring Limited (United Kingdom)
- -----------------------------
The Company acquired Ring Limited (formerly Ring PLC) ("Ring") on July
5, 2000. Ring is a wholesaler and distributor headquartered in Leeds, England
consisting of eight companies comprising three operating divisions: Ring
Lighting, Ring Automotive and Consumables. These divisions are engaged in the
sale of lighting, automotive after-market and industrial consumable products in
the United Kingdom.
Ring Lighting, a division of Ring Lamp Company, Ltd., sells a product
line of lamps and lighting fixtures comparable to that offered by Catalina
Industries. These products are sold from warehouse facilities under the Ring
trade name or the customers' label to a variety of retailers in the U.K.,
including home centers and mass merchandisers. B&Q, a subsidiary of Kingfisher
PLC, is the largest customer of this division. Sales to B&Q comprised 21% and
37% of Ring's consolidated sales for the year ended June 30, 2000 and the period
from July 5, 2000 to September 30, 2000, respectively. The lighting division
purchases its products from independent suppliers located worldwide including
China, the U.K. and the rest of Europe, with China being the dominant supply
source, accounting for approximately 50% of the lighting division's purchases
for the quarter ended September 30, 2000. A wide variety of competitors exist
for this division including U.K., European and Chinese manufacturers and other
U.K. distributors and importers. Ring competes on the basis of service, product
range and price, and does not believe any competitor has a dominant position in
the lighting markets it serves. The lighting division comprised 61% of Ring's
consolidated sales for the year ended June 30, 2000, and 63% of Ring's
consolidated sales for the period from July 5, 2000 to September 30, 2000.
Ring Automotive consists of the automotive division of Ring Lamp
Company, Ltd. and four companies: Grove Products (Caravan Accessories) Ltd.,
Lighten Point Corporation Europe, Ltd., Lancer Products Ltd. and BMAC Ltd. These
companies sell an extensive line of products under each company's trade name or
under the customers' label, to the caravan, train and automotive aftermarkets.
Products sold include replacement headlights, antennas, security devices,
caravan accessory systems, flasher units and relays, windshield wiper blades and
wash systems, steering wheels, engine and suspension components and other
automotive electrical components. In addition, BMAC sells lighting used in the
manufacture of trains and buses. A number of competitors are present in each
segmental market of this division including manufacturers and other U.K.
distributors and importers, but it is believed that no competitor has a dominant
position in these markets other than for H Burden Ltd. in the caravan sector.
Ring Automotive competes on the basis of service, product range and price. This
division obtains most of its products from suppliers located in the U.K. and
China. The automotive division comprised 29% of Ring's consolidated sales for
the year ended June 30, 2000, and 27% of Ring's consolidated sales for the
period from July 5, 2000 to September 30, 2000.
Van-Line Ltd., Arctic Products, Ltd., and PH Products form Ring's
consumables division. Van-Line is a leading supplier of workshop consumables and
brand tools to independent distributors. Arctic Products sells portable pipe
freezing equipment. PH Products sells a variety of products for the plumbing and
gas industry, including smoke alarms, carbon monoxide detectors, soldering
sprays and pressurized air cans. Approximately 10% of Ring's consolidated sales
were generated in the consumables division for the year ended June 30, 2000 and
for the period from July 5, 2000 to September 30, 2000.
Ring's business is somewhat seasonal, with slightly more sales
occurring in the winter months.
Strategy
Economic and other business factors led to a consolidation in the 1990s
in the retail sector for consumer products, with a limited number of large
retailers acquiring ever-increasing market shares. The Company focuses on these
major retailers, which include home centers, office product superstores, and
mass merchandisers. The Company's strategies to strengthen its relationships and
increase its sales with these major retailers include the following:
1. International Expansion - Many of the Company's U.S.-based retail customers
are expanding internationally. The Company believes these retailers need
sophisticated suppliers capable of meeting their worldwide requirements and
expanding with them - - manufacturers and distributors, such as the
Company, possessing global expertise, resources and operations.
The Company established operations in Canada in 1992 and in Mexico in 1995
to support the international growth of several key customers. The
acquisition of Ring represents a major step for the Company's global
distribution network. Management believes Ring strengthens the Company's
strategic position by providing both increased access to the U.K.
marketplace and an important platform for continental Europe. Ring will
enable the Company to better service its major North American customers
upon their entry into the U.K. and other European markets.
Page 7
2. Customer-Centric Activities - The Company attempts to increase its value to
each major customer and differentiate itself from its competition by
"customizing" its business for its most important customers. To do so, the
Company:
(i) Seeks input from buyers and other customer personnel to develop
product offerings, merchandising approaches and branding strategies
specific to each major retail customer;
(ii) Dedicates Company-owned production resources and capabilities to each
major retailer and;
(iii)Pursues technology linkages, the sharing of critical product and
sales data and the alignment of supply chain activities with its major
customers.
3. Program Selling - The Company strives to be the primary source of lighting
products to its retailers by offering a complete program of lighting
products in a variety of categories. The availability of over 1000 styles
of such products as outdoor/security lighting, table, floor and torchiere
lamps, chandeliers, recessed and track lighting and wall and ceiling lights
- the majority of which are available in several colors or finishes -
provides retailers the opportunity to simplify their purchasing function by
buying more of their lighting products from the Company as opposed to using
several different suppliers.
4. Turnkey Departments - The Company consults with many of its retail
customers to establish departments which allow the Company to display its
products in a customized layout designed to meet each retailer's specific
merchandising and marketing goals. The Company can design, assemble and
maintain these departments and provide the retailer with shelving
plan-o-grams, signs, point-of-purchase promotional strategies and in-store
inventory stocking programs. Turnkey departments ensure the Company's
retail customers efficient and convenient management of the Company's
products within their stores and allow the Company to maintain an
attractive and informative presentation of its products.
5. Warehouse Supply of Goods - The Company's warehouses in the United States,
United Kingdom, Canada and Mexico enable it to provide its customers with
the advantage of short delivery time. Warehouse sales allow retailers to
receive products in days as compared to months for items shipped directly
to them from China. Timely deliveries can help to increase the customer's
inventory turns and profits.
Dependence on China
A very high percentage of the lighting products sold by the Company are
obtained from factories located in China. The Company manufactures a portion of
these products at its Go-Gro subsidiary and purchases the remainder from
independent suppliers.
Goods produced by Go-Gro constituted approximately 40% in 2000 and
1999, of the total products either purchased or manufactured by the Company. The
raw materials and components essential to Go-Gro's manufacturing process are
purchased from distributors and manufacturers located in various countries as
follows: plastic resin (Germany, China, Japan, Thailand, Korea and Taiwan),
steel (Korea, Japan, Taiwan and China), cable (China and Taiwan), light bulbs
(China, Taiwan, Germany, Indonesia and Hong Kong) and other various components
(China, Europe, U.S., Taiwan and others).
The Company selects its contract manufacturers based on price, quality
of merchandise, reliability and ability to meet the Company's timing
requirements for delivery. Manufacturing commitments are made on a purchase
order basis. Go-Gro, another Company subsidiary, or the customer is often
required to post a letter of credit prior to shipment.
The Company has employees located in the U.S., Hong Kong and China who
supervise the Company's manufacturing contractors. These employees'
responsibilities include the establishment and ongoing development of close
relationships with the manufacturers, setting product and manufacturing
standards, performing quality assurance functions including inspection at
various stages, tracking costs, performing and/or working with engineering, and
oversight of the manufacturing processes. The Company maintains a quality
control and quality assurance program and has established inspection and test
criteria for each of its products. These methods are applied by the Company or
its agents regularly to product samples in each manufacturing location prior to
shipment and shipments are inspected for quality control purposes.
The Company expects to continue to use a limited number of contract
manufacturers and accordingly will continue to be highly dependent upon sources
outside the Company for timely production and quality workmanship.
In fiscal 2000 and 1999, Chinese suppliers, other than Go-Gro,
accounted for approximately 50% and 58%, respectively, of the total products
either purchased or manufactured by the Company. Shunde No. 1 Lamp Factory
("Shunde") accounted for approximately 21% of the total products either
purchased or manufactured by the Company in 2000 and 29% in 1999. Purchases from
Go-Gro and the top five independent suppliers comprised 75% and 88%,
respectively, of the total of the products either
Page 8
purchased or manufactured by the Company for fiscal 2000 and 1999, respectively.
Other than Shunde, no independent supplier accounted for more than 10% of the
total of the products either purchased or manufactured by the Company in 2000.
On July 20, 1999, the Company renewed an agreement with Shunde whereby
Shunde agreed to manufacture lighting products for the Company to be sold in
North and South America and the European Community on an exclusive basis for a
three year period beginning October 1, 1999 in return for annual minimum
purchase requirements from the Company. The agreement can be terminated if the
Company does not meet its minimum purchase requirements, at which time the
exclusivity clause would cease. However, no amounts would be due Shunde for
failure to meet the purchase requirements. Since inception of this agreement in
1993, the Company has met its minimum purchase requirements under the agreement.
While the Company purchases its products from a small number of large
suppliers with whom it maintains close alliances, the Company believes the same
products could be purchased from numerous other Chinese suppliers.
The continued importation of products from China and the Company's
business could be affected by any trade issues impacting U.S. - China relations.
The People's Republic of China currently enjoys Normal Trade Relations ("NTR").
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.
The United States annually reconsiders the renewal of NTR trading status for the
PRC. Members of Congress and the "human rights community" also 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.
The Company obtained a political risk insurance policy issued by the
Multilateral Investment Guarantee Agency, a member of the World Bank Group, in
the amount of $14.4 million covering existing assets of SJE in China. The
contract is a long-term non-cancelable guarantee covering the risks of
expropriation and war and civil disturbance.
Competition
The Company's product lines span major segments within the lighting
industry and, accordingly, the Company's products compete in a number of
different markets with a number of different competitors. The Company competes
with other independent distributors, importers, manufacturers, and suppliers of
lighting fixtures and other consumer products in the United States, United
Kingdom, continental Europe and China. The lighting industry is highly
competitive. Other competitors market similar products that compete with the
Company on the basis of price. Some of these competitors do not maintain
warehouse operations or do not perform some of the services provided by the
Company that require the Company to charge higher prices to cover the added
costs. The relatively low barriers to entry into the lighting industry and the
limited proprietary nature of many lighting products also permit new competitors
to enter the industry easily. The ability of the Company to compete successfully
in this highly competitive market depends upon its ability to manufacture and
purchase a variety of quality products on favorable terms, ensure its products
meet safety standards, deliver the goods promptly at competitive prices, provide
a wide range of services such as electronic data interchange and customized
products, packaging, and store displays and otherwise adapt its services and
product offerings to the demands of its major retail customers.
Independent Safety Testing
As part of its marketing strategy, the Company voluntarily submits its
products to recognized product safety testing laboratories in countries in which
it markets its products. Such laboratories include Underwriters Laboratories
(UL) in the United States, Canadian Standards Association (CSA) in Canada,
British Standards (BS) in Great Britain, Association Nacional de Normalization y
Certification del Sector Electrico (ANCE) in Mexico and various European
electrical testing organizations. If the product is acceptable, the laboratory
issues a report, which provides a technical description of the product. It also
provides the Company's suppliers with procedures to follow in producing the
products and periodically conducts inspections at such suppliers' facilities for
compliance. Electrical products which are manufactured in accordance with safety
certification marks are generally recognized by consumers as safe products and
such certification marks are often required by various governmental authorities
to comply with local codes and ordinances. The Company does not anticipate any
difficulty in maintaining the right to use the listing marks of these
laboratories.
Product Liability
The Company is engaged in a business which could expose it to possible
claims for injury resulting from the failure of its products. The Company
maintains primary product liability insurance coverage of $1 million per
occurrence, $2 million in the aggregate, as well as a $25 million aggregate
umbrella insurance policy and $75 million excess umbrella insurance. The primary
insurance coverage requires the Company to self-insure for a maximum amount of
$10,000 per incident occurring after January 1,
Page 9
1999. No assurance can be given that the claims will not exceed available
insurance coverage or that the Company will be able to maintain the same level
of insurance. See "Liquidity and Capital Resources - Other Matters."
Trademarks and Patents
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. Subject to the minimum sales
conditions discussed below, the agreement terminates on September 30, 2002, with
the Company having options to extend the agreement for two additional five-year
terms. 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 net shipments. Commencing 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 $29 million and $20.5 million for the years ended September 30, 2000 and
1999, respectively.
The Company's licensed brand, Westinghouse(R) and the Company's own
trademarks, Catalina(R), Dana(R) and Illuminada(R) are registered in the United
States, Canada, China and Mexico as well as in numerous countries in the
European Community.
Employees
As of November 30, 2000 the Company employed approximately 700 people
in the United States, United Kingdom, Canada and Mexico. The Hong Kong and China
operations, including Go-Gro's cooperative joint venture, employed approximately
2,900 people. None of the Company's employees are represented by a collective
bargaining unit and the Company believes that its relationships with its
employees are good.
Financial Information about Foreign and Domestic Operations and Export Sales
The Company operates in the United States, United Kingdom and China,
and to a lesser extent, Canada, Mexico and South America. The Company's primary
operating segments are located in the United States, United Kingdom and China.
These operating segments generally follow the management organizational
structure of the Company. Net sales to external customers by U.S.-based
operations are made primarily into the United States. Net sales to external
customers by U.K.-based operations are made primarily into the U.K. Net sales
to external customers by China-based operations are made primarily into Europe.
See Note 15 of Notes to Consolidated Financial Statements.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of December 15,
2000 with respect to the executive officers of the Company:
Name Age Position With the Company
- -------------------------------- ----- -------- ---- ------------------------------------------------
Robert Hersh 54 Chairman, President,
Chief Executive Officer, Director
Dean S. Rappaport 48 Executive Vice President,
Chief Operating Officer
Nathan Katz 45 Executive Vice President
David W. Sasnett 44 Senior Vice President, Chief Financial
Officer, Chief Accounting Officer
None of the Company's officers has any family relationship with any
director or other officer. "Family relationship" for this purpose means any
relationship by blood, marriage, or adoption, not more remote than first cousin.
Page 10
Robert Hersh is a co-founder of the Company, has been the President and
Chief Executive Officer of the Company since April 1991, Chairman of the Board
since June 1991 and a Director of the Company since April 1988. Mr. Hersh served
as the Executive Vice President of the Company from 1985 to April 1991 and as
Secretary from June 1989 until June 1991.
Dean S. Rappaport became an Executive Vice President of the Company in
January 1988 and was a Director of the Company from April 1988 until May 1999.
From January 1988 to November 1996 Mr. Rappaport was Chief Financial Officer and
Treasurer of the Company. Mr. Rappaport was promoted to Chief Operating Officer
of the Company in November 1996.
Nathan Katz has been an Executive Vice President of the Company since
October 1, 1993 and Chief Executive Officer of Catalina Industries (formerly
known as Dana Lighting), a wholly-owned subsidiary of the Company, since August
1989. From October 1983 to August 1989, Mr. Katz was the Chief Executive Officer
of Dana Imports, Inc., an importer of lamps located in Boston, Massachusetts.
David W. Sasnett became a Vice President of the Company in November
1994. In November 1997, Mr. Sasnett became a Senior Vice President of the
Company. In November 1996, Mr. Sasnett became the Chief Financial Officer of the
Company. Prior to that time, he was the Company's Controller. From 1993 until he
joined the Company, Mr. Sasnett was the Vice President - Finance and Controller
of Hamilton Bank, N.A. and from 1980 to 1993 was employed by the international
accounting firm of Deloitte & Touche.
ITEM 2. PROPERTIES.
----------
The following table sets forth details about the Company's offices,
manufacturing plants and warehouse facilities:
LEASED/
LOCATION FACILITY OWNED
- ---------------------------------- ---------------------------------------- --------------------
United States:
Miami, FL headquarters/office owned (1)
Tupelo, MS warehouse owned (1)
Dallas, TX office/warehouse leased (2)
China:
Hong Kong office leased
Shenzhen office/manufacturing plant/warehouse leased
dormitories leased
manufacturing plant/ warehouse/
dormitories owned (3)
United Kingdom:
Leeds office/warehouse; warehouse leased; owned
Hyde warehouse owned
Walsall warehouse leased
Corby two warehouses leased
Other:
Toronto, Canada office/warehouse leased
Mexico City, Mexico office/warehouse leased
- ---------------------------------- ---------------------------------------- --------------------
(1) Owned subject to a first mortgage.
(2) The Company has subleased the warehouse space under this lease to an
unrelated party. The lease and sublease expire in February 2001.
Page 11
(3) This facility is owned by a joint venture in which the Company had a
70% interest as to ownership of the facility through September 2000.
The Company purchased the other 30% interest in September 2000. The
joint venture purchased land use rights which terminate in the year
2042.
All of the Company's properties are fully utilized with the exception
of the Dallas facility, which has been fully subleased except for the office
space. All of the Company's properties are suitable for its operations.
ITEM 3. LEGAL PROCEEDINGS.
------------------
The Company is a party to routine litigation incidental to its
business. In the opinion of management the ultimate resolution of any such legal
proceeding will not have a material adverse effect on the financial position or
annual results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-----------------------------------------------------
During the quarter ended September 30, 2000, no matters were submitted
for a vote of the Company's stockholders.
Page 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDER MATTERS.
--------------------
The Company's common stock is traded on the New York Stock Exchange
("NYSE") under the symbol LTG. The following table sets forth, for the periods
indicated, the high and low closing prices of the common stock as reported by
the New York Stock Exchange.
High Low
Fiscal Year Ended September 30, 1999
First Quarter 2 3/4 2
Second Quarter 3 11/16 2 1/8
Third Quarter 5 1/8 2 11/16
Fourth Quarter 5 11/16 4 1/8
Fiscal Year Ended September 30, 2000
First Quarter 5 9/16 3 15/16
Second Quarter 6 1/16 4 1/2
Third Quarter 4 14/16 3 11/16
Fourth Quarter 5 3 3/8
On December 26, 2000, the closing price of the Company's common stock
as reported on the New York Stock Exchange was $2.00. As of December 15, 2000
there were approximately 1,700 holders of record of the Company's common stock,
including some brokerage firms, which hold shares in street name on behalf of
their clients.
The Company has never paid cash dividends on its common stock. The
Company intends to retain future earnings, if any, to finance the expansion of
its business and does not anticipate that any cash dividends will be paid in the
foreseeable future. In addition, the terms of the Company's credit facilities
prohibit the payment of any cash dividends or other distribution on any shares
of the Company's common stock, other than dividends payable solely in shares of
common stock, unless approval is obtained from the lenders. Future dividend
policy will depend on the Company's earnings, capital and financing
requirements, expansion plans, financial condition and other relevant factors.
The Company's Board of Directors has authorized the repurchase of up to
$2.7 million of common shares of the Company from time to time in the open
market or in negotiated purchases. As of December 15, 2000, the Company had
repurchased 641,932 shares of its stock for $2.5 million.
On August 9, 1999 the NYSE notified the Company that it had changed its
rules regarding continued listing for companies which have shares traded on the
NYSE. The new rules changed and increased the requirements to maintain a NYSE
listing. Through September 30, 2000, the Company did not meet the new rules,
which require a total market capitalization of $50 million and the maintenance
of minimum total stockholders' equity of $50 million. The Company's total market
capitalization and stockholders' equity as of September 30, 2000 were $25.3
million and $50.8 million, respectively. The Company expects to report a loss
for the quarter ending December 31, 2000 (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Outlook") and the
Company's total market capitalization as of the close of business on December
26, 2000 was $14.7 million. As requested by the NYSE, the Company had previously
provided the NYSE with its plan to meet the new standards by February 2001. The
Company's plan was accepted by the NYSE in October 1999 and continues to be
monitored by the NYSE through the current quarter. However, no assurances can be
given that the objectives of the plan will be accomplished by February 2001. If
the Company is ultimately unable to meet the new NYSE listing rules or obtain an
extension for its plan, the Company's shares could be suspended from trading on
the NYSE, however the Company believes other trading venues are available for
its stock.
In November 2000, the Company's Board of Directors reauthorized its
stockholder rights plan, by adopting a plan similar to a pre-existing rights
plan which expired on November 20, 2000. Under the Company's new rights plan, a
preferred stock purchase right was distributed for each share of common stock
outstanding at the close of business on the November 30, 2000 record date and is
issued in connection with each share issued after such date. The rights are not
initially exercisable, but upon the occurrence of certain takeover-related
events, the holders of the rights (other than an adverse or acquiring person, or
group thereof), under certain circumstances, have the right to purchase
additional shares of Company stock (or, in some cases, stock of the acquiring
entity) at a discount to the then market price. The rights can be redeemed by
the Company at any time, and will otherwise expire on November 20, 2005. The
thresholds for triggering the rights plan is a person (as defined in the rights
plan) acquiring 21%
Page 13
of the outstanding stock of the Company or a declaration by the Board of
Directors that a person is an "adverse person" as defined in the rights plan,
and the exercise price of the rights is $17.
ITEM 6. SELECTED FINANCIAL DATA.
------------------------
(in thousands, except per share data)
At or For the Years Ended September 30,
-------------------------------------------------------------------------------------
2000 (1) 1999 (2) 1998 1997 (3) 1996
--------------- -------------- --------------- --------------- ---------------
Net sales $ 202,630 $ 176,561 $161,860 $ 196,955 $ 184,630
Net income (loss) $ 2,845 $ 6,489 $ 1,102 $ (3,093) $ 1,603
Basic earnings (loss) per share $ 0.40 $ 0.92 $ 0.15 $ (0.44) $ 0.23
Diluted earnings (loss) per share $ 0.37 $ 0.80 $ 0.15 $ (0.44) $ 0.21
Total assets $ 167,971 $ 101,897 $ 98,960 $ 116,581 $ 117,462
Long-term borrowings $ 6,888 $ 24,774 $ 28,224 $ 39,737 $ 36,571
Certain amounts presented above for prior years have been reclassified
to conform to the current year's presentation. No cash dividends were declared
during the five-year period ended September 30, 2000.
(1) Includes a $500,000 charge to close the Boston office, a $788,000
charge related to the reorganization of executive management and assets
and liabilities acquired upon the acquisition of Ring on July 5, 2000
and the operating results for Ring for the period July 5, 2000 to
September 30, 2000. Long-term borrowings reflect classification of all
borrowings under the Company's $75 million credit facility to current
liabilities as of September 30, 2000.
(2) Reflects the reversal of a $2.7 million provision for a judgment
related to litigation with a former officer of the Company and the
reversal of an associated $893,000 provision for post judgment
interest.
(3) Includes $930,000 in plant closing costs due to the termination of
manufacturing operations at the Company's Meridian Lamps subsidiary and
$7.5 million in litigation costs and related professional fees.
Page 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
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 as discussed under
"Outlook" and the discussion under "Liquidity and Capital Resources" 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
Catalina Lighting, Inc. and its subsidiaries (collectively, the "Company") 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 key customers who may delay, cancel or fail to
place orders; consumer demand for lighting products; dependence on third party
vendors and imports from China which may limit the Company's margins or affect
the timing of revenue and sales recognition; general domestic and international
economic conditions which may affect consumer spending; brand awareness, the
existence or absence of adverse publicity, continued acceptance of the Company's
products in the marketplace, new products and technological changes, and
changing trends in customer tastes, each of which can effect demand and pricing
for the Company's products; pressures on product pricing and pricing
inventories; cost of labor and raw materials; the availability of capital, the
ability to satisfy covenants under credit and loan agreements and the impact of
increases in borrowing costs, each of which affect the Company's short-term and
long-term liquidity and ability to operate as a going concern; the costs and
other effects of legal and administrative proceedings; foreign currency 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-K. 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.
The Company's fiscal years ended September 30, 2000, 1999 and 1998 are
referred to herein as "2000", "1999" and "1998", respectively. Unless otherwise
noted, U.S. dollar equivalents of foreign currency amounts are based upon the
exchange rates prevailing at September 30, 2000.
RESULTS OF OPERATIONS
Comparison of Fiscal Years Ended September 30, 2000 and 1999
- ------------------------------------------------------------
Consolidated Results
The Company earned $2.8 million, or $0.37 per diluted share, in 2000.
Net income for 1999, which included a non-recurring reversal of a provision for
litigation (and related interest) that increased pretax income by $3.6 million,
was $6.5 million, or $0.80 per diluted share. Net income and diluted earnings
per share for 1999, as adjusted to exclude the impact of the litigation
settlement, were $4.5 million and $0.57, respectively.
The Company's July 5, 2000 acquisition of Ring PLC ("Ring"), a
supplier of lighting, automotive and consumable products located in the United
Kingdom, significantly affected 2000 operating results and the comparability of
current year results to those for 1999. The Company's 2000 results include net
sales of $24.5 million and a pretax loss of $1.3 million attributable to Ring
for the period July 5, 2000 to September 30, 2000. Ring's pretax loss of $1.3
million includes interest and financing costs and goodwill amortization related
to the acquisition aggregating $1.1 million. Ring's results for the period after
its acquisition were negatively affected by an increasingly competitive retail
sector, consolidation and direct importation trends in Ring's markets and
product lines and a weakening of the British pound relative to the U.S. dollar.
See "Results By Segment - Ring Limited" for a comparative analysis of Ring's
results.
Actions taken by the Company in two areas of its business resulted in
charges that reduced 2000 pretax earnings by approximately $1.3 million. The
Company expensed $788,000 pursuant to a reorganization of its executive
management structure in December 1999. Separately, in September 2000 plans were
finalized to consolidate the functions of the Boston office into the Miami
headquarters. Management believes this consolidation will allow the Company to
service its U.S. customers more effectively and to generate future cost savings.
A $500,000 charge to provide for employee severance costs and to writedown
equipment and other property was recorded in September 2000 for the Boston
office closure.
Net sales for 2000 were a record $202.6 million as a result of the Ring
acquisition. Excluding Ring, net sales for 2000 were $178.1 million, as compared
to $176.6 million in 1999. Higher unit sales to Canadian, European and other
international customers offset lower unit sales and an overall sales decline to
U.S. customers. In 2000 sales to U.S. and international
Page 15
customers (excluding Ring) were $121.6 million and $56.5 million, respectively,
and in 1999 such sales amounted to $134.0 million and $42.6 million,
respectively.
Lamps, lighting fixtures, automotive after-market products and
industrial consumables accounted for 55%, 40%, 4% and 1% of net sales in 2000.
Lamps and lighting fixtures accounted for 64% and 36% of net sales in 1999. In
2000 and 1999 the Company's largest customer, Home Depot, accounted for $47.0
million (23.2%) and $45.6 million (25.8%), respectively, of the Company's net
sales. Wal-Mart and an affiliate accounted for $18.8 million (9.3%) and $25.6
million (14.5%) of net sales in 2000 and 1999, respectively. For the fiscal
years ended September 30, 2000 and 1999, net sales to the Company's ten largest
customers represented approximately 69% and 73%, respectively, of the Company's
net sales. Approximately 69% of the Company's sales in 2000 were made on a
direct basis as compared to 75% in 1999.
Gross profit increased in total dollars, but decreased as a percentage
of sales, from 1999 to 2000. The decrease in the gross profit percent is due in
part to the inclusion of $24.5 million in sales from Ring at a gross profit
percentage of 14.1% for the fourth quarter of 2000 and other factors. See
"Results By Segment - Catalina Industries".
Selling, general and administrative expenses ("SG&A") for 2000 were
$27.0 million (net of Ring-related SG&A of $3.8 million), a decrease of $1.5
million from last year. The majority of this decrease relates to reductions in
(i) bonuses for U.S. employees of $916,000; (ii) professional fees of $269,000;
(iii) tradeshow expenses of $148,000; and (iv) sales commissions of $143,000.
Greater interest expense for 2000 reflects the impact of $800,000 in
interest on the loans to fund the Ring acquisition.
Other income for 2000 consisted primarily of interest income
($495,000), income from joint ventures ($185,000) and other miscellaneous income
($65,000). Other income in 2000 was reduced by a net foreign currency loss of
$303,000. Other income in 1999 consisted primarily of a gain on sale of the
Company's Meridian facility ($194,000), interest income ($349,000), income from
joint ventures ($145,000) and miscellaneous income ($455,000). Other income in
1999 was reduced by a net foreign currency loss of $25,000.
The effective income tax rates for 2000 and 1999 were 27.4% and 31.2%,
respectively and reflect the impact of foreign income, which is taxed at a
significantly lower rate than U.S. income. The Company's effective income tax
rate is dependent both on the total amount of pretax income generated and the
source of such income (i.e. domestic or foreign). Consequently, the Company's
effective tax rate may vary in future periods. The Company's effective income
tax rate reflects the anticipated tax benefits associated with the Company's
1999 restructuring of its international operations. Should these tax benefits
not materialize, the Company may experience an increase in its effective
consolidated income tax rate.
Outlook
The highly competitive U.K. retail environment impacting Ring's
business has continued after September 30, 2000, and management expects Ring's
pretax loss for the quarter ending December 31, 2000 to be comparable to the
$1.3 million pretax loss recorded in the quarter ended September 30, 2000. In
addition, the Company has experienced a significant decline in sales to U.S.
customers during the first quarter of fiscal 2001, as compared to the first and
fourth quarters of fiscal 2000. The Company estimates first quarter fiscal 2001
sales to U.S. customers will be approximately $11 million less than those
recorded for the same quarter of 2000. Consequently the Company expects to
report a net loss for the quarter ending December 31, 2000. Management believes
this sales decline represents a general slow down in the U.S. retail economy
that has affected the purchasing patterns of its major customers.
As a result of the Company's performance for the quarter ended
September 30, 2000, the Company did not satisfy a financial covenant under its
existing $75 million credit facility. On December 22, 2000 the Company obtained
an amendment of this facility effective for the quarter ended September 30, 2000
and is in compliance with the amended facility for the quarter ended September
30, 2000. However, based upon current expectations the Company believes it will
not be able to comply with the financial covenants of its $75 million credit
facility for quarters subsequent to September 30, 2000 unless a waiver of the
covenants or a second amendment to the facility is obtained modifying the
covenants. See "Liquidity and Capital Resources" and Notes 5 and 19 of Notes to
Consolidated Financial Statements.
Results By Segment
Refer to Note 15 of Notes to Consolidated Financial Statements for
financial tables for each business segment.
Page 16
Catalina Industries (United States)
- -----------------------------------
The segment contribution made by Catalina Industries in 2000 was $5.8
million, as compared to $9.0 million in 1999. The decrease in segment
contribution in 2000 reflects lower sales to U.S. customers, with a resulting
loss of gross profit dollars.
Sales by Catalina Industries to external customers were $121.4 million
in 2000, a decrease of $12.3 million, or 9.2% from 1999. Sales to Wal-Mart were
$12.8 million or $9.6 million less than in 1999, as Catalina Industries
introduced new programs and benefited from promotional sales with Wal-Mart in
1999. Catalina Industries also generated $2.9 million in sales in 1999 from a
customer that went out of business prior to fiscal 2000. Sales to Home Depot,
Catalina Industries' largest customer, were $39.5 million and $40.4 million, for
2000 and 1999, respectively.
The gross profit decrease of $4.9 million in 2000 is attributable to
the lower sales volume, and to a decrease in the overall gross profit
percentage. The lower gross profit percentage in 2000 reflects a change in the
product mix and a continuing reduction of Catalina Industries' warehouse sales.
Presently, most of the Company's major U.S. customers (including Home Depot and
Wal-Mart) purchase from Catalina Industries primarily on a direct basis, whereby
the merchandise is shipped directly from the factory to the customer, rather
than from the warehouse. Approximately 79% of Catalina Industries' sales to U.S.
customers in 2000 were made on a direct basis as compared to 75% in 1999.
Warehouse sales to U.S. customers declined each fiscal year in the six-year
period commencing fiscal 1995, when the present warehouse was constructed in
Tupelo, Mississippi, and warehouse sales were 61% of U.S. sales compared to the
present 21%. This percentage decline represents a significant decrease in sales
dollars. With the continued decline in warehouse sales in 2000, Catalina
Industries also earned lower overall margins on its warehouse sales, as the
Company reduced its U.S. inventories from $15.6 million at September 30, 1999 to
$10.6 million at September 30, 2000. Catalina Industries lowered its warehousing
costs by terminating its other U.S. warehouse operation located in Los Angeles
effective March 31, 1998 and is attempting to compensate further for the decline
in U.S. warehouse sales by pursuing new customers for the U.S. warehouse.
Management also continues to consider other strategic alternatives to reduce
overall warehousing costs. Catalina Industries may experience further declines
in sales made from its U.S. warehouse and, at least in the short term, may be
unable to further reduce its overall U.S. warehousing costs. The need to
generate cash to meet the requirements of the Company's $75 million credit
facility (see "Liquidity and Capital Resources") may necessitate a further
lowering of U.S. warehouse inventories at lower relative gross margins. Further
declines in warehouse sales or the need to lower inventories to generate cash
could adversely impact the Company's gross profits in the future.
Catalina Industries lowered its SG&A by approximately $1 million in
2000, as this segment of the Company reduced its involvement in tradeshows and
its use of certain other merchandising approaches, resulting in a decrease of
more than $700,000 in this expense category.
Go-Gro (China)
- --------------
Go-Gro's segment contribution rose in 2000 to $9.2 million, up $2.6
million, or 39%, from $6.6 million for 1999. Go-Gro became more profitable in
2000 by growing its sales to third parties and raising its manufacturing output.
Go-Gro's sales for 2000 were $141.4 million, an increase of $4.4
million from the $137.0 million generated in 1999. Sales of products
manufactured by Go-Gro in 2000 (as opposed to sales of products purchased for
resale by Go-Gro from other manufacturers) increased by $13.3 million, to $71.4
million. Third party and intercompany sales by Go-Gro in 2000 were $26.9 million
and $114.5 million, respectively, while the comparable sales amounts for 1999
were $19.5 million and $117.5 million, respectively. Sales to one third party
customer were $10.1 million in 2000 and $2.7 million in 1999, respectively. In
2000 new product introductions for Europe were the driving factor behind
Go-Gro's sales growth to third parties, while Go-Gro's greater manufacturing
sales reflects the added capacity of Go-Gro's new factory. Go-Gro's gross profit
increased $2.6 million due to the growth in sales of products manufactured by
Go-Gro, as the margins Go-Gro earns on products it manufactures typically exceed
the margins Go-Gro earns on products it purchases from other manufacturers.
Ring Limited (United Kingdom)
- -----------------------------
The Ring segment recorded a pretax loss of $1.3 million for 2000, which
includes $260,000 in goodwill amortization arising from the acquisition and
$825,000 in interest and financing costs for the acquisition-related debt.
Excluding these acquisition costs, Ring's pretax loss for the period July 5,
2000 to September 30, 2000 was approximately $200,000, as compared to pretax
income of approximately $850,000 for the quarter ended September 30, 1999.
Net sales and gross profit for the period from July 5, 2000 to
September 30, 2000 were $24.5 million and $3.5 million, respectively, as
compared to $26.7 million and $4.6 million, respectively for the same period of
1999. Ring's sales volume and gross profit reflect an increasingly competitive
retail business sector stemming from consolidation in both the lighting and
automotive markets, a general decline in the automotive aftermarket, and greater
direct importation of products by Ring's
Page 17
customers. In addition, a weakening of the Great British pound relative to the
U.S. dollar has increased Ring's cost of goods and lowered its margins. The
average exchange rate of the dollar to the pound for the quarter ended September
30, 2000 was approximately 1.48 to 1, a significant decline from the average
exchange rate for the quarter ended September 30, 1999 of 1.61 to 1. Ring's
lighting division sales increased (in local currency) in the 2000 period but
such sales were made at lower margins. Sales for Ring's automotive and
consumable divisions declined in 2000, as did such divisions' gross profits.
Ring's margin erosions are directly related to the economic factors mentioned
previously.
Comparison of Fiscal Years Ended September 30, 1999 and 1998
- ------------------------------------------------------------
Consolidated Results
Net sales and gross profit for 1999 were $176.6 million and $35.7
million, respectively, as compared to $161.9 million and $31.1 million,
respectively, for 1998. The Company generated net income of $6.5 million ($.80
per share) in 1999 compared to $1.1 million ($0.15 per share) in 1998. In 1999,
results from operations benefited from the reversal of a $2.7 million provision
for a judgment related to litigation with a former officer of the Company and
the reversal of an associated $893,000 provision for post judgment interest. The
reversal of these non-recurring items and related expenses increased diluted
earnings per share in 1999 by $.23. Diluted earnings per share, as adjusted to
exclude these non-recurring items and related expenses in both years, was $.57
in 1999 as compared to $.19 in 1998.
The $14.7 million increase in net sales from the prior year reflects
higher unit sales to U.S. and Canadian customers attributable to additions to
core programs, promotional opportunities and new product placements. Lamp sales
increased by $13.6 million 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 66% and 34% of net sales in 1999 compared to 63% and 37%
in 1998, respectively. In 1999 and 1998, Home Depot accounted for 25.8% and
27.5%, respectively, of the Company's net sales and Wal-Mart and an affiliate
accounted for 14.5% and 5.3% of net sales in 1999 and 1998, respectively. For
the fiscal years ended September 30, 1999 and 1998, net sales to the Company's
ten largest customers represented approximately 73% and 66%, respectively, of
the Company's net sales. Approximately 75% of the Company's sales in 1999 were
made on a direct basis as compared to 67% in 1998.
Gross profit increased by $4.6 million 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 19.2% in 1998 to 20.2% 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.
Selling, general and administrative expenses increased by $1.9 million
reflecting an increase in professional and consulting fees ($657,000, of which
approximately $360,000 was related to the implementation of the Company's new
computer system), an increase in bonuses due to executive officers under their
employment agreements ($569,000 in the aggregate), an increase in expenses
related to the Company's operations in Mexico ($387,000) and an increase in the
provision for uncollectible accounts receivable in Mexico ($391,000).
During the 1997 fiscal year the Company recorded a $4.2 million
provision for an adverse jury verdict and judgment arising from litigation with
a former officer. The Company subsequently appealed the jury verdict and
ultimately settled the case in June 1999 for $1.5 million. The settlement
resulted in a reversal in 1999 of $2.7 million of the $4.2 million previously
accrued and the reversal of $893,000 in interest accrued since 1997 on the $4.2
million judgment.
Interest expense decreased to $2.4 million in 1999 from $3.8 million in
1998 due to lower average outstanding borrowings and a lower average interest
rate.
Other income for 1999 consisted primarily of a $194,000 gain on the
sale of the Company's Meridian facility, investment income, equity income,
foreign currency gains and losses and other miscellaneous income.
The effective income tax rates for 1999 and 1998 were 31.2% and 24.9%,
respectively and reflect the impact of foreign income, which is taxed at a
significantly lower rate than U.S. income. The increase in the tax rate from
1998 to 1999 was due to higher 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. The Company's effective income tax rate reflects the anticipated tax
benefits associated with the Company's 1999 restructuring of its international
operations. Should these tax benefits not materialize, the Company may
experience an increase in its effective consolidated income tax rate.
Page 18
Results By Segment
Catalina Industries (United States)
- -----------------------------------
The segment contribution of Catalina Industries increased to $9.0
million in 1999 from $7.6 million in 1998, as this segment increased its sales,
while reducing its interest expense.
Net sales for Catalina Industries increased by $12.0 million in 1999 to
$135.3 million due to additions to core programs, new product placements and
promotional opportunities, most notably with Wal-Mart. Sales to Wal-Mart and an
affiliate in 1999 increased by $16.5 million to $22.4 million. Sales to a
significant customer that went out of business in fiscal 1999 decreased from $9
million in 1998 to $2.9 million in 1999. Catalina Industries' sales to its
largest customer, Home Depot, were $40.4 million in 1999 and $40.8 million in
1998. Catalina Industries' direct sales were 75% and 62% of total sales in 1999
and 1998, respectively.
Catalina Industries' profitability and cash flow for 1999 allowed it to
lower its outstanding borrowings from the parent, reducing interest expense by
approximately $600,000.
Go-Gro (China)
- --------------
Go-Gro's segment contribution rose to $6.6 million in 1999 from the
$1.9 million generated in 1998. Go-Gro's additional pretax income in 1999
relates in part to additional intercompany sales made by Go-Gro as a result of a
corporate decision made during 1998 to discontinue the business practice of
allowing Catalina Industries and Catalina Canada to deal directly with, and
purchase from, Chinese factories other than Go-Gro. This purchasing change took
place in the latter half of fiscal 1998. As a result, Go-Gro's intercompany
sales rose from $90.0 million in 1998 to $117.4 million in 1999, resulting in an
increase in Go-Gro's gross profit. Go-Gro's sales to third parties declined
slightly from $21.3 million in 1998 to $19.5 million in 1999. In addition to the
increase in intercompany sales, sales of products manufactured by Go-Gro
increased by $8 million from 1998 to 1999 as well as the margin earned on such
sales, also contributing to the increase in gross profit dollars and the gross
profit percent. The margins Go-Gro earns on products it manufactures typically
exceeds the margin earned on products purchased from other manufacturers.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its short-term liquidity needs through cash provided
by operations, borrowings under various credit facilities with banks, accounts
payable and the use of letters of credit from customers to fund certain of its
direct import sales activities. Lease obligations, mortgage notes, bonds,
subordinated debt and capital stock are additional sources for the longer-term
liquidity and financing needs of the Company.
Cash Flows and Financial Condition
- ----------------------------------
The Company's operating, investing and financing activities resulted in
a net decrease in cash and cash equivalents of $4.9 million from September 30,
1999 to September 30, 2000.
The Company's operating activities provided $8.1 million in net cash
for the year ended September 30, 2000.
The Company used $4.9 million of the cash and cash equivalents on hand
at September 30, 1999 and the net cash provided by operations for the year ended
September 30, 2000 for capital expenditures and to pay down outstanding
obligations. Capital expenditures for the period totaled almost $4.3 million, of
which $3.1 million related to the planned expansion of the Go-Gro manufacturing
facility and Go-Gro equipment purchases. In addition to a $2.5 million scheduled
repayment made in March 2000, the Company elected to make a $5.1 million
prepayment in June and July 2000 on its convertible subordinated notes and $1.3
million in common stock was repurchased under a stock repurchase plan through
August 2000. The Company financed the Ring acquisition with $30 million in term
loans and borrowings under its U.S. revolving credit facility.
Management estimates that net capital expenditures in fiscal 2001 will
approximate $5.2 million, representing $2.2 million in additional construction
costs and equipment for Go-Gro's manufacturing facilities, and $3.0 million for
computer software and hardware, equipment, vehicles and other miscellaneous
capital additions. These capital expenditures will be financed by leasing
facilities with financial institutions and cash generated from operations.
As discussed in the following paragraphs, in July 2000 the Company
completed a major acquisition and funded this acquisition with a new credit
facility.
Page 19
Acquisition and Credit Facilities
- ---------------------------------
On July 5, 2000 the Company acquired Ring Plc ("Ring"), a leading
supplier of lighting, automotive after-market products and industrial
consumables in the United Kingdom. The total consideration for the acquisition
was approximately 22.4 million Great British Pounds ("GBP") or approximately
U.S. $33.8 million.
The Company entered into a five-year credit facility for approximately
$75 million with a bank syndication group to finance the acquisition of Ring and
repay and terminate its existing U.S. credit facility and Ring's U.K. facility.
The new facility consists of two term loans amounting to $15 million and the GBP
equivalent of U.S. $15 million (GBP 9.9 million), respectively, and two
facilities for revolving loans, acceptances, and trade and stand-by letters of
credit for the Company's ongoing operations in the U.S. and the U.K., of $20
million and the GBP equivalent of U.S. $25 million (approximately GBP 17
million), respectively. Borrowings under the facility bear interest, payable
monthly, at the Company's option of either the prime rate plus 1.75% (11.25% at
December 15, 2000) or the LIBOR rate plus a variable spread based upon earnings,
debt and interest expense levels defined under the credit agreement (9.46% at
December 15, 2000). Obligations under the facility are secured by substantially
all of the Company's U.S. and U.K. assets, including 100% of the common stock of
the Company's U.S. subsidiaries and 65% of the stock of the Company's Canadian
and first tier United Kingdom and Hong Kong subsidiaries. The agreement contains
covenants requiring that the Company maintain a minimum level of equity, meet
certain debt to adjusted earnings and fixed charge coverage ratios and limiting
capital expenditures. Borrowings are subject to a borrowing base defined as the
aggregate of certain percentages of the Company's U.S. and U.K. receivables and
inventory. The agreement prohibits the payment of cash dividends or other
distribution on any shares of the Company's common stock, other than dividends
payable solely in shares of common stock, unless approval is obtained from the
lenders. At September 30, 2000, $33.6 million in net assets of Ring were
restricted under U.K. law and the credit facility and could not be transferred
to the parent Company. The Company pays a quarterly commitment fee of .50% per
annum based on the unused portion of the revolving facilities. At September 30,
2000, the Company had used $31.1 million under the revolving facilities and $6.2
million was available for additional borrowings under the borrowing base.
The $75 million credit facility contains financial covenants requiring
the Company to maintain a minimum level of equity and meet certain debt to
adjusted earnings (i.e. leverage) ratios and fixed charge coverage ratios on a
quarterly basis. As a result of the loss generated by Ring for the quarter ended
September 30, 2000 and Ring's acquisition costs and purchase accounting
adjustments the Company did not initially meet the leverage ratio at September
30, 2000. The $75 million credit facility was amended on December 22, 2000 and
the Company now meets the financial covenants for the quarter ended September
30, 2000. However, as discussed further below, the Company does not expect to be
in compliance with the financial covenants for the quarter ending December 31,
2000 and subsequent quarters unless a waiver of the covenants or a second
amendment is obtained.
The Company's credit facilities, U.K. laws, and U.S. income tax
considerations, impact the flow of the Company's funds between its major
subsidiaries. The Hong Kong credit facility prohibits the payment of dividends
without the consent of the bank and limits the amount of loans or advances from
Go-Gro to other Company subsidiaries. Any loan made or dividends paid either
directly or indirectly by Go-Gro to the Company or its U.S. subsidiaries could
be considered by U.S. taxing authorities as a repatriation of foreign source
income subject to taxation in the U.S. at a higher rate than that assessed in
Hong Kong. The net impact of such a funds transfer from Go-Gro could be an
increase in the Company's U.S. income taxes payable and its effective tax rate.
The U.S./U.K. credit facility prohibits loans to Go-Gro from either Ring or the
Company other than normal intercompany payables arising from trade. This
facility permits loans from the Company to Ring, but restricts the flow of funds
from Ring to the Company to payments constituting dividends or a return of
capital. U.K. laws also restrict the amount of funds that may be transferred
from Ring to the parent Company and other subsidiaries.
The acquisition of Ring and the related new $75 million credit facility
have greatly increased the Company's outstanding borrowings and debt service
requirements and also raised the Company's overall costs of borrowings. The
Company expects to report a net loss for the quarter ending December 31, 2000
(See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Consolidated Results - Outlook") and has begun reducing capital
expenditures, eliminating discretionary expenses, and evaluating possible sales
of assets to improve its cash position. Any material need for cash above current
expectations or a significant decline in the Company's profitability from
current expectations could require the Company to take further such actions with
respect to capital expenditures, cost-cutting, incurring additional
indebtedness, or selling assets, any or all of which actions could reduce the
Company's liquidity and earnings and the scope of its competitive options. There
can be no assurance that any of such actions can be effected, that they would
enable the Company to continue to satisfy its capital requirements or that they
would be permitted under the terms of the Company's various debt instruments
then in effect. Should the Company fail to meet the financial covenants of its
amended $75 million credit facility, the lenders would have the right to take
actions that could further adversely impact the Company's liquidity and
earnings, including accelerating the maturity of the debt, in which case the
Company may not have sufficient liquidity to meet its obligations. As a result
of the Company's operating results for the fourth quarter of fiscal 2000, most
notably the pretax loss incurred by the Company's United Kingdom
Page 20
operations, the Company initially was not in compliance with a financial
covenant under its $75 million credit facility for the quarter ended September
30, 2000. The Company obtained an amendment of the credit facility on December
22, 2000 for the quarter ended September 30, 2000 and is in compliance with the
financial covenants under the amended facility. However, due to the sales and
profitability declines the Company is experiencing for the quarter ending
December 31, 2000, the Company does not expect to be in compliance with the
financial covenants of the $75 million credit facility for the quarter ending
December 31, 2000 and subsequent quarters unless the covenants are waived or
modified through another amendment of the facility.
The Company is exploring strategic alternatives including potential
divestitures, a merger, a recapitalization or other actions. The investment
banking firm of SunTrust Equitable Securities has been hired to assist with this
strategic review and to formulate proposed plans and actions for the
consideration of the Board of Directors. Because SunTrust Equitable Securities
is currently conducting its review and formulation of proposed plans and
actions, no assessment can be made of the likelihood that any such plans and
actions are feasible or can be effectively implemented. The Company does not
intend to provide information updating the status of this strategic review or of
any efforts to implement plans or actions that may be developed, and a negative
or positive inference should not be drawn from the absence of any such updates.
Regardless of the outcome of the strategic review discussed above the
Company believes that a waiver covering the financial covenants of the $75
million credit facility, or a second amendment of the $75 million credit
facility, will be required for the quarter ending December 31, 2000 and
subsequent quarters. Without such waiver or second amendment, based upon the
Company's current expectations there would be an event of default under that
credit facility for the quarter ending December 31, 2000. A default or
subsequent breaches of the financial covenants under the $75 million credit
facility could result in acceleration of the Company's indebtedness, in which
case the debt would become immediately due and payable. Although no assurances
can be given, the Company believes it will be able to successfully negotiate
with its present $75 million credit bank syndicate, as is necessary, for a
waiver, or a second amendment, so as to preclude acceleration of its
indebtedness for the quarter ending December 31, 2000. If there is no
modification or waiver of the existing financial covenants for the quarter
ending December 31, 2000, the Company may not be able to generate, raise or
borrow sufficient funds to repay its debt and/or to refinance its debt. Even if
new funding is available, it may not be on terms that are acceptable to the
Company.
Based upon the Company's current assessment of market conditions for
its business, the Company intends to negotiate for a waiver or second amendment
to the financial covenants of its $75 million credit facility that will also
cover quarters ending subsequent to December 31, 2000. The Company's ability to
satisfy the financial covenants in subsequent quarters will depend on the terms
of any such waiver or second amendment, business conditions for the Company's
products and any results from the strategic review described above. The
Company's continuation as a going concern is dependent upon its ability to
successfully establish the necessary financing arrangements and to comply with
the terms thereof. Although no assurances can be given, the Company believes
that it will be able to continue operating as a going concern.
Ring has an arrangement with a U.K. bank which is secured by standby
letters of credit issued under the GBP five-year revolving credit facility. The
arrangement provides for borrowings, trade letters of credit and foreign
currency forward contracts and transactions. Borrowings, letters of credit and
foreign currency forward contracts outstanding under this arrangement amounted
to $3.2 million, $7.9 million and $9.4 million, respectively, at September 30,
2000.
The Company's Canadian subsidiary has a credit facility with a Canadian
bank which provides 5.5 million Canadian dollars or U.S. equivalent
(approximately U.S. $3.7 million) in revolving demand credit. Canadian dollar
advances bear interest at the Canadian prime rate plus .5% (8.0% at September
30, 2000) and U.S. dollar advances bear interest at the U.S. base rate of the
bank (10.0% at September 30, 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. At
September 30, 2000, $2.5 million in net assets of the Company's Canadian
subsidiary were restricted under the credit facility and could not be
transferred to the parent Company. This facility is payable upon demand and is
subject to an annual review by the bank. The Company pays a monthly commitment
fee of .25% based on the unused portion of the facility. At September 30, 2000,
total Canadian and U.S. dollar borrowings amounted to U.S. $2.2 million
(included in credit lines) and U.S. $1.2 million was available under the
borrowing base calculation.
Go-Gro, the Company's Hong Kong subsidiary, 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% (9.75% at September 30, 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. At September 30, 2000, $17.2 million in net
assets of Go-Gro were restricted under the agreement and could not be
transferred to the parent Company. This facility is repayable
Page 21
upon demand and is subject to an annual review by the bank. At September 30,
2000, the Company had used $1.8 million of this line for letters of credit
(there were no borrowings) and U.S. $2.7 million was available. The availability
under this facility was increased to 60 million Hong Kong dollars (approximately
U.S. $7.7 million) in December 2000.
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 through 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 (6.65% at September 30, 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
$7.0 million direct pay letter of credit which is not part of the Company's
credit lines. This direct pay letter of credit provides that any default under
any other agreement involving a material borrowing or guarantee constitutes a
default under the direct pay letter of credit. The unpaid balance of these bonds
was $6.0 million at September 30, 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.
On June 30, 2000, the Company prepaid $4.3 million of the $5.1 million
outstanding balance on its 8% convertible subordinated notes and the remaining
$733,000 was prepaid in July 2000. The $5.1 million balance was due in two equal
installments on March 15, 2001 and March 15, 2002. The Company had previously
repaid $2.5 million of these notes in March 2000. The Company's 8% subordinated
notes were convertible at the option of the holder into common shares of the
Company's stock at a conversion price of $6.63 per share at any time prior to
maturity.
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 $699,000 was
available at September 30, 2000. Ring has a GBP 1.5 million (approximately U.S.
$2.2 million) facility with a U.K. financial institution to finance the purchase
of vehicles and equipment of which $960,000 was available at September 30, 2000.
This facility is renewed annually.
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
$896,000 at September 30, 2000.
Capital Expenditures
- --------------------
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
was divided 70% to Go-Gro and 30% to the other joint venture partner (Shenzhen
Baoanqu Fuda Industries Co., Ltd. ("Fuda") a Chinese company) through September
2000. 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. A 162,000 square foot factory, 77,000 square foot warehouse and
60,000 square foot dormitory became fully operational in June 1997. The total
cost for this project is estimated at $16 million (of which $13.3 million had
been expended as of September 30, 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 $588,000 had been paid or
accrued as of September 30, 2000. SJE began construction of the final phase of
this facility in December 1999 and the remainder of the construction is underway
to be completed in 2001. In September 2000, Go-Gro purchased Fuda's 30% interest
in SJE's land use rights and property for approximately $1 million.
Westinghouse License
- --------------------
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. Subject to the minimum sales
conditions discussed below, the agreement terminates on September 30, 2002 with
the Company having options to extend the agreement for two additional five year
terms. 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 net shipments. Commencing 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
Page 22
and $60 million for fiscal 2002. Net sales of Westinghouse branded products
amounted to $29 million and $20.5 million for 2000 and 1999, respectively.
NYSE Listing
- ------------
On August 9, 1999 the NYSE notified the Company that it had changed its
rules regarding continued listing for companies which have shares traded on the
NYSE. The new rules changed and increased the requirements to maintain a NYSE
listing. Through September 30, 2000, the Company did not meet the new rules,
which require a total market capitalization of $50 million and the maintenance
of minimum total stockholders' equity of $50 million. The Company's total market
capitalization and stockholders' equity as of September 30, 2000 were $25.3
million and $50.8 million, respectively. The Company expects to report a loss
for the quarter ending December 31, 2000 (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Outlook") and the
Company's total market capitalization as of the close of business on December
26, 2000 was $14.7 million. As requested by the NYSE, the Company had previously
provided the NYSE with its plan to meet the new standards by February 2001. The
Company's plan was accepted by the NYSE in October 1999 and continues to be
monitored by the NYSE through the current quarter. However, no assurances can be
given that the objectives of the plan will be accomplished by February 2001. If
the Company is ultimately unable to meet the new NYSE listing rules or obtain an
extension for its plan, the Company's shares could be suspended from trading on
the NYSE, however the Company believes other trading venues are available for
its stock.
Other Matters
- -------------
The People's Republic of China currently enjoys normal trading
relations ("NTR"). 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. The United States annually reconsiders the renewal of
NTR trading status for the PRC. Members of Congress and the "human rights
community" also 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 2000, 1999 and 1998 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 for this
self-insurance provision and had accrued $177,000 for this contingency as of
September 30, 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.
The Company's Board of Directors has authorized the repurchase of up to
$2.7 million of common shares of the Company from time to time in the open
market or in negotiated purchases. At December 15, 2000, the Company had
repurchased 641,932 shares for approximately $2.5 million.
Ring has a defined benefit pension plan which covers 29 current
employees and over 1,000 other members formerly associated with Ring. The plan
is administered externally and the assets are held separately by professional
investment managers. The plan is funded by contributions at rates recommended by
an actuary. The Company is reviewing the future of the plan and believes that in
the future it may begin the process of terminating the Company's liability under
the plan. It is anticipated that a termination will require payment of a lump
sum equal to the "Minimum Funding Requirement ("MFR") shortfall. The last MFR
valuation as of April 6, 2000 placed the MFR shortfall at $1.4 million.
As of September 30, 2000, Ring had outstanding 9.5 million convertible
preference shares of which 2.5 million shares were held by third parties and the
remaining 7 million shares were owned by the Company. The holders of the
convertible preference shares are entitled to receive in priority to the equity
shareholders a fixed cumulative dividend of 19.2 % per annum until January 1,
2004. The shares are convertible into fully paid ordinary shares on the basis of
two ordinary shares for every five preference shares. Any outstanding preference
shares on January 1, 2004 automatically will convert into fully paid ordinary
shares on the same basis.
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
Page 23
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.
Impact of New Accounting Pronouncements
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 adopted SFAS 133 in the first
quarter of fiscal 2001. Given the Company's limited hedging activities and the
Company's belief that such hedging activities are highly effective in accordance
with SFAS 133, the impact of the transition to SFAS 133 should not be material
to the Company's financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101") which summarizes certain of the staff's
view in applying generally accepted accounting principles to revenue recognition
in financial statements. The effective date of SAB 101 for the Company is the
quarter ending September 30, 2001. The Company has evaluated the impact that SAB
101 will have on the timing of revenue recognition in future periods and
believes SAB 101 will not have a material impact on its financial position or
results of operations.
Impact of Inflation and Economic Conditions
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. Significant increases
in raw materials prices could have an adverse impact on the Company's net sales
and income from continuing operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------
The Company is exposed to market risk related to changes in interest
rates and fluctuations in foreign currency exchange rates.
Interest Rate Risk
- ------------------
Approximately 87% of the Company's debt at September 30, 2000 is
subject to variable interest rates. The remainder of the Company's debt has
fixed interest rates. The Company's fixed interest rate debt includes the
Company's bonds for the financing of its Tupelo warehouse, whose variable rate
has been fixed by means of an interest rate swap. The carrying value and market
value of the Company's debt at September 30, 2000 were $60.3 million and $60.1
million, respectively. Based upon debt balances outstanding at September 30,
2000, a 100 basis point (i.e. 1%) addition to the Company's weighted average
effective interest rate would increase the Company's interest expense by
approximately $524,000 on an annual basis.
Foreign Currency Risk
- ---------------------
The Company maintains investments in subsidiaries in Canada, Mexico and
Chile and sells its products into these foreign countries. The Company sells
into Europe and maintains major capital investments in manufacturing facilities
in China and supporting administrative offices in Hong Kong. With the
acquisition of Ring in July 2000, the Company has a major capital investment and
significant operations in the United Kingdom. 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 depreciated
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 and
profitability. The Company borrows in British pounds, Canadian dollars and Hong
Kong dollars and will increase or decrease these foreign borrowings for various
business reasons (including anticipated movements in foreign exchange rates).
Ring also enters into forward contracts to exchange Great British pounds for
various foreign currencies. These contracts are intended to hedge purchases of
inventory in currencies other than the GBP, and are entered into at the time the
goods are shipped to Ring. The Company does not otherwise hedge its foreign
currency exposure. During the year ended September 30, 2000 the Company's pretax
income reflected foreign currency gains or (losses) for its China, Canadian,
Mexican and Chilean operations of ($214,000), $49,000, ($38,000) and ($61,000),
respectively. In addition,
Page 24
the Company's stockholders' equity at September 30, 2000 has been reduced by a
$461,000 foreign currency translation adjustment related to U.K. operations.
Based upon the results of operations of each of the Company's foreign
subsidiaries for the year ended September 30, 2000, and their financial position
at September 30, 2000, an assumed 10% depreciation in their respective foreign
currencies against the U.S. dollar (i.e. - in addition to actual exchange
experience for 2000) would have resulted in the following adjusted amounts for
net sales and combined translation/transaction gains or losses for 2000 (in
thousands, with a comparison to amounts reported for 2000):
Net Sales Gains (Losses)
------------------------------ ------------------------------
As Reported Adjusted As Reported Adjusted
----------- -------- ----------- --------
China $141,356 $141,356 $ (214) $ (2,503)
United Kingdom $ 24,529 $ 22,076 $ (461)* $ (1,370)*
Canada $ 25,150 $ 24,121 $ 49 $ (70)
Mexico $ 4,331 $ 3,898 $ (38) $ (354)
Chile $ 337 $ 302 $ (61) $ (139)
The adjusted amounts above assume that each exchange rate would
change in the same direction relative to the U.S. dollar. In addition to the
direct effects of changes in exchange rates quantified above, changes in
exchange rates also affect the volume of sales or foreign currency sales prices
as the Company's products become more or less affordable in the foreign market
and as competitors' products become more or less attractive.
* Reflected as an adjustment to stockholders' equity.
Page 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------
Index to Consolidated Financial Statements and Financial Statements Schedules Page
Independent Auditors' Report.............................................................................................27
Consolidated Balance Sheets - September 30, 2000 and 1999................................................................28
Consolidated Statements of Operations - Years Ended September 30, 2000, 1999 and 1998....................................29
Consolidated Statements of Stockholders' Equity - Years Ended September 30, 2000,
1999 and 1998............................................................................................30
Consolidated Statements of Cash Flows - Years Ended September 30, 2000, 1999 and 1998....................................31
Notes to Consolidated Financial Statements...............................................................................33
Schedule I - Condensed Financial Information.............................................................................64
Schedule II - Valuation and Qualifying Accounts - Years ended September 30, 2000, 1999 and 1998..........................68
(All other schedules have been omitted as the related information has been
provided in the notes to consolidated financial statements or is not required or
applicable).
Page 26
INDEPENDENT AUDITORS' REPORT
- ----------------------------
Board of Directors and Stockholders
Catalina Lighting, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of Catalina
Lighting, Inc. and its subsidiaries as of September 30, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 2000. Our
audits also included the financial statement schedules listed in Item 14a(2).
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Catalina Lighting, Inc. and its
subsidiaries as of September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000 in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 19 to
the consolidated financial statements, at September 30, 2000, the Company would
not have been in compliance with a certain covenant of its $75 million credit
facility had the lenders not amended the agreement. Based on the Company's
current expectations, the Company will not be able to comply with certain
covenants of the amended agreement for the quarter ending December 31, 2000. The
Company is attempting to further negotiate the terms of the amended $75 million
credit facility and is also reviewing other strategic alternatives. The
Company's difficulties in meeting the credit facility covenants discussed in
Note 19 raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 19. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
December 26, 2000
Page 27
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
-----------------------------
2000 1999
---- ----
ASSETS (In thousands)
Current assets
Cash and cash equivalents $ 2,309 $ 7,253
Restricted cash equivalents and short-term investments 727 1,721
Accounts receivable, net of allowances
of $12,475,000 and $8,591,000, respectively 36,632 20,150
Inventories 52,780 28,668
Income taxes receivable - 1,049
Deferred tax asset 2,190 2,247
Other current assets 5,153 3,139
--------- ---------
Total current assets 99,791 64,227
Property and equipment, net 29,932 24,431
Goodwill, net 30,663 10,561
Other assets 7,585 2,678
--------- ---------
$ 167,971 $ 101,897
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Credit lines $ 22,786 $ 2,200
Term loans 28,415 -
Current maturities of subordinated notes - 2,500
Accounts and letters of credit payable 36,310 14,939
Current maturities of bonds payable-real estate related 900 2,210
Current maturities of other long-term debt 1,339 487
Income taxes payable 2,678 -
Accrued employee compensation and benefits 2,429 2,718
Other current liabilities 10,540 3,719
--------- ---------
Total current liabilities 105,397 28,773
Credit lines - 12,150
Convertible subordinated notes - 5,100
Bonds payable - real estate related 5,100 6,000
Other long-term debt 1,788 1,524
Other liabilities 3,782 293
--------- ---------
Total liabilities 116,067 53,840
--------- ---------
Minority interest 1,075 -
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value
authorized 1,000,000 shares; none issued - -
Common stock, $.01 par value
authorized 20,000,000 shares; issued and outstanding
7,999,812 shares and 7,373,013 shares, respectively 80 74
Additional paid-in capital 28,560 26,927
Retained earnings 25,111 22,266
Accumulated other comprehensive loss (461) -
Treasury stock, 641,932 and 378,200 shares, respectively (2,461) (1,210)
--------- ---------
Total stockholders' equity 50,829 48,057
--------- ---------
$ 167,971 $ 101,897
========= =========
See accompanying notes to consolidated financial statements.
Page 28
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended September 30,
------------------------------------------------------
2000 1999 1998
----------------- --------------- -----------------
Net sales $ 202,630 $ 176,561 $ 161,860
Cost of sales 164,216 140,906 130,763
----------------- --------------- -----------------
Gross profit 38,414 35,655 31,097
Selling, general and administrative expenses 30,817 28,554 26,513
Litigation settlement - (2,728) -
Restructuring charge 500 - -
Executive management reorganization 788 - -
----------------- --------------- -----------------
Operating income 6,309 9,829 4,584
----------------- --------------- -----------------
Other income (expenses)
Interest expense (2,832) (2,413) (3,801)
Reversal of post judgment interest related to
litigation settlement - 893 -
Other income 442 1,118 684
----------------- --------------- -----------------
Total other expenses (2,390) (402) (3,117)
----------------- --------------- -----------------
Income before income taxes 3,919 9,427 1,467
Income tax provision (1,074) (2,938) (365)
----------------- --------------- -----------------
Net income $ 2,845 $ 6,489 $ 1,102
================= =============== =================
Earnings per share
Basic
Earnings per share $ 0.40 $ 0.92 $ 0.15
Weighted average number of shares 7,074 7,055 7,128
Diluted
Earnings per share $ 0.37 $ 0.80 $ 0.15
Weighted average number of shares 8,419 8,688 7,477
See accompanying notes to consolidated financial statements.
Page 29
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Accumulated
Common Stock Additional Other
------------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income (Loss)
------ ------ ------- -------- -------------
Balance at September 30, 1997 7,094,569 $ 71 $ 26,311 $14,675 $ -
Exercise of stock options 80,100 1 222 - -
Stock options issued under sales agreement - - 68 - -
Cancellation of stock options issued
under sales agreement - - (126) - -
Net income - - - 1,102 -
--------- ---- -------- ------- ------
Balance at September 30, 1998 7,174,669 72 26,475 15,777 -
Exercise of stock options 185,898 2 402 - -
Common stock issued to outside directors 12,446 - 50 - -
Repurchase of common stock - - - -
Net income - - - 6,489 -
--------- ---- -------- ------- ------
Balance at September 30, 1999 7,373,013 74 26,927 22,266 -
Exercise of stock options 616,767 6 1,605 - -
Common stock issued to outside directors 10,032 - 28 - -
Repurchase of common stock - - - -
Comprehensive income:
Foreign currency translation loss - - - (461)
Net income - - - 2,845 -
Total comprehensive income - - - - -
--------- ---- -------- ------- ------
Balance at September 30, 2000 7,999,812 $ 80 $ 28,560 $25,111 $ (461)
========= ==== ======== ======= ======
Treasury Stock Total
--------------------- Stockholders'
Shares Amount Equity
------ ------ ------
Balance at September 30, 1997 - $ - $ 41,057
Exercise of stock options - - 223
Stock options issued under sales agreement - - 68
Cancellation of stock options issued
under sales agreement - - (126)
Net income - - 1,102
-------- ------- --------
Balance at September 30, 1998 - - 42,324
Exercise of stock options - - 404
Common stock issued to outside directors - - 50
Repurchase of common stock (378,200) (1,210) (1,210)
Net income - - 6,489
-------- ------- --------
Balance at September 30, 1999 (378,200) (1,210) 48,057
Exercise of stock options - - 1,611
Common stock issued to outside directors - - 28
Repurchase of common stock (263,732) (1,251) (1,251)
Comprehensive income:
Foreign currency translation loss - - -
Net income - - -
Total comprehensive income - - 2,384
-------- ------- --------
Balance at September 30, 2000 (641,932) $(2,461) $ 50,829
======== ======= ========
See accompanying notes to consolidated financial statements.
Page 30
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended September 30,
-------------------------------------------
2000 1999 1998
------------- ------------ ------------
Cash flows from operating activities:
Net income $ 2,845 $6,489 $1,102
------------- ------------ ------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Exchange (gain) loss 43 308 16
Depreciation and amortization 6,132 5,392 5,479
Deferred income taxes (463) 1,951 705
Loss (gain) on disposition of property and equipment 7 (175) 38
Other (53) - -
Change in assets and liabilities, net of effect of
acquisition:
Decrease (increase) in accounts receivable 1,551 (1,493) 5,374
Decrease (increase) in inventories (2,851) (421) 6,128
Decrease (increase) in income taxes receivable 3,780 - 2,818
Decrease (increase) in other current assets (757) (163) (769)
Decrease (increase) in other assets (1,486) (342) (144)
Increase (decrease) in income taxes payable - (1,487) -
Increase (decrease) in accrued litigation judgment under appeal - (4,909) 423
Increase (decrease) in accounts and letters of credit payable, accrued
employee compensation and benefits and other liabilities (676) 3,511 (5,774)
------------- ------------ ------------
Total adjustments 5,227 2,172 14,294
------------- ------------ ------------
Net cash provided by operating activities 8,072 8,661 15,396
------------- ------------ ------------
Cash flows from investing activities:
Capital expenditures, net (4,295) (1,699) (1,958)
Proceeds from sale of property 39 997 -
Payment for Ring acquisition, net of cash acquired (33,351) - -
Decrease (increase) in restricted cash equivalents and
short-term investments 1,872 986 954
------------- ------------ ------------
Net cash provided by (used in) investing activities (35,735) 284 (1,004)
------------- ------------ ------------
(Continued on page 32)
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Years Ended September 30,
--------------------------------------------
2000 1999 1998
------------- ------------ ------------
Cash flows from financing activities:
Proceeds from term loans 30,000 - -
Payments on term loans (1,244) - -
Proceeds from credit lines 46,955 35,972 32,900
Payments on credit lines (42,109) (35,550) (45,546)
Payments on convertible subordinated notes (7,600) - -
Sinking fund redemption payments on bonds (878) (900) (878)
Payments on other long-term debt (753) (737) (692)
Payments on bonds payable- real estate related (2,210) (980) (975)
Payments to repurchase common stock (1,251) (1,210) -
Proceeds from issuance of common stock and
related income tax benefit 1,611 404 223
------------- ------------ ------------
Net cash provided by (used in) financing activities 22,521 (3,001) (14,968)
------------- ------------ ------------
Effect of exchange rate changes on cash 198 (481) 519
Net increase (decrease) in cash and cash equivalents (4,944) 5,463 (57)
Cash and cash equivalents at beginning of year 7,253 1,790 1,847
------------- ------------ ------------
Cash and cash equivalents at end of year $2,309 $7,253 $1,790
============= ============ ============
Supplemental Cash Flow Information
Years Ended September 30,
----------------------------------------------
2000 1999 1998
------------- ------------ -------------
Cash paid (refunded) for:
Interest $ 2,771 $2,304 $3,435
============= ============ =============
Income taxes $ (584) $2,439 $(3,210)
============= ============ =============
On July 5, 2000, the Company acquired Ring as follows:
Fair value of assets acquired, net
of cash and cash equivalents $70,001
Liabilities assumed (36,650)
--------------
Net cash payment made $33,351
==============
During the years ended September 30, 2000 and 1999, the Company issued 1,672 and
1,778 common shares to each of its outside directors as compensation for their
services. The aggregate market value of the stock issued was $28,000 and $50,000
for 2000 and 1999, respectively.
During the years ended September 30, 2000, 1999 and 1998 capital lease
obligations aggregating approximately $427,000, $102,000, and $438,000,
respectively, were incurred when the Company entered into leases for new
office, computer, machinery and warehouse equipment.
See accompanying notes to consolidated financial statements.
Page 32
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998
1. Summary of Significant Accounting Policies and Nature of Operations
(a) The Business
Catalina Lighting, Inc. ("the Company") is a United States-based wholesaler,
distributor and manufacturer of lamps, lighting fixtures and other products.
The Company sells principally in the U.S. and the United Kingdom to a variety
of retailers including home centers, national retail chains, office superstore
chains, mass merchandisers, warehouse clubs, discount department stores and
hardware stores. The Company also sells its products in other European
countries, Canada, Mexico and other foreign markets.
(b) Going Concern
The accompanying consolidated financial statements for the year ended September
30, 2000 have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As described in Note 19, management believes that the Company will
not comply with the financial covenants of its $75 million credit facility for
quarters subsequent to September 30, 2000 unless a waiver of the covenants or
an amendment to the facility modifying the covenants is obtained. This
uncertainty may indicate that the Company may not be able to continue as a
going concern.
The Company's continuation as a going concern is dependent upon its ability to
comply with the terms and covenants of its $75 million credit facility and to
obtain additional financing or refinancing as may be required. The Company is
attempting to renegotiate the terms and financial covenants of its $75 million
credit facility and is also reviewing other strategic alternatives.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. The consolidated statements include the results
of the wholly-owned subsidiaries Catalina Industries, Inc., Go-Gro Limited
("Go-Gro"), Ring Limited ("Ring"), a subsidiary purchased on July 5, 2000,
Catalina Canada, Catalina Mexico and other wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
(d) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(e) Geographic Risks
Substantially all of the Company's products are obtained from suppliers located
in China. Any inability by the Company to continue to obtain its products from
China could significantly disrupt the Company's business. In addition, in the
Company's consolidated balance sheet at September 30, 2000 are net assets of
$17.4 million of Company subsidiaries located in China and Hong Kong, a
sovereign territory of China. With respect to these assets, the Company
maintains $14.4 million in noncancelable political risk insurance.
(f) Cash and Cash Equivalents
Cash on hand and in banks, money market funds and other short-term securities
with maturities of three months or less when purchased are considered cash and
cash equivalents.
(g) Accounts Receivable
Pursuant to an agreement between the Company and a bank, the Company
transferred to the bank the credit risk of certain of its U.S. and Canadian
receivables for a fee equal to .50 percent of billings to customers covered by
the arrangement. The Company terminated the arrangement related to its U.S.
receivables effective October 1, 2000. Ring has a similar arrangement related
to its receivables for a fee equal to .085 percent of U.K. billing and .57
percent of non-U.K. billing. Gross accounts receivable secured
Page 33
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
1. Summary of Significant Accounting Policies and Nature of Operations
(continued)
under such agreements at September 30, 2000 and 1999 amounted to $20.6 million
(U.S. receivables were $5.3 million) and $10.5 million, respectively. In
addition, certain of the Company's sales are made to customers who pay pursuant
to their own international, irrevocable, transferable letters of credit. Gross
accounts receivable secured by such letters of credit at September 30, 2000 and
1999 amounted to $7.0 million and $12.4 million, respectively.
The Company provides allowances against accounts receivable for doubtful
accounts, sales returns and sales incentives.
(h) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
(i) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Interest expense incurred for the construction of facilities is
capitalized until such facilities are ready for use. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
assets. Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the lease term or estimated useful
lives of the related assets.
(j) Restricted Cash Equivalents and Short-Term Investments
The Company's restricted cash equivalents and short term investments at
September 30, 2000 represented sinking fund payments on bonds issued to finance
the Company's U.S. warehouse and investment income earned on such payments and
$350,000 held in escrow in Mexico pursuant to the resolution of legal
proceedings. Restricted cash equivalents and short term investments at
September 30, 1999 represented the sinking fund payments on the bonds issued to
finance the Company's U.S. warehouse and investment income earned and a $1.4
million escrow payment made on the bonds which financed the Company's former
Meridian facility.
(k) Goodwill
Goodwill represents the excess of cost over fair value of net assets acquired
and is being amortized on a straight-line basis over periods from twenty to
forty years. The Company periodically evaluates the recoverability of recorded
costs for goodwill based upon estimations of future undiscounted operating
income from the related acquired companies. Should the Company determine it
probable that future estimated undiscounted operating income from any of its
acquired companies will be less than the carrying amount of the associated
goodwill, an impairment of goodwill would be recognized, and goodwill would be
reduced to the amount estimated to be recoverable. Accumulated amortization of
goodwill amounted to $3.6 million and $2.9 million at September 30, 2000 and
1999, respectively.
(l) Capital Leases
Leases that transfer substantially all of the benefits and risks of ownership
to the Company are accounted for as the acquisition of assets and assumption of
obligations under the capital lease standards issued by the Financial
Accounting Standards Board. Accordingly, capitalized leased assets are recorded
as property and equipment and the present values of the minimum lease payments
are recorded as capital lease obligations under other long-term debt.
Depreciation of such assets is computed using the shorter of the lease terms or
estimated useful lives of the assets and is included in depreciation expense.
(m) Income Taxes
The Company and its wholly-owned domestic subsidiaries file consolidated
federal and state tax returns in the United States. Separate foreign tax
returns are filed for the Company's Hong Kong, Canadian, U.K. and Mexican
subsidiaries and China joint venture. The Company follows the asset and
liability method of accounting for income taxes prescribed by Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". Under the
asset and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to
Page 34
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
1. Summary of Significant Accounting Policies and Nature of Operations
(continued)
future years to differences between the financial statement carrying amounts
and the tax basis of existing assets and liabilities. The effect on deferred
taxes of a change in tax rates is recognized in income in the year that
includes the enactment date.
(n) Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" ("SFAS 128") during fiscal 1998. SFAS 128 requires the
presentation of "basic" earnings per share and "diluted" earnings per share on
the face of the statement of operations. Basic earnings per share is computed
by dividing net income or loss attributable to common shareholders by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
(o) Foreign Currency Translation
The accounts of the Company's foreign subsidiaries are translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation". For subsidiaries where the functional currency
is the U.S. dollar, monetary balance sheet accounts are translated at the
current exchange rate and nonmonetary balance sheet accounts are translated at
historical exchange rates. Income and expense accounts are translated at the
average exchange rates in effect during the year. Adjustments resulting from
the translation of these entities are included in net income. For subsidiaries
where the functional currency is other than the U.S. dollar, all balance sheet
accounts are translated at the current exchange rate. Income and expense
accounts are translated at the average exchange rates in effect during the
year. Resulting translation adjustments are reflected as a separate component
of stockholders' equity ("other comprehensive income (loss)"). Foreign currency
transaction gains and losses are included in consolidated net income.
(p) Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), in fiscal 1997. As
permitted by SFAS 123, the Company continues to measure compensation costs in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but provides pro forma disclosures of net income
and earnings per share as if the fair value method (as defined in SFAS 123) had
been applied.
(q) Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not
be recoverable. In performing the review for recoverability the Company
estimates the future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected future cash flows is
less than the carrying amount of the assets, an impairment loss is recognized.
(r) Comprehensive Income (loss)
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. For the year ended September 30, 2000, comprehensive
income included a $461,000 foreign currency translation loss related to the
Company's United Kingdom operations. The Company's investment in such
operations is permanent in nature and consequently no adjustment for income
taxes was made. The Company's net income for the years ended September 30,
1999 and 1998 equals comprehensive income for the same periods.
(s) Disclosures About Segments and Related Information
Effective October 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which 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
Page 35
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
1. Summary of Significant Accounting Policies and Nature of Operations
(continued)
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. Upon adoption, information for prior
years is required to be restated. Information presented in Note 15 has been
restated to comply with SFAS 131.
(t) Impact of Recently Issued Accounting Standards
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 adopted
SFAS 133 in the first quarter of fiscal 2001. Given the Company's limited
hedging activities and its belief that such hedging activities are highly
effective in accordance with SFAS 133, the Company believes that the impact of
the transition to SFAS 133 will not be material to its financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101") which summarizes certain of the
staff's view in applying generally accepted accounting principles to revenue
recognition in financial statements. The effective date of SAB 101 for the
Company is the quarter ending September 30, 2001. The Company has evaluated
the impact that SAB 101 will have on the timing of revenue recognition in
future periods and believes SAB 101 will not have a material impact on its
financial position or results of operations.
(u) Reclassifications
Certain amounts presented in the financial statements of prior years have been
reclassified to conform to the current year presentation.
2. Acquisition
On July 5, 2000 the Company acquired all of the outstanding ordinary shares
and 74% of the convertible preference shares of Ring Plc ("Ring"). Ring is a
leading supplier of lighting, automotive aftermarket products and industrial
consumables in the United Kingdom. The acquisition, recorded under the
purchase method of accounting, included the purchase of 39.6 million ordinary
shares at 50 pence per share (approximately U.S. $30.1 million), 7 million
convertible preference shares at 20 pence per share (approximately U.S. $2.1
million) plus acquisition costs, resulted in a total purchase price of U.S.
$33.8 million. A portion of the purchase price has been allocated to assets
acquired and liabilities assumed based on estimated fair market value at the
date of acquisition. The excess of the purchase price over the fair market
value of Ring's tangible assets was $21.3 million. This amount has been
allocated to goodwill on a preliminary basis while the Company obtains final
information regarding the fair value of assets acquired and liabilities
assumed. The goodwill is being amortized over 20 years on a straight-line
basis. Although the allocation and amortization period are subject to
adjustment, the Company does not expect that such adjustments will have a
material effect on the consolidated financial statements. The following
summary, prepared on a proforma basis, presents the consolidated results of
operations of the Company as if Ring had been acquired as of the beginning of
the fiscal years presented,
Page 36
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
2. Acquisition (continued)
after including the impact of certain adjustments, such as (1) the
amortization of goodwill, (2) the increase in interest expense from additional
borrowings to fund the acquisition and the increase in interest rates on
borrowings under the new U.K. and U.S. revolving facilities, (3) the
amortization of fees related to the new credit facilities, (4) the elimination
of inter-company sales and profits, and (5) the related income tax effects.
Years Ended September 30,
-------------------------------------
(Unaudited) (Unaudited)
2000 1999
-------------- --------------
(In thousands, except per share data)
Net sales $ 287,245 $ 285,682
Net income $ 1,686 $ 6,276
Earnings per share
Basic $ 0.24 $ 0.89
Diluted $ 0.22 $ 0.77
The above pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisition been consummated as of the beginning
of the years presented, nor is it indicative of future operating results.
3. Inventories
Inventories consisted of the following:
September 30,
----------------------------------
2000 1999
---------------- --------------
(In thousands)
Raw materials $ 6,700 $ 4,050
Work-in-progress 1,159 932
Finished goods 44,921 23,686
---------------- --------------
$ 52,780 $ 28,668
================ ==============
The Company capitalizes certain costs in finished goods inventory associated
with acquiring, storing and preparing inventory for distribution. Such costs
aggregated approximately $9.3 million, $8.8 million and $8.2 million for the
years ended September 30, 2000, 1999 and 1998, respectively, of which $1.6
million and $2.2 million remained in inventory at September 30, 2000 and 1999,
respectively.
Inventory allowances amounted to $3.4 million and $2.3 million at September
30, 2000 and 1999, respectively.
Page 37
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
4. Property and Equipment
Property and equipment and related depreciable lives were as follows:
September 30,
---------------------------------- Depreciable
2000 1999 lives
--------------- --------------- -----------------
(In thousands)
Land $ 1,707 $ 1,354 -
Land use rights 1,898 1,912 47 years
Buildings and improvements 15,615 15,352 5 to 50 years
Leasehold improvements 2,544 1,619 lease terms
Furniture and office equipment 1,477 1,151 3 to 7 years
Computer software and equipment 4,912 4,299 2 to 5 years
Machinery, molds and equipment 14,879 13,457 3 to 15 years
Vehicles 2,681 460 4 to 5 years
Construction in progress 2,168 - -
Other assets 179 259 2 years
--------------- ---------------
48,060 39,863
Less accumulated depreciation 18,128 15,432
--------------- ---------------
$ 29,932 $ 24,431
=============== ===============
Depreciation expense (including the amortization expense of assets under capital
leases) for the years ended September 30, 2000, 1999 and 1998 was approximately
$4,130,000, $4,297,000 and $4,376,000, respectively.
5. Credit Lines
The Company entered into a five-year credit facility for approximately $75
million with a bank syndication group to finance the acquisition of Ring and
repay and terminate its existing U.S. credit facility and Ring's U.K. facility.
The new facility consists of two term loans amounting to $15 million and the GBP
equivalent of U.S. $15 million (GBP 9.9 million), respectively, and two
facilities for revolving loans, acceptances, and trade and stand-by letters of
credit for the Company's ongoing operations in the U.S. and the U.K., of $20
million and the GBP equivalent of U.S. $25 million (approximately GBP 17
million), respectively. Borrowings under the facility bear interest, payable
monthly, at the Company's option of either the prime rate plus 1.75% (11.25% at
December 15, 2000) or the LIBOR rate plus a variable spread based upon earnings,
debt and interest expense levels defined under the credit agreement (9.46% at
December 15, 2000). Obligations under the facility are secured by substantially
all of the Company's U.S. and U.K. assets, including 100% of the common stock of
the Company's U.S. subsidiaries and 65% of the stock of the Company's Canadian
and first tier United Kingdom and Hong Kong subsidiaries. The agreement contains
covenants requiring that the Company maintain a minimum level of equity, meet
certain debt to adjusted earnings and fixed charge coverage ratios and limiting
capital expenditures. Borrowings are subject to a borrowing base defined as the
aggregate of certain percentages of the Company's U.S. and U.K. receivables and
inventory. The agreement prohibits the payment of cash dividends or other
distribution on any shares of the Company's common stock, other than dividends
payable solely in shares of common stock, unless approval is obtained from the
lenders. At September 30, 2000, $33.6 million in net assets of Ring were
restricted under the credit facility and U.K. laws and could not be transferred
to the parent Company. The Company pays a quarterly commitment fee of .50% per
annum based on the unused portion of the revolving facilities. At September 30,
2000, the Company had used $31.1 million under the revolving facilities and $6.2
million was available for additional borrowings under the borrowing base. As a
result of the Company's operating results for the fourth quarter of fiscal 2000,
most notably the pretax loss incurred by the Company's United Kingdom
operations, the Company initially was not in compliance with a financial
covenant under its $75 million credit facility for the quarter ended September
30, 2000. The Company obtained an amendment of the credit facility on December
22, 2000 and is in compliance with financial covenants under the amended
facility for the quarter ended September 30, 2000.
Page 38
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
5. Credit Lines (continued)
However, based upon the Company's current expectations, the Company does not
expect to be in compliance with the financial covenants of the $75 million
credit facility for the quarter ending December 31, 2000 and subsequent quarters
unless the covenants are waived or modified through another amendment of the
facility. Any default or subsequent breach of the financial covenants for
quarters subsequent to September 30, 2000 could result in acceleration of this
indebtedness, in which case the debt would become immediately due and payable.
The Company believes it will be able to successfully negotiate with its present
$75 million credit bank syndicate, as necessary, for a second amendment of the
facility or a waiver of the financial covenants, so as to preclude acceleration
of this indebtedness. However, no assurances can be given that these
negotiations will be successful. Due to this uncertainty, all amounts payable
under the Company's $75 million credit facility have been classified as current
liabilities in the accompanying September 30, 2000 balance sheet. See also Note
19 of Notes to Consolidated Financial Statements.
Ring has an arrangement with a U.K. bank which is secured by standby letters of
credit issued under the GBP five-year revolving credit facility. The arrangement
provides for borrowings, trade letters of credit and foreign currency forward
contracts and transactions. Borrowings, letters of credit and foreign currency
forward contracts outstanding under this arrangement amounted to $3.2 million
$7.9 million and $9.4 million, respectively, at September 30, 2000. The
borrowings were included in credit lines.
The Company has a credit facility with a Canadian bank which provides four
million Canadian dollars or U.S. equivalent (approximately U.S. $2.7 million) in
revolving demand credit. Canadian dollar advances bear interest at the Canadian
prime rate plus .5% (8% at September 30, 2000) and U.S. dollar advances bear
interest at the U.S. base rate of the bank (10% at September 30, 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. At September 30, 2000, $2.5 million in net assets of the Company's
Canadian subsidiary were restricted under the credit facility and could not be
transferred to the parent Company. This facility is payable upon demand and is
subject to an annual review by the bank. The Company pays a monthly commitment
fee of .25% based on the unused portion of the facility. At September 30, 2000,
total Canadian and U.S. dollar borrowings amounted to U.S. $2.2 million
(included in credit lines) and U.S. $1.2 million was available under the
borrowing base calculation.
Go-Gro 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%
(9.75% at September 30, 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. At September 30,
2000, $17.2 million in net assets of Go-Gro were restricted under the agreement
and could not be transferred to the parent Company. This facility is repayable
upon demand and is subject to an annual review by the bank. At September 30,
2000, the Company had used $1.8 million of this line for letters of credit
(there were no borrowings) and U.S. $2.7 million was available. This
availability under this facility was increased to 60 million Hong Kong dollars
(approximately U.S. $7.7 million) in December 2000.
Page 39
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
5. Credit Lines (continued)
The Company's availability under its credit lines consisted of the following:
September 30,
-------------------------------------
2000 1999
----------------- --------------
(In thousands)
Total lines of credit $ 53,149 $ 32,248
Less:
Borrowings (19,550) (14,350)
Stand-by letters of credit (13,293) (1,213)
Open letters of credit and other (2,292) (4,126)
Amount unavailable under borrowing base (7,904) -
----------------- --------------
Lines of credit available $ 10,110 $ 12,559
================= ==============
The weighted average interest rate on the current portion of credit lines was
9.16% and 8.75% at September 30, 2000 and 1999, respectively, and was 9.15% on
the term loans at September 30, 2000.
Page 40
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
6. Bonds Payable - Real Estate Related
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) a warehouse located near Tupelo, Mississippi. The bonds have a stated
maturity of May 1, 2010 and require mandatory sinking fund redemption payments,
payable monthly, aggregating $900,000 per year through 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 (6.65% at September 30, 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 million direct pay letter of credit which is not part of the Company's credit
line. This direct pay letter of credit provides that any default under any other
agreement involving a material borrowing or guarantee constitutes a default
under the direct pay letter of credit. The outstanding balance of these bonds
was $6 million and $6.9 million, at September 30, 2000 and 1999, respectively.
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 aggregate maturities and sinking fund requirements of bonds payable at
September 30, 2000, are as follows (in thousands):
2001 $ 900
2002 900
2003 600
2004 600
2005 500
Thereafter 2,500
--------------
$ 6,000
==============
The Company financed the purchase and improvements of a manufacturing facility
located in Meridian, Mississippi 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 this location and leased the facility to a non-manufacturing
entity. As a result, the Company made a $1.5 million payment to escrow on the
bonds, which was included in restricted cash equivalents and short-term
investments in the September 30, 1999 balance sheet. The bonds were secured by a
first mortgage on land, building and improvements and a $1,713,000 standby
letter of credit, which was not part of the Company's credit lines. Interest on
the bonds was payable semiannually and principal payments were due annually. The
outstanding balance of these bonds was $1.3 million at September 30, 1999. The
Company redeemed the bonds at their earliest redemption date of November 1,
1999.
Page 41
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
7. Convertible Subordinated Notes
On June 30, 2000, the Company prepaid $4.3 million of the $5.1 million
outstanding balance on its 8% convertible subordinated notes and the remaining
$733,000 was prepaid in July 2000. The $5.1 million balance was due in two equal
installments on March 15, 2001 and March 15, 2002. The Company had previously
repaid $2.5 million of these notes in March 2000. The Company's 8% subordinated
notes were convertible at the option of the holder into common shares of the
Company's stock at a conversion price of $6.63 per share at any time prior to
maturity.
8. Other Long-Term Debt
Other long-term debt consisted of the following:
September 30,
-------------- -- ------------
2000 1999
-------------- ------------
(In thousands)
Loan payable monthly through 2004 based on a 15 year amortization schedule
with a balloon payment in 2004, bearing interest at 8%, secured by a
mortgage on land and building with a net book value of $1.3 million at
September 30, 2000. $ 896 $ 958
Borrowings under a leasing facility with a Hong Kong financial institution to
finance the purchase of equipment for the China facility; payable monthly,
bearing interest at the Hong Kong Interbank Borrowing Rate plus 3% (8.6% at
September 30, 2000), maturing at various dates through 2002 and secured by a
guarantee issued by the Company and warehouse equipment with a net book value of
$230,000 at September 30, 2000; this facility was cancelled in October 2000. 277 443
Borrowings under a leasing facility with a U.S. financial institution to finance
the purchase of U.S. assets; payable monthly, maturing at various dates through
2004, bearing interest at 8.75%, and secured by office, computer and warehouse
equipment with a net book value of $168,000 at September 30, 2000; $699,000 was
available for future borrowings at September 30, 2000. 301 523
Borrowings under a leasing facility with a U.K. financial institution to finance
the purchase of vehicles and equipment, payable monthly, maturing at various
dates through 2003, bearing interest at the institution's base rate plus 1.25%,
adjusted monthly (7.25% at September 30, 2000), and secured by vehicles and
equipment with a net book value of $1.3 million at September 30, 2000; the
facility is renewed annually and $960,000 was available for future borrowings at
September 30, 2000. 1,214 -
Borrowings which financed the purchase of computer equipment in the U.S.,
maturing in 2003, bearing interest at rates ranging from 8.81% to 10.81% and
secured by computer equipment with a net book value of $382,000 at September 30,
2000. 399 -
Other 40 87
-------------- ------------
Subtotal 3,127 2,011
Less current maturities (1,339) (487)
-------------- ------------
$ 1,788 $ 1,524
============== ============
Page 42
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
8. Other Long-Term Debt (Continued)
The aggregate maturities of other long-term debt at September 30, 2000 are as
follows (in thousands):
2001 $ 1,339
2002 827
2003 284
2004 677
2005 -
---------------
$ 3,127
===============
9. Income Taxes
The following table summarizes the differences between the Company's effective
income tax rate and the statutory federal income tax rate:
Years Ended September 30,
------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
Statutory federal income tax rate 34.0 % 34.0 % 34.0 %
Increase (decrease) resulting from:
State income taxes, net of federal
income tax effect 3.4 2.8 2.8
Foreign tax rate differential (18.7) (6.3) (33.2)
Goodwill amortization 6.2 1.6 10.6
Adjustment to tax rate applied to U.S.
temporary differences - - 8.9
Other 2.5 (0.9) 1.8
-------------- -------------- --------------
27.4 % 31.2 % 24.9 %
============== ============== ==============
Page 43
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
9. Income Taxes (continued)
The income tax provision (benefit) consisted of the following:
Current Deferred Total
---------------- ---------------- ---------------
(In thousands)
Year ended September 30, 2000
Federal $ 279 $ (377) $ (98)
State 64 70 134
Foreign 1,194 (156) 1,038
---------------- ---------------- ---------------
$ 1,537 $ (463) $ 1,074
================ ================ ===============
Year ended September 30, 1999
Federal $ (95) $ 1,788 $ 1,693
State 80 165 245
Foreign 1,002 (2) 1,000
---------------- ---------------- ---------------
$ 987 $ 1,951 $ 2,938
================ ================ ===============
Year ended September 30, 1998
Federal $ (993) $ 453 $ (540)
State 22 341 363
Foreign 631 (89) 542
---------------- ---------------- ---------------
$ (340) $ 705 $ 365
================ ================ ===============
Income (loss) before income taxes by source consisted of the following:
Years Ended September 30,
-----------------------------------------------------------
2000 1999 1998
------------------ ----------------- ----------------
United States $ (733) $ 5,046 $ (1,265)
Foreign 4,652 4,381 2,732
------------------ ----------------- ----------------
$ 3,919 $ 9,427 $ 1,467
================== ================= ================
The tax effects of each type of temporary difference that gave rise to the
Company's current net deferred tax asset is as follows:
September 30,
--------------------------------
2000 1999
--------------- -------------
(In thousands)
Accounts receivable allowances $ 916 $ 1,337
Prepaid expenses (150) (175)
Allowances and capitalized costs for inventory 856 961
Accrued expenses 379 76
Restructuring charge 175 -
Other 14 48
--------------- -------------
$ 2,190 $ 2,247
=============== =============
Page 44
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
9. Income Taxes (continued)
The tax effects of each type of temporary difference and carryforward that gave
rise to the Company's net long term deferred tax asset (liability) (included in
other long term assets or other long term liabilities) are as follows:
September 30,
-----------------------------------
2000 1999
--------------- ----------------
(In thousands)
Pension obligation $ 1,409 $ -
Depreciation:
U.S. assets (572) (523)
Foreign assets 195 (63)
U.S. tax loss and other U.S. carryforwards 1,169 259
Foreign operating tax losses carryforward 1,510 796
Foreign capital losses carryforward 8,292 -
Other 151 146
Valuation allowance (9,880) (796)
--------------- ----------------
$ 2,274 $ (181)
=============== ================
At September 30, 2000, the Company had a $2.6 million U.S. operating loss
carryforward for federal income tax return purposes. Foreign operating and
capital losses carried forward were $4.7 million and $27.6 million,
respectively. The U.S. loss can be carried forward for 20 years and the foreign
losses must be utilized within the carryforward periods of the international
jurisdictions. A valuation allowance has been provided for all of the foreign
operating and capital tax losses carryforward. The foreign operating and capital
losses expire as follows (in thousands):
Year of Net operating Capital
expiration losses losses
--------------- ------------------- --------------
2001 $ 450 $ -
2005 319 -
2006 409 -
2007 529 -
2008 1,061 -
2009 850 -
2010 478 -
Indefinite 608 27,600
------------------- --------------
$ 4,704 $ 27,600
=================== ==============
The Company has not provided for possible U.S. income taxes on $25.5 million in
undistributed earnings of foreign subsidiaries that are considered to be
reinvested indefinitely. Calculation of the unrecognized deferred tax liability
related to these foreign earnings is not practicable.
Page 45
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
10. Pension Benefits
Ring has a defined benefit pension plan (the "plan") which covers 29 current
employees and over 1,000 other members formerly associated with Ring. The plan
is administered externally and the assets are held separately by professional
investment managers. The plan is funded by contributions at rates recommended by
an actuary.
The components of net pension cost for the period from the date of acquisition
of Ring (July 5, 2000) to September 30, 2000 were as follows (in thousands):
Service cost $ 71
Interest cost 248
Expected return on plan assets (250)
-------------------
$ 69
===================
The reconciliation of the beginning and ending balances of the benefit
obligation and fair value of plan assets, and the funded status of the plan are
as follows (in thousands):
Change in benefit obligation:
Benefit obligation at July 5, 2000 $ 21,256
Service cost 71
Interest cost 248
Benefits paid (126)
Foreign currency gain (471)
-------------------
Benefit obligation at September 30, 2000 $ 20,978
===================
Change in plan assets:
Fair value of plan assets at July 5, 2000 $ 16,566
Actual return on plan assets (19)
Employer contributions 86
Benefits paid (126)
Foreign currency loss (367)
-------------------
Fair value of plan assets at September 30, 2000 $ 16,140
===================
Funded status:
Funded status (liability) at September 30, 2000 $ (4,838)
Unrecognized actuarial gain 267
-------------------
Net liability recognized $ (4,571)
===================
Accrued benefit liability ($1.6 million
included in other current liabilities
and $3.0 million included in other long
term liabilities) recognized in the
Company's balance sheet at September 30, 2000 $ (4,571)
===================
Page 46
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
10. Pension Benefits (continued)
The weighted average assumptions used in the actuarial computations that derived
the above amounts were as follows:
Discount rate 5.0%
Expected return on plan assets 6.5%
Average rate of compensation increase 5.0%
Rate of pension benefit increase 3.0%
The Company is reviewing the future of the plan and believes that in the future
it may begin the process of terminating the Company's liability under the plan.
It is anticipated that a termination will require payment of a lump sum equal to
the "Minimum Funding Requirement ("MFR") shortfall. The last MFR valuation as of
April 6, 2000 placed the MFR shortfall at $1.4 million.
Ring also operates a defined contribution plan covering some of its remaining
employees.
Page 47
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
11. Earnings Per Share
The computation of basic and diluted earnings per common share ("EPS") is as follows (in thousands except
per share data):
Years Ended September 30,
----------------------------------------------
2000 1999 1998
---- ---- ----
Basic EPS
Numerator:
Net income $ 2,845 $ 6,489 $ 1,102
======= ======= =======
Denominator:
Weighted average shares outstanding during the year 7,607 7,252 7,128
Weighted average of shares repurchased
during the year (533) (197) -
------- ------- -------
Weighted average shares used for basic EPS 7,074 7,055 7,128
======= ======= =======
Basic EPS $ 0.40 $ 0.92 $ 0.15
======= ======= =======
Diluted EPS
Numerator:
Net income $ 2,845 $ 6,489 $ 1,102
Interest on convertible subordinated notes, net of
income taxes* 250 424 -
------- ------- -------
Net income available to common stockholders $ 3,095 $ 6,913 $ 1,102
======= ======= =======
Denominator:
Weighted average shares outstanding during the year 7,607 7,252 7,128
Shares upon conversion of convertible subordinated notes* 748 1,138 -
Effect of stock options** 597 495 349
Weighted average of shares repurchased
during the year (533) (197) -
------- ------- -------
Weighted average shares used for diluted EPS 8,419 8,688 7,477
======= ======= =======
Diluted EPS $ 0.37 $ 0.80 $ 0.15
======= ======= =======
* The convertible subordinated notes were not included in the denominator for
diluted EPS for the year ended September 30, 1998 because their effect was
anti-dilutive.
** Weighted average shares issuable upon the exercise of stock options which
were not included in the calculation because they were antidilutive were
228,000, 540,000 and 1,249,000 for 2000, 1999 and 1998, respectively.
Page 48
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
12. Common Stock, Stock Options, Warrants and Rights
Common Stock
- ------------
The Company's board of directors has authorized the repurchase of up to $2.7
million of common shares of the Company from time to time in the open market or
in negotiated purchases. At September 30, 2000, the Company had repurchased
641,932 shares for $2.5 million.
Stock Options Under Plans
- -------------------------
In August 1987, the Company adopted the Stock Option/Stock Appreciation Rights
Plan ("Employee Plan"), which provides for the granting of options to officers
and other key employees. Under the Employee Plan, the Company and its
shareholders authorized the granting of options for up to 1,750,000 shares of
common stock to be granted as either incentive or nonstatutory options at a
price of 100% of the fair market value of the shares at the date of grant, 110%
in the case of a holder of more than 10% of the Company's stock. As of September
30, 2000, options for approximately 7,692 shares of common stock remained
available for future grants. Options generally vest ratably over a three-year
period commencing on October 1 following the date of grant and are exercisable
with cash or previously acquired common stock of the Company, no later than 10
years from the grant date.
In March 1989, the Company adopted the Non-Employee Director Stock Option Plan
("Director Plan"), which provides for the granting of options for up to 50,000
shares of common stock to non-employee directors. Under the Director Plan,
options to purchase 2,000 common shares were granted annually through 1997 to
non-employee directors automatically upon their election to the Board of
Directors which vest upon the serving of a one-year term. The exercise price is
the fair market value of the common stock on the date the options are granted.
As of September 30, 2000, 22,000 shares of common stock remained available for
future grants. These options are generally exercisable no later than ten years
from the date of grant.
In March 2000, the Company's Board of Directors approved a Stock Option Plan
("Broad Based Plan") which provides for the granting of options to purchase
325,000 shares of common stock at a purchase price equal to the fair market
value on the date of grant. As of September 30, 2000, 79,000 shares of common
stock remained available for future grants. The exercise price is the fair
market value of the common stock on the date the options are granted. One third
of the options becomes exercisable one year after the date of the grant with one
third vesting during each of the following two years. These options are
generally exercisable no later than ten years from the date of grant.
Page 49
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
12. Common Stock, Stock Options, Warrants and Rights (continued)
Transactions and related information for each plan are as follows:
Employee Plan: Number of Weighted Average
Options Price Per Share
----------- ---------------
Options outstanding at September 30, 1997 1,326,467 $3.98
Options granted 5,000 $3.38
Options exercised (25,100) $3.03
Options terminated (16,719) $4.36
--------- -----
Options outstanding at September 30, 1998 1,289,648 $3.99 **
Options granted 91,000 $3.28
Options exercised (185,898) $2.20
Options terminated (63,848) $4.10
--------- -----
Options outstanding at September 30, 1999 1,130,902 $2.81
Options exercised (364,767) $2.27
Options terminated (6,201) $3.93
--------- -----
Options outstanding at September 30, 2000 759,934 $3.05
========= =====
Options exercisable at September 30, 2000 703,262 $3.04
========= =====
**On December 11, 1998, the exercise price of 784,733 outstanding options was
restated to $2.4375, the market value of the Company's stock on such date.
Director Plan: Number of Weighted Average
Options Price Per Share
-------------- ---------------------
Options outstanding at September 30, 1997
and 1998 46,000 $6.59
Options terminated (2,000) $12.13
-------------- ---------------------
Options outstanding at September 30, 1999 44,000 $6.34
Options terminated (20,000) $6.25
-------------- ---------------------
Options outstanding at September 30, 2000 24,000 $6.42
============== =====================
Options exercisable at September 30, 2000 24,000 $6.42
============== =====================
Page 50
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
12. Common Stock, Stock Options, Warrants and Rights (continued)
Broad Based Plan: Number of Weighted Average
Options Price Per Share
------------- --------------------
Options outstanding at September 30, 1999 - -
Options granted 246,000 $3.94
------------- --------------------
Options outstanding at September 30, 2000 246,000 $3.94
============= ====================
Options exercisable at September 30, 2000 - -
============= ====================
Other Stock Options
- -------------------
On October 1, 1991, the Company issued options to purchase 20,000 shares at
$3.38 to an employee. On December 11, 1998 the exercise price of these options
was restated to $2.4375, the market value of the Company's stock on such date.
The options were fully exercisable at September 30, 2000 and expire on October
1, 2001.
On January 3, 1992, the Company issued to certain of its executives and
non-employee directors options to purchase 275,000 shares at $4.88 per share. On
December 11, 1998, the exercise price of 150,000 of these options was restated
to $2.4375, the market value of the Company's stock on such date. As of
September 30, 2000, 225,000 of these options remained unexercised and were fully
exercisable. They expire January 3, 2002.
On January 15, 1993, the Company issued to one of its executives options to
purchase 50,000 shares of common stock at an exercise price of $5.25 per share.
On December 11, 1998, the exercise price of these options was restated to
$2.4375, the market value of the Company's stock on such date. The options were
fully exercisable at September 30, 2000. The options expire on January 14, 2003.
At various dates during fiscal 1995, the Company granted to certain new
employees options to purchase 91,000 shares of common stock at prices ranging
from $6.75 to $6.875. In most cases, one-third of the options became exercisable
on October 1, 1995, with one-third vesting on October 1 of each of the following
two years. The options expire in 10 years from the grant date. On October 27,
1995, the exercise price of these options was restated to $4.125, the market
value of the Company's stock on such date, and on December 11, 1998, the
exercise price of the remaining 53,500 shares was restated to $2.4375, the
market value of the Company's stock on such date. As of September 30, 2000, the
remaining 35,000 options were fully exercisable.
On March 4, 1996, the Company issued options to purchase 10,000 shares at $5.38
to a consultant. The options were fully exercisable at September 30, 2000 and
expire on March 4, 2006.
Page 51
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
12. Common Stock, Stock Options, Warrants and Rights (continued)
On August 27, 1996, the Company issued to one of its executives options to
purchase 5,000 shares of common stock at $3.75 per share. On December 11, 1998,
the exercise price of these options was restated to $2.4375, the market value of
the Company's stock on such date. The options were fully exercisable at
September 30, 2000 and expire on August 26, 2006.
On March 12, 1997, the Company issued options to purchase 20,000 shares of
common stock at $3.75 per share to new members of the Company's Board of
Directors. The options were fully exercisable at September 30, 2000 and expire
on March 11, 2007.
During fiscal 1999, the Company granted to certain new employees options to
purchase 8,000 shares of common stock at prices ranging from $4.69 to $4.94. The
options expire 10 years from the grant date and one-third became exercisable one
year after the date of grant with one-third vesting during each of the following
two years. At September 30, 2000, 2,666 options were exercisable.
During fiscal 2000, the Company issued to certain new employees options to
purchase 214,000 shares at prices ranging from $4.06 to $4.38 per share, the
market value of the Company's stock on grant date. The options expire 10 years
from the grant date. One third of the options becomes exercisable one year after
the date of the grant with one third vesting during each of the following two
years.
Transactions and related information relating to other stock options are
summarized as follows:
Options Price Per Share
---------------------- ---------------------------
Options outstanding at September 30, 1997 800,500 $3.69
Options granted 18,000 $3.53
Options exercised (55,000) $1.75
Options terminated (125,000) $3.93
---------------------- ---------------------------
Options outstanding at September 30, 1998 638,500 $3.81 **
Options granted 11,000 $3.45
Options terminated (24,500) $3.00
---------------------- ---------------------------
Options outstanding at September 30, 1999 625,000 $2.84
Options granted 214,000 $4.36
Options exercised (252,000) $1.93
---------------------- ---------------------------
Options outstanding at September 30, 2000 587,000 $3.79
====================== ===========================
Options exercisable at September 30, 2000 367,666 $3.44
====================== ===========================
.
**On December 11, 1998, the exercise price of 290,000 outstanding options was
restated to $2.4375, the market value of the Company's stock on such date.
Page 52
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
12. Common Stock, Stock Options, Warrants and Rights (continued)
The following table summarizes information about all stock options outstanding
at September 30, 2000:
Options Outstanding Options Exercisable
---------------------------------------------------- ---------------------------------------
Weighted Weighted Weighted
Average Average Average
Range of Exercise Options Remaining Exercise Options Exercise
Prices Outstanding Contractual Life Price Exercisable Price
- -------------------------- -------------- ------------------ ------------------- ------------------- -----------------
$2.125 to $2.4375 759,934 3.2 years $2.42 734,934 $2.43
$3.375 to $4.1875 433,500 7.5 years $3.90 141,828 $3.78
$4.375 to $6.63 355,000 6.5 years $4.65 149,666 $5.02
$6.75 to $10.75 68,500 4.1 years $6.99 68,500 $6.99
- -------------------------- --------------- ------------------ ------------------- ------------------- -----------------
$2.125 to $10.75 1,616,934 5.1 years $3.50 1,094,928 $3.25
========================== =============== ================== =================== =================== =================
For purposes of the following proforma disclosures, the weighted-average fair
value of options has been estimated on the date of grant or repricing using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998, respectively: no dividend
yield; expected volatility of 62%, 62% and 58%, risk-free interest rate of 6.4%,
5.2% and 5.4% and an expected term of six and a half years for options granted
and two years for options repriced during 1999. The weighted average fair value
at date of grant of options granted during 2000, 1999, and 1998 was $2.36, $1.97
($.70 for options repriced) and $1.89 per option, respectively. Had the
compensation cost been determined based on the fair value at the grant or
repricing date consistent with the provisions of SFAS 123, the Company's net
income and basic and diluted earnings per share would have been reduced to the
proforma amounts indicated below (in thousands, except per share amounts):
Years Ended September 30,
---------------------------------
2000 1999 1998
---- ---- ----
Net income - as reported $ 2,845 $ 6,489 $ 1,102
Net income - proforma $ 2,685 $ 5,764 $ 966
Basic earnings per share - as reported $ 0.40 $ 0.92 $ 0.15
Basic earnings per share - proforma $ 0.38 $ 0.82 $ 0.14
Diluted earnings per share - as reported $ 0.37 $ 0.80 $ 0.15
Diluted earnings per share - proforma $ 0.35 $ 0.71 $ 0.13
Stock Rights
- ------------
In November 2000, the Company's Board of Directors reauthorized its stockholder
rights plan, by adopting a plan similar to a pre-existing rights plan which
expired on November 20, 2000. Under the Company's new rights plan, a preferred
stock purchase right was distributed for each share of common stock outstanding
at the close of business on the November 30, 2000 record date and is issued in
connection with each share issued after such date. The rights are not initially
exercisable, but upon the occurrence of certain takeover-related events, the
holders of the rights (other than an adverse or acquiring person, or group
thereof), under certain circumstances, have the right to purchase additional
shares of Company stock (or in some cases, stock of the acquiring entity) at a
discount to the then market price. The rights can be redeemed by the Company at
any time, and will otherwise expire on November 20, 2005. The thresholds for
triggering the rights plan is a person (as defined in the rights plan) acquiring
21% of the outstanding stock of the Company or a declaration by the Board of
Directors that a person is an "adverse person" as defined in the rights plan,
and the exercise price of the rights is $17.
Page 53
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
12. Common Stock, Stock Options, Warrants and Rights (continued)
Stock Warrants
- --------------
In connection with the Company's initial public offering of common stock in May
1988, warrants to purchase 92,000 common shares at $4.20 a share were issued to
the underwriters. The warrants are exercisable through December 31, 2000. The
Company registered the shares underlying the warrants effective May 24, 1995. No
common stock has been issued pursuant to these warrants through September 30,
2000.
13. Commitments
The Company leases offices, warehouse facilities, equipment and vehicles under
non-cancelable operating leases that expire at various dates through 2019 with
the exception of certain U.K. land use rights which expire in 2073. Certain
leases provide for future rent adjustments based on changes in market rates or
increases in minimum lease payments based upon increases in annual real estate
taxes and insurance. Future minimum lease payments under non-cancelable
operating leases and minimum rentals to be received under non-cancelable
subleases as of September 30, 2000 by fiscal year, were as follows (in
thousands):
Minimum Rental Minimum
Payments Sublease Receipts Net
------------------- -------------------- --------------
2001 $ 3,625 $ 535 $ 3,090
2002 2,446 150 2,296
2003 1,944 149 1,795
2004 1,712 132 1,580
2005 1,623 117 1,506
Thereafter 19,177 434 18,743
------------------- -------------------- --------------
$ 30,527 $ 1,517 $29,010
=================== ==================== ==============
Total net rental expense for all operating leases amounted to approximately $1.9
million, $1.5 million and $1.8 million for the years ended September 30, 2000,
1999 and 1998, respectively.
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a cooperative joint
venture subsidiary of Go-Gro, and the Bureau of National Land Planning Bao-An
Branch of Shenzhen City entered into a Land Use Agreement covering approximately
467,300 square feet in Bao-An County, Shenzhen City, People's Republic of China
on April 11, 1995. The agreement provides SJE with the right to use the above
land until January 18, 2042. The land use rights are non-transferable. Through
fiscal 2000, under the joint venture agreement Go-Gro owned 70% of SJE's land
use rights, building and equipment and Shenzhen Baoanqu Fuda Industries Co.,
Ltd. ("Fuda"), a Chinese Company, owned the remaining 30%. Go-Gro received 100%
of SJE's profits and losses. Land costs, including the land use rights,
approximated $2.6 million of which Go-Gro 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
completed by April 1, 1997. 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. The remainder of the construction is underway to be completed in 2001. The
total cost for this project is estimated at $16 million (of which $13.3 million
had been expended as of September 30, 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 $588,000 had been
paid or accrued as of September 30, 2000. In September 2000, Go-Gro purchased
Fuda's 30% interest in SJE's land use rights and property for approximately $1.0
million.
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
Page 54
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
payments. Subject to the minimum sales conditions discussed below, the agreement
terminates on September 30, 2002, with the Company having options to extend the
agreement for two additional five-year terms. 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 net shipments.
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 $29 million and $20.5 million for the years ended September 30, 2000
and 1999, respectively.
In January 2000, the Company renewed a consulting agreement with a former
employee for a two-year period beginning April 1, 2000, for an annual fee of
$140,000, payable monthly.
14. Related Party Transactions
The Company leased a facility located in Massachusetts from an entity in which
an officer and a former officer had an ownership interest. The lease expired in
June 1999. Rent expense related to this lease was approximately $99,000 and
$159,000 for the years ended September 30, 1999 and 1998, respectively.
Notes and advances receivable from Executive Vice Presidents of the Company
aggregated approximately $207,000 and $284,000 at September 30, 2000 and 1999,
respectively. At September 30, 2000 notes and advances included $170,000 in
notes bearing interest at LIBOR plus 250 basis points which were collaterized by
stock option agreements to purchase 150,000 shares of the Company. A note
amounting to $100,000 matures in December 2001 and the remaining $70,000 note
matures in January 2002.
15. Segment Information
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
131, Disclosures about Segments of an Enterprise and Related Information
effective October 1, 1998. SFAS No. 131 supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise, replacing the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable operating segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect results of operations or financial position but did
affect the disclosure of segment information.
For internal management reporting purposes the Company operates three primary
business segments, which also correspond to the major geographic segments of the
Company's business: Catalina Industries (United States), Go-Gro Industries
(China) and Ring Limited (United Kingdom). The Company added the United Kingdom
as a primary business segment with the acquisition of Ring PLC on July 5, 2000.
Catalina Industries and Ring Limited are engaged in the importation and
distribution of lighting products. Go-Gro manufactures and procures products for
other Company subsidiaries. The Company also maintains parent company corporate
administrative offices in Miami, Florida and other operating subsidiaries in
Canada (Catalina Canada), Mexico (Catalina Mexico) and South America. These
operating segments generally follow the management organizational structure of
the Company. Net sales to external customers by U.S. and U.K.-based operations
are made primarily into the United States and the United Kingdom, respectively.
Net sales to external customers by China-based operations are made primarily
into Europe and net sales to external customers other than sales made by the
Company's three reportable operating segments are made primarily into Canada and
to a lesser extent Mexico and South America. Intersegment sales represent
shipments of finished products sold at prices determined by management. During
fiscal 1998, the Company restructured its operations, which resulted in a change
in the pricing of intersegment sales between China and the other segments.
Calculation of the impact of such change on the segment contributions for fiscal
year 1998 is not practicable.
The Company evaluates the performance of its operating segments and allocates
resources to them based on net sales and segment contribution. Segment
contribution is defined as income before Parent/holding Company and certain
administrative expenses, unusual items, tax transfer pricing adjustments and
income taxes. Prior years' data has been restated to conform to the current year
reportable operating segments presentation. Information on operating segments
and a reconciliation to income before income taxes for the years ended September
30, 2000, 1999 and 1998 are as follows (in thousands):
Page 55
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
15. Segment Information (continued)
Net Sales:
Years Ended September 30,
-------------------------------------------------------------------------------------------
2000 1999
------------------------------------------ -------------------------------------------
External External
customers Intersegment Total customers Intersegment Total
----------------------------------------- -----------------------------------------
United States $ 121,401 $ 821 $ 122,222 $ 133,749 $ 1,559 $ 135,308
China 26,983 114,373 141,356 19,523 117,422 136,945
United Kingdom 24,529 - 24,529 - - -
Other segments 29,717 197 29,914 23,289 517 23,806
Eliminations - (115,391) (115,391) - (119,498) (119,498)
----------------------------------------- -----------------------------------------
Total $ 202,630 $ - $ 202,630 $ 176,561 $ - $ 176,561
========================================= =========================================
Years Ended September 30,
---------------------------------------------
1998
---------------------------------------------
External
customers Intersegment Total
---------------------------------------------
United States $ 122,286 $ 1,099 $ 123,385
China 21,309 90,035 111,344
United Kingdom - - -
Other segments 18,265 367 18,632
Eliminations - (91,501) (91,501)
-------------------------------------------
Total $ 161,860 $ - $ 161,860
===========================================
Net Sales by Location of External Customers:
Years Ended September 30,
-------------------------------------
2000 1999 1998
-------------------------------------
United States $ 121,558 $ 133,974 $ 122,509
Canada 24,953 19,938 16,538
United Kingdom 29,436 - -
Other 26,683 22,649 22,813
-------------------------------------
Net Sales $ 202,630 $ 176,561 $ 161,860
=====================================
Page 56
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
15. Segment Information (continued)
Segment Contribution:
Years Ended September 30,
------------------------------------
2000 1999 1998
------------------------------------
United States $ 5,790 $ 8,971 $ 7,554
China 9,196 6,641 1,933
United Kingdom (1,273) - -
Other segments 577 (463) 31
------------------------------------
Subtotal for segments 14,290 15,149 9,518
Reversal of provision for litigation - 2,728 -
Reversal of post judgment interest
related to litigation settlement - 893 -
Executive management reorganization (788) - -
Restructuring charge (500)
Parent/administrative expenses (9,083) (9,343) (8,051)
------------------------------------
Income before income taxes $ 3,919 $ 9,427 $ 1,467
====================================
Interest Expense (1):
Years Ended September 30,
------------------------------------
2000 1999 1998
------------------------------------
United States $ 299 $ 947 $1,569
China 161 443 648
United Kingdom 957 - -
Other segments 478 440 261
------------------------------------
Subtotal for segments 1,895 1,830 2,478
Parent interest expense 937 583 1,323
------------------------------------
Total interest expense $ 2,832 $2,413 $3,801
====================================
Total Assets:
September 30,
---------------------------
2000 1999
---------------------------
United States $ 64,263 $ 69,068
China 53,170 48,161
United Kingdom 75,505 -
Other segments 14,252 14,052
Eliminations (39,219) (29,384)
---------------------------
Total assets $ 167,971 $ 101,897
===========================
Page 57
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
15. Segment Information (continued)
Long-Lived Assets (2):
September 30,
-----------------------------
2000 1999
-----------------------------
United States $ 12,156 $12,499
China 12,516 11,747
United Kingdom 5,125 -
Other segments 135 185
-----------------------------
Total long-lived assets $ 29,932 $24,431
=============================
Expenditures for Additions to Long-Lived Assets (3);
Years Ended September 30,
---------------------------------------------
2000 1999 1998
---------------------------------------------
United States $ 1,013 $ 538 $ 1,138
China 3,111 1,019 1,032
United Kingdom 580 - -
Other segments 18 244 226
---------------------------------------------
Total expenditures $ 4,722 $ 1,801 $ 2,396
=============================================
(1) Parent and intersegment advances bear interest at the U.S. prime rate. The
interest expense shown for each segment includes interest paid or earned on
inter-segment advances.
(2) Represents property and equipment, net.
(3) Includes $427,000, $102,000 and $438,000 in expenditures which were financed
via capital lease obligations for the years ended September 30, 2000, 1999, and
1998, respectively.
Major Customers
- ---------------
During the years ended September 30, 2000, 1999 and 1998 one customer (primarily
included in U.S.-based operations) accounted for 23.2%, 25.8% and 27.5%,
respectively, of the Company's net sales. One other customer and its affiliate
(included in the U.S. and other segments) accounted for 9.3%, 14.5% and 5.3% of
the Company's net sales during the years ended September 30, 2000, 1999 and
1998, respectively.
Page 58
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
16. Employment, Change in Control, Consulting and Non-Compete Agreements
The Company has employment agreements with its C.E.O and two Executive Vice
Presidents. The agreements expire on September 30, 2001. All such officers
receive compensation with minimum annual cost of living increases of 5% and
acceleration of payments due under the agreements should there be a change in
control of the Company. The agreements provide for severance at the end of the
present three year term ending September 30, 2001 in an amount equal to two
times their base salary and benefits if the employment agreement is not renewed
upon its expiration. Each officer is subject to a non-compete provision through
September 30, 2001. Bonuses paid to the Company's C.E.O. and three Executive
Vice Presidents pursuant to their employment agreements totaled $674,000 and
$105,000 for fiscal 1999 and 1998, respectively. There was no bonus for fiscal
2000.
Pursuant to a reorganization of the Company's executive management structure, an
Executive Vice President left the Company in December 1999. The Company agreed
to settle its contractual employment obligation to this executive for a payment
of $788,000. The executive will continue to provide consulting services under a
three-year non-compete and consulting agreement for annual payments of $250,000
through December 2002.
Future commitments under employment and consulting agreements at September 30,
2000, by fiscal year, excluding the possible effect of bonuses and severance are
as follows (in thousands):
2001 $ 1,430
2002 250
2003 63
2004 -
-----------------
$ 1,743
=================
The Company entered into an employment agreement with its Chief Financial
Officer in October 2000 which replaces the Company's previous Change in Control
Agreement with this employee. This agreement expires in September 2001 and
provides for a severance payment equal to (i) the prorata portion of the
employee's salary for the remainder of the agreement term plus the employee's
annual salary if the employee is terminated without cause or (ii) the employee's
annual salary if the employment agreement is not renewed upon its expiration.
This employment agreement also provides for a lump sum payment equal to two
times the employee's salary plus a lump sum benefits payment upon a "Change in
Control" of the Company, as defined in the agreement.
Ring has employment agreements with nineteen of its officers and key employees
which provide for notice periods in the case of termination varying from 6 to 36
months. Their total annual basic salary cost amounts to approximately U.S. $1.8
million. The agreements contain benefit packages including contributions to
Ring's pension plans ranging from 5% to 10% of salary. In addition, the
agreements contain post-termination restrictive covenants.
17. Contingencies
Litigation
- ----------
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
Page 59
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
17. Contingencies (continued)
Prejudgment interest). On July 14, 1997, the Court also granted plaintiff's
motion for attorney fees and costs of $1.8 million. A provision of $4.2 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. On June 15, 1999 this case was settled and the Company agreed to pay Mr.
Browder $1.5 million. This settlement resulted in the reversal in the
Consolidated Statements of Operations for the year ended September 30, 1999 of
$2.7 million previously accrued for damages and attorney fees and $893,000 in
previously accrued post judgment interest.
During fiscal years 2000, 1999 and 1998 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 for this
self-insurance provision and has accrued $177,000 for this contingency as of
September 30, 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.
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
- -----
On August 9, 1999 the NYSE notified the Company that it had changed its rules
regarding continued listing for companies which have shares traded on the NYSE.
The new rules changed and increased the requirements to maintain a NYSE listing.
Through September 30, 2000, the Company did not meet the new rules, which
require a total market capitalization of $50 million and the maintenance of
minimum total stockholders' equity of $50 million. The Company's total market
capitalization and stockholders' equity as of September 30, 2000 were $25.3
million and $50.8 million, respectively. The Company expects to report a loss
for the quarter ending December 31, 2000 and the Company's total market
capitalization as of the close of business on December 26, 2000 was $14.7
million. As requested by the NYSE, the Company had previously provided the NYSE
with its plan to meet the new standards by February 2001. The Company's plan was
accepted by the NYSE in October 1999 and continues to be monitored by the NYSE
through the current quarter. However, no assurances can be given that the
objectives of the plan will be accomplished by February 2001. If the Company is
ultimately unable to meet the new NYSE listing rules or obtain an extension for
its plan, the Company's shares could be suspended from trading on the NYSE,
however the Company believes other trading venues are available for its stock.
Page 60
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
18. Disclosure about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents, restricted cash equivalents and short-term
investments, accounts receivable and accounts and letters of credit payable:
The carrying amount approximates fair value due to the short maturity of those
instruments.
Credit lines, term loans, bonds payable and other long-term debt:
The fair value of the Company's credit lines, term loans, bonds payable and
other long-term debt is estimated based on the current rates offered to the
Company for borrowings with similar terms and maturities.
Estimated fair values of the Company's financial instruments are as follows (in
thousands):
September 30,
--------------------------------------------------------------------
2000 1999
--------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- ---------
Cash and cash equivalents $ 2,309 $ 2,309 $ 7,253 $ 7,253
Restricted cash equivalents and
short-term investments $ 727 $ 727 $ 1,721 $ 1,721
Accounts receivable, net $ 36,632 $ 36,632 $ 20,150 $ 20,150
Credit lines $ 22,786 $ 22,786 $ 14,350 $ 14,350
Term loans $ 28,415 $ 28,415 $ - $ -
Accounts and letters of credit payable $ 36,310 $ 36,310 $ 14,939 $ 14,939
Bonds payable $ 6,000 $ 5,758 $ 8,210 $ 8,160
Other long-term debt $ 3,127 $ 3,099 $ 2,011 $ 2,002
It was not practicable to estimate the fair value of the Company's $7.6 million
in convertible subordinated notes at September 30, 1999.
Page 61
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
19. Subsequent Event
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As discussed in Note 5, the
Company has significant borrowings which require, among other things, compliance
with certain financial ratios, including a leverage ratio and a fixed charge
coverage ratio, on a quarterly basis. As a result of the Company's operating
results for the fourth quarter of fiscal 2000, most notably the pretax loss
incurred by the Company's United Kingdom operations, the Company initially was
not in compliance with a financial covenant under its $75 million credit
facility for the quarter ended September 30, 2000. The Company obtained an
amendment of the credit facility on December 22, 2000 and is in compliance with
the financial covenants under the amended facility for the quarter ended
September 30, 2000. However, due to the sales and profitability declines the
Company is experiencing for the quarter ending December 31, 2000, the Company
does not expect to be in compliance with the financial covenants of the $75
million credit facility for the quarter ending December 31, 2000 and subsequent
quarters unless the covenants are waived or modified through another amendment
of the facility.
The Company is exploring strategic alternatives including potential
divestitures, a merger, a recapitalization or other actions. The investment
banking firm of SunTrust Equitable Securities has been hired to assist with this
strategic review and to formulate proposed plans and actions for the
consideration of the Board of Directors. Because SunTrust Equitable Securities
is currently conducting its review and formulation of proposed plans and
actions, no assessment can be made of the likelihood that any such plans and
actions are feasible or can be effectively implemented. The Company does not
intend to provide information updating the status of this strategic review or of
any efforts to implement plans or actions that may be developed, and a negative
or positive inference should not be drawn from the absence of any such updates.
Regardless of the outcome of the strategic review, discussed above the Company
believes that a waiver covering the financial covenants of the $75 million
credit facility, or a second amendment of the $75 million credit facility, will
be required for the quarter ending December 31, 2000 and subsequent quarters.
Without such waiver or second amendment, based upon the Company's current
expectations there would be an event of default under that credit facility for
the quarter ending December 31, 2000. A default or subsequent breaches of the
financial covenants under the $75 million credit facility could result in
acceleration of the Company's indebtedness, in which case the debt would become
immediately due and payable. Although no assurances can be given, the Company
believes it will be able to successfully negotiate with its present $75 million
credit bank syndicate, as is necessary, for a waiver, or a second amendment, so
as to preclude acceleration of its indebtedness for the quarter ending December
31, 2000. If there is no modification or waiver of the existing financial
covenants for the quarter ending December 31, 2000, the Company may not be able
to generate, raise or borrow sufficient funds to repay its debt and/or to
refinance its debt. Even if new funding is available, it may not be on terms
that are acceptable to the Company.
Based upon the Company's current assessment of market conditions for its
business, the Company intends to negotiate for a waiver or second amendment to
the financial covenants of its $75 million credit facility that will also cover
quarters ending subsequent to December 31, 2000. The Company's ability to
satisfy the financial covenants in subsequent quarters will depend on the terms
of any such waiver or second amendment, business conditions for the Company's
products and any results from the strategic review described above. The
Company's continuation as a going concern is dependent upon its ability to
successfully establish the necessary financing arrangements and to comply with
the terms thereof. Although no assurances can be given, the Company believes
that it will be able to continue operating as a going concern.
Page 62
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2000, 1999 and 1998 (Continued)
20. Selected Quarterly Financial Data (Unaudited)
(In thousands except per share data)
1st Quarter* 2nd Quarter 3rd Quarter 4th Quarter**
- -----------------------------------------------------------------------------------------------------------
Fiscal 2000
- -----------------------------------------------------------------------------------------------------------
Net Sales $ 43,208 $ 42,033 $ 46,705 $ 70,684
- -----------------------------------------------------------------------------------------------------------
Gross Profit $ 8,895 $ 8,001 $ 8,907 $ 12,611
- -----------------------------------------------------------------------------------------------------------
Operating Income $ 1,326 $ 1,305 $ 2,138 $ 1,540
- -----------------------------------------------------------------------------------------------------------
Net Income $ 537 $ 752 $ 1,080 $ 476
- -----------------------------------------------------------------------------------------------------------
Earnings Per Share:
- -----------------------------------------------------------------------------------------------------------
Basic $ 0.08 $ 0.11 $ 0.15 $ 0.07
- -----------------------------------------------------------------------------------------------------------
Diluted $ 0.07 $ 0.10 $ 0.14 $ 0.06
===========================================================================================================
1st Quarter 2nd Quarter 3rd Quarter*** 4th Quarter
- -----------------------------------------------------------------------------------------------------------
Fiscal 1999
- -----------------------------------------------------------------------------------------------------------
Net Sales $ 42,803 $ 42,128 $ 46,315 $ 45,315
- -----------------------------------------------------------------------------------------------------------
Gross Profit $ 8,129 $ 9,181 $ 9,616 $ 8,729
- -----------------------------------------------------------------------------------------------------------
Operating Income $ 1,318 $ 2,092 $ 4,879 $ 1,540
- -----------------------------------------------------------------------------------------------------------
Net Income $ 503 $ 1,159 $ 3,873 $ 954
- -----------------------------------------------------------------------------------------------------------
Earnings Per Share:
- -----------------------------------------------------------------------------------------------------------
Basic $ 0.07 $ 0.16 $ 0.56 $ 0.14
- -----------------------------------------------------------------------------------------------------------
Diluted $ 0.07 $ 0.15 $ 0.45 $ 0.12
===========================================================================================================
* Reflects a $788,000 charge related to the reorganization of the executive
management.
** Reflects the results of operations of Ring which was acquired on July 5,
2000 and a $500,000 restructuring charge.
*** Reflects the reversal of a $2.7 million provision related to litigation
with a former officer of the Company and the reversal of an $893,000
provision for post judgment interest.
Page 63
CATALINA LIGHTING, INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION
The Company's credit facilities and U.K. laws place restrictions on the amount
of assets that may be transferred by Ring, Go-Gro and Catalina Canada to the
parent or other Company subsidiaries. These restricted net assets totalled $17.2
million, $2.5 million and $33.6 million for the Go-Gro, Catalina Canada and Ring
subsidiaries, respectively, at September 30, 2000. The financial information for
the Company has been adjusted in this schedule to report Ring, Go-Gro and
Catalina Canada on the equity basis of accounting. No cash dividends were paid
by these subsidiaries during the three years ended September 30, 2000.
Balance Sheets September 30,
-----------------------------
ASSETS 2000 1999
-------------- -------------
Current assets (In thousands)
Cash and cash equivalents $ 246 $ -
Restricted cash and short-term investments 727 1,721
Accounts receivable, net of allowances
of $5,905,000 and $7,920,000, respectively 11,957 12,980
Inventories 15,092 18,690
Income taxes receivable 406 1,805
Deferred tax asset 1,818 2,204
Other current assets 1,539 2,708
-------------- -------------
Total current assets 31,785 40,108
Property and equipment, net 12,164 12,523
Investment in and net amounts due to or from Go-Gro 17,413 17,854
Investment in and net amounts due to or from Catalina Canada 2,484 5,462
Investment in and net amounts due to or from Ring 33,645 -
Goodwill, net 4,676 4,839
Other assets 3,917 1,858
-------------- -------------
$ 106,084 $ 82,644
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Credit lines $ 14,400 $ 401
Term loans 28,415 -
Current maturities of subordinated notes - 2,500
Accounts and letters of credit payable 902 1,219
Current maturities of bonds payable-real estate related 900 2,210
Current maturities of other long-term debt 424 308
Other current liabilities 3,487 3,377
-------------- -------------
Total current liabilities 48,528 10,015
Credit lines - 12,150
Convertible subordinated notes - 5,100
Bonds payable - real estate related 5,100 6,000
Other long-term debt 1,173 1,209
Other liabilities 454 113
-------------- -------------
Total liabilities 55,255 34,587
-------------- -------------
Stockholders' equity
Common Stock 80 74
Additional paid-in capital 28,560 26,927
Retained earnings 25,111 22,266
Accumulated comprehensive loss (461) -
Treasury stock (2,461) (1,210)
-------------- -------------
Total stockholders' equity 50,829 48,057
-------------- -------------
$ 106,084 $ 82,644
============== =============
Page 64
CATALINA LIGHTING, INC. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION
(Continued)
Statements of Operations Years Ended September 30,
- ------------------------ --------------------------------------------
2000 1999 1998
---------- --------- ----------
(In thousands)
Net sales $126,521 $137,415 $ 124,054
Cost of sales 107,866 116,553 106,524
---------- --------- ----------
Gross profit 18,655 20,862 17,530
Selling, general and administrative expenses 17,284 19,261 16,985
Litigation settlement - (2,728) -
Restructuring charge 500 - -
Executive management reorganization 788 - -
---------- --------- ----------
Operating income 83 4,329 545
---------- --------- ----------
Other income (expenses)
Interest expense (2,331) (2,340) (3,623)
Reversal of post judgment interest related to litigation settlement - 893 -
Equity in income of Go-Gro 4,525 4,229 2,782
Equity in income of Catalina Canada 591 17 38
Equity in loss of Ring (825) - -
Interest income on advances to subsidiaries 535 683 657
Administrative fee income from Catalina Canada 355 312 203
Other income (expenses) (52) 302 323
---------- --------- ----------
Total other income (expenses) 2,798 4,096 380
---------- --------- ----------
Income before income taxes 2,881 8,425 925
Income tax (provision) benefit (36) (1,936) 177
---------- --------- ----------
Net income $ 2,845 $ 6,489 $ 1,102
========== ========= ==========
Page 65
CATALINA LIGHTING, INC., AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION
(Continued)
Statements of Cash Flows
- ------------------------
Years Ended September 30,
------------------------------------
2000 1999 1998
--------- ------- --------
(In thousands)
Cash flows from operating activities:
Net income $2,845 $6,489 $1,102
--------- ------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in income of Go-Gro, Catalina Canada and Ring (4,737) (4,246) (2,820)
Depreciation and amortization 2,810 1,977 2,405
Deferred income taxes (307) 1,953 794
(Gain) loss on disposition of property and equipment - (175) (5)
Change in assets and liabilities:
Decrease (increase) in accounts receivable 1,023 (2,361) 1,839
Decrease (increase) in inventories 3,598 1,628 5,452
Decrease (increase) in income taxes receivable 1,399 (657) 2,224
Decrease (increase) in other current assets 744 342 (619)
Decrease (increase) in other assets (945) (336) (374)
Increase (decrease) in accrued litigation judgment under appeal - (4,909) 423
Increase (decrease) in accounts and letters of credit
payable and other liabilities 247 (530) (5,551)
--------- ------- --------
Total adjustments 3,832 (7,314) 3,768
--------- ------- --------
Net cash provided by (used in) operating activities 6,677 (825) 4,870
--------- ------- --------
Cash flows from investing activities:
Capital expenditures, net (580) (420) (437)
Proceeds from sale of property - 997 -
Payment for acquisition of Ring, net of cash acquired (33,351) - -
Decrease (increase) in investment in and net amounts due to or from
Go-Gro, Catalina Canada and Ring 7,862 2,249 7,721
Decrease (increase) in restricted cash equivalents and
short-term investments 1,872 986 954
--------- ------- --------
Net cash provided by (used in) investing activities (24,197) 3,812 8,238
--------- ------- --------
(Continued on page 67)
Page 66
CATALINA LIGHTING, INC., AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION
(Continued)
Statements of Cash Flows (continued)
- ------------------------------------
Years Ended September 30,
---------------------------------------
2000 1999 1998
--------- ------- --------
(In thousands)
Cash flows from financing activities:
Proceeds from term loans 30,000 - -
Payments on term loans (1,244) - -
Proceeds from credit lines 43,160 35,701 32,900
Payments on credit lines (42,510) (35,550) (45,300)
Payments on convertible subordinated notes (7,600) - -
Sinking fund redemption payments on bonds (878) (900) (878)
Payments on other long-term debt (511) (576) (581)
Payments on bonds payable - real estate related (2,210) (980) (975)
Payments to repurchase common stock (1,251) (1,210) -
Proceeds from issuance of common stock and
related income tax benefit 1,611 404 223
--------- ------- --------
Net cash provided by (used in) financing activities 18,567 (3,111) (14,611)
--------- ------- --------
Effect of exchange rate changes on cash (801) - -
Net increase (decrease) in cash and cash equivalents 246 (124) (1,503)
Cash and cash equivalents at beginning of year - 124 1,627
--------- ------- --------
Cash and cash equivalents at end of year $ 246 $ - $ 124
========= ======= ========
Supplemental Cash Flow Information
Years Ended September 30,
----------------------------------------
2000 1999 1998
-------- ------ -------
(in thousands)
Cash paid (refunded) for:
Interest $ 2,271 $2,228 $ 3,251
======= ====== =======
Income taxes $(1,343) $ 612 $(3,512)
======= ====== =======
On July 5, 2000, the Company acquired Ring as follows:
Fair value of assets acquired, net
of cash and cash equivalents $ 70,001
Liabilities assumed (36,650)
---------------
Net cash payment made $ 33,351
===============
During the years ended September 30, 2000 and 1999, the Company issued 1,672 and
1,778 common shares to each of its outside directors as compensation for their
services. The aggregate market value of the stock issued was $28,000 and $50,000
for 2000 and 1999, respectively.
During the years ended September 30, 2000, 1999 and 1998 capital lease
obligations aggregating approximately, $427,000, $102,000 and $314,000,
respectively, were incurred when the Company entered into leases for new office,
computer, machinery and warehouse equipment.
Page 67
CATALINA LIGHTING, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions
----------------------------
Balance at Charged to Balance
beginning of costs and at end of
Description year expenses Other Deductions year
- --------------------------------------- ------------ ------------- ------------ ------------- -------------
Accounts receivable allowances-
deducted from accounts
receivable in the balance sheet:
Year ended September 30, 2000 $ 8,591 $ 13,540 $ 5,066 $ (14,722) $ 12,475
============ ============= ============ ============= =============
Year ended September 30, 1999 $ 8,408 $ 11,575 $ - $ (11,392) $ 8,591
============ ============= ============ ============= =============
Year ended September 30, 1998 $ 8,314 $ 10,327 $ - $ (10,233) $ 8,408
============ ============= ============ ============= =============
Inventory allowances -
deducted from inventory in the balance sheet:
Year ended September 30, 2000 $ 2,318 $ 1,300 $ 1,561 $ (1,766) $ 3,413
============ ============= ============ ============= =============
Year ended September 30, 1999 $ 1,656 $ 971 $ - $ (309) $ 2,318
============ ============= ============ ============= =============
Year ended September 30, 1998 $ 2,390 $ 193 $ - $ (927) $ 1,656
============ ============= ============ ============= =============
Allowance for impairment of
long-lived assets - deducted from
property and equipment in the
balance sheet:
Year ended September 30, 2000 $ - $ - $ - $ - $ -
============ ============= ============ ============= =============
Year ended September 30, 1999 $ 519 $ - $ - $ (519) $ -
============ ============= ============ ============= =============
Year ended September 30, 1998 $ 519 $ - $ - $ - $ 519
============ ============= ============ ============= =============
Page 68
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 2000 Annual Meeting of
Stockholders or the Company's Form 10K/A, which will be filed within 120 days of
September 30, 2000.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 2000 Annual Meeting of
Stockholders or the Company's Form 10K/A, which will be filed within 120 days of
September 30, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 2000 Annual Meeting of
Stockholders or the Company's Form 10K/A, which will be filed within 120 days of
September 30, 2000.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference from
the definitive proxy statement for the Company for its 2000 Annual Meeting of
Stockholders or the Company's Form 10K/A, which will be filed within 120 days of
September 30, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Documents Filed as Part of this Report. The following
consolidated financial statements of the Company and
its subsidiaries are filed as part of this Report:
Independent Auditors' Report
Consolidated Balance Sheets as of
September 30, 2000 and 1999
Consolidated Statements of Operations
for the years ended September 30, 2000, 1999 and
1998
Consolidated Statements of Stockholders' Equity
for the years ended September 30, 2000, 1999 and
1998
Consolidated Statements of Cash Flows
for the years ended September 30, 2000, 1999 and
1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules. The following
financial statement schedules are included in this
Report:
Schedule I - Condensed Financial Information
Schedule II - Valuation and Qualifying Accounts for
the years ended September 30, 2000, 1999 and 1998
Page 69
3. Exhibits. The following exhibits are filed with this Report or
incorporated by reference:
Exhibit Filing In Which Exhibit
Number Description Is Incorporated By Reference
- ------------ ----------------------------------------------------------- ---------------------------------------------------
3 - Amended and Restated Arcticles of Incorporated Registration Statement on Form S-1, Number 33-27861
3.3 - By-Laws, as amended Filed herewith
4 - Certificate Common Shares, par value $.01 Registration Statement on Form S-18, Number
33-17409-A
4.2 - Werbel Roth Warrant Registration Statement on Form S-18, Number
33-17409-A
4.3 - Convertible Debentures Form 8-K, dated August 31, 1989
4.4 - Convertible Debentures Amendment No. 1 to Registration
Statement No. 33-34444 on Form S-1
4.5 - Shareholders' Rights Plan Form 10-K dated January 14, 1990
4.6 - Second Amendment to Rights Agreement dated as of November Form 10-Q for the Quarter Ended March 31, 1992
20, 1990
10.46 - Employment Agreement between the Company and Robert Hersh, Form 10-K dated December 28, 1989
dated as of October 1, 1989
10.47 - Employment Agreement between the Company and Dean S. Form 10-K dated December 28, 1989
Rappaport, dated as of October 1, 1989
10.48 - Employment Agreement between the Company and William D. Form 10-K dated December 28, 1989
Stewart, dated as of October 1, 1989
10.49 - Leases dated September 27, 1989 between the Company and Form 10-K dated December 28, 1989
MP-1989-1 Ltd. Partnership
10.50 - Promissory Note from Nathan Katz to the Company, dated Form 10-K dated December 28, 1989
November 1989
10.51 - Promissory Note from David Hauser to the Company, dated Form 10-K dated December 28, 1989
November 1989
10.52 - Amendment to Agreement and Option Agreement between the Form 10-K dated December 28, 1989
Company and Windmere dated December 14, 1989
10.53 - Amendment No. 2 to Credit Agreement dated as of January Registration Statement No. 33-34444
31, 1990 on Form S-1
10.54 - Agreement dated as of January 1,1990 between the Company, Registration Statement No. 33-34444
Dana, David Hauser and Nathan Katz on Form S-1
10.55 - Promissory Note executed in favor of Nathan Katz by the Registration Statement No. 33-34444
Company dated as of January 1, 1990 on Form S-1
10.56 - Promissory Note executed in favor of David Hauser by the Registration Statement No. 33-34444
Company dated as of January 1, 1990 on Form S-1
10.57 - Amendment to 1987 Stock Option Plan Registration Statement No. 33-34444 on
Form S-1
10.58 - Amendment No. 1 dated May 7, 1990 to Employment Agreement Form 10-Q dated August 17,1990
between the Company and Robert Hersh
10.59 - Amendment No. 3 to Credit Agreement dated as of March 9, Form 10-Q dated August 17, 1990
1990
10.60 - Amendment No. 4 to Credit Agreement dated as of May 31, Form 10-Q dated August 17, 1990
1990
10.61 - Assignment of Credit Agreement dated as of May 1, 1990; Form 10-Q dated August 17,1990
Credit Facility between the Company and SunTrust
10.62 - Lease between Dana and H & K Realty Trust dated as of Form 10-Q dated August 17, 1990
April 1, 1990
Page 70
10.63 - Lease between the Company and Paragon regarding the Dallas Form 10-Q dated August 17, 1990
Facility, dated October 16, 1989
10.64 - Amendment dated as of April 1, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between Dana, the Company and Nathan Katz No. 33-34444 on Form S-1
10.65 - Amendment dated as of April 1, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between Dana, the Company and David Hauser No. 33-34444 on Form S-1
10.66 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and John H. Browder No. 33-34444 on Form S-1
10.67 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and Robert Hersh No. 33-34444 on Form S-1
10.68 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and Dean S. Rappaport No. 33-34444 on Form S-1
10.69 - Amendment dated as of August 27, 1990 to Employment Amendment No. 1 to Registration Statement
Agreement between the Company and William D. Stewart No. 33-34444 on Form S-1
10.70 - Amendment to 1987 Stock Option and Stock Appreciation Form 10-K dated January 14, 1990
Rights Plan
10.71 - Amendment to dated October 1, 1990 to Employment Agreement Form 10-K dated January 14, 1990
between the Company and Dean S. Rappaport
10.72 - First Amendment to Credit Agreement dated November 1, 1990 Form 10-K dated January 14, 1990
between the Company and Sun Bank
10.73 - Second Amendment to Credit Agreement dated January 11, Form 10-K dated January 14, 1990
1991 between the Company and Sun Bank
10.74 - Third Amendment to Credit Agreement dated March 7, 1991 Form 10-Q for the quarter ended March 31, 1991
between the Company and Sun Bank
10.75 - Amendment to Employment Agreement dated April 8, 1991 Form 10-Q for the quarter ended March 31, 1991
between the Company and Robert Hersh
10.76 - Amended and Restated Credit Agreement dated September 30, Form 8 Amendment No. 2 to Form 10-Q dated June 30,
1991 between the Company and Sun Bank 1991
10.77 - Certain equipment leases between the Company and various Form 10-K dated December 18, 1991
equipment leasing companies
10.78 - First Amendment to Amended and Restated Credit Agreement Form 10-K dated December 18, 1991
dated December 1, 1991
10.79 - Joint Venture Agreement dated as of January 14, 1992 Form 10-Q for the quarter ended March 31, 1992
between Catalina Lighting, Inc. O'Design Ceramics, Inc.
Catalina Canada Lighting Inc. and Danny Lavy, as amended
10.80 - Employment Agreement dated April 1, 1992 between Catalina Form 10-Q for the quarter ended March 31, 1992
Lighting, Inc. and Janet P. Ailstock
10.81 - Second Amended and Restated Credit Agreement among the Form 10-Q for the quarter ended March 31, 1992
Company and Sun Bank, National Association dated as of
June 19, 1992
10.82 - Amendments to Employment Agreements between the Company Form 10-K dated December 10, 1992
and Messrs Hersh, Rappaport and Stewart dated as of
October 1, 1992
10.83 - Amendment, dated January 26, 1993 between the Company and Form 10-Q for the quarter ended December 31, 1992
David Moss
10.84 - First Amendment to Second Amended and Restated Credit Form 10-Q for the quarter ended December 31, 1992
Facility dated as of June 19, 1992
10.85 - Second Amendment to Second Amended and Restated Credit Form 10-Q for the quarter ended
Agreement Among the Company and Sun Bank, National March 31, 1993
Association, dated April 30, 1993
Page 71
10.86 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and Robert Hersh
10.87 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and Dean Rappaport
10.88 - Amendment dated as of October 1, 1993 to Employment Form 10-K dated December 28, 1993
Agreement between the Company and William D. Stewart
10.89 - Agreement dated September 29, 1993 between Catalina Form 10-K dated December 28, 1993
Lighting, Inc. and Shunde No. 1 Lamp Factory
10.90 - Agreement dated October 1, 1993 between Dana Lighting, Form 10-Q for the quarter ended December 31, 1993
Inc., Catalina Lighting, Inc., and Nathan Katz terminating
the 1989 Employment Agreement
10.91 - The Employment Agreement dated October 1, 1993 between Form 10-Q for the quarter ended December 31, 1993
Dana Lighting, Inc., Catalina Lighting, Inc., and Nathan
Katz
10.92 - Note Agreement dated March 15, 1994 among the Company and Form 10-Q for the quarter ended March 31, 1994
Massachusetts Mutual Life Insurance Company, MassMutual
Corporate Investors, MassMutual Participation Investors,
S.O. P.A.F. International S.A., Prudential Securities,
Inc. and Jefferies Group, Inc.
10.93 - Second Amended Employment Agreement among the Company and Form 10-Q for the quarter ended March 31, 1994
Janet P. Ailstock dated April 1, 1994.
10.94 - Agreement dated December 30, 1993 among the Company, Danny Form 10-Q for the quarter ended March 31, 1994
Lavy, Susan Lavy and Les Investissements Lavy, Inc.
10.95 - Third amended and restated credit agreement among Catalina Form 10-Q for the quarter ended June 30, 1994
Lighting, Inc. and Sun Bank, National association, dated
May 12, 1994
10.96 - Letter of commitment between Catalina Lighting Canada Form 10-Q for the quarter ended June 30, 1994
(1992), Inc. and National bank of Canada dated May 19, 1994
10.97 - Consulting Agreement between Catalina Lighting, Inc. and Form 10-Q for the quarter ended June 30, 1994
Henry Gayer dated July 6, 1994
10.98 - Purchase Agreement among Catalina Lighting, Inc. and the Form 8-K dated August 9, 1994
Stockholders of Go-Gro Industries, Ltd.
10.99 - Employment Agreement by and among Go-Gro Industries and Form 8-K dated August 9, 1994
Mr. Lau
10.100.1 - Financial statements of Go-Gro Industries Ltd. for the Amendment No.2 to Form 8-K filed December 15, 1994
year ended July 31, 1994
10.100.2 - Financial statements of Go-Gro Industries Ltd. for the Amendment No.1 to Form 8-K filed October 13, 1994
years ended July 31, 1993 and 1992
10.100.3 - Financial statements of CIPEL Development Ltd. for the Amendment No.1 to Form 8-K filed October 13, 1994
year ended July 31, 1994
10.100.4 - Financial Statements of CIPEL Development Limited for the Amendment No.1 to Form 8-K filed October 13, 1994
years ended July 31, 1993 and 1992
10.100.5 - Financial Statements of Lamp Depot Limited for the period Amendment No.1 to Form 8-K filed October 13, 1994
from September 23, 1994 (date of incorporation) to July
31, 1994
10.100.6 - Amended Financial Statements of Go-Gro Industries Limited Amendment No. 2 to Form 8-K/A dated December 15,
1994
10.101 - First amendment to third amended and restated credit Form 10-K dated December 28, 1994
agreement among Catalina Lighting, Inc. and Sun Bank,
National Association, dated August 12, 1994
10.102 - Contract for the Sale and Purchase of Real Estate by and Form 10-K dated December 28, 1994
between Lauderdale County Economic Development District,
Meridian Lamps, Inc. and Jansko, Inc. dated November 1,
1994
Page 72
10.103 - Mississippi Small Enterprise Development Finance Act Loan Form 10-K dated December 28, 1994
Agreement among Mississippi Business Finance Corporation
(acting for and on behalf of the State of Mississippi),
Bank of Mississippi (as Servicing Trustee) and Meridian
Lamps, Inc. dated November 1, 1994
10.104 - $1,200,000 Mortgage Deed and Security Agreement and Form 10-K dated December 28, 1994
Mortgage Note issued by the Company in favor of
Mississippi Business Finance Corporation dated September
28, 1994
10.105 - Agreement of Lease by and between Anker Construction Ltd. Form 10-K dated December 28, 1994
and Catalina Lighting Canada (1992), Inc. dated October
20, 1994
10.106 - Sub-Lease Agreement dated September 23, 1994 by and Form 10-K dated December 28, 1994
between the Company and Shippers Warehouse, Inc.
10.107 - Plan Administration Support Services Agreement dated Form 10-K dated December 28, 1994
September 12, 1994 by and between Catalina Lighting, Inc.
and Sun Bank, National Association
10.108 - Amended Complaint in the Matter of Holmes Products Form 10-K dated December 28, 1994
Corporation versus Dana Lighting, Inc. and Nathan Katz
10.109 - Financing agreements between Go-Gro Industries Limited and Form 10-K dated December 28, 1994
Standard Chartered Bank dated May 27, 1994
10.110 - Financing Agreement between Go-Gro Industries Limited and Form 10-K dated December 28, 1994
The Hong Kong and Shanghai Banking Corporation Limited
dated May 31, 1993
10.111 - Letter of Credit Agreement dated as of November 1, 1994 Form 10-K dated December 28, 1994
between Meridian Lamps, Inc., the Company and Sun Bank,
National Association
10.112 - Second Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended March 31, 1995
Agreement and Third Amended and Restated Stock and Notes
Pledge between Sun Bank National Association and the
Company dated February 23, 1995
10.113 - Financing Agreement between Go-Gro Industries, Ltd. and Form 10-Q for the quarter ended March 31, 1995
Standard Chartered Bank dated October 4, 1994 and amendment to
Financing Agreement dated January 5, 1995
10.114 - Third Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended June 30, 1995
Agreement and Consent dated May 1, 1995 between Catalina
Lighting and Sun Bank, National Association
10.115 - Fourth Amendment to Third Amended and Restated Credit Form 10-Q for the quarter ended June 30, 1995
Agreement and Consent dated June 30, 1995 between Catalina
Lighting and Sun Bank, National Association
10.116 - First Amendment to Note Agreement between Catalina Form 10-Q for the quarter ended June 30, 1995
Lighting and Massachusetts Mutual Life Insurance Company,
MassMutual Corporate Investors, MassMutual Participation
Investors, MassMutual Corporate Value Partners, Prudential
Securities Inc. and SO. P.A.F. International S.A. dated
June 28, 1995
10.117 - Loan Agreement between Mississippi Business Finance Form 10-Q for the quarter ended June 30, 1995
Corporation and Dana Lighting, dated May 1, 1995
10.118 - Letter of Credit Agreement between Dana Lighting, Inc. and Form 10-Q for the quarter ended June 30, 1995
Sun Bank, National Association dated May 1, 1995, and as
amended on June 30, 1995
10.119 - Shenzhen Municipal Agreement to transfer rights to use Form 10-Q for the quarter ended June 30, 1995
land dated April 11, 1995
10.120 - Construction Loan Agreement between Sun Bank, National Form 10-Q for the quarter ended June 30, 1995
Association and Dana Lighting dated May 1, 1995
10.121 - Indenture of Trust dated May 1, 1995, relating to $10.5 Form 10-Q for the quarter ended June 30, 1995
million Mississippi Business Finance Corporation Taxable
Variable Rate Industrial Development Revenue Bonds Series
1995
Page 73
10.122 - Shenzhen Municipal Construction Contract dated January 4, Form 10-Q for the quarter ended June 30, 1995
1995
10.123 - Final Design and Construction Contract between Catalina Form 10-Q for the quarter ended June 30, 1995
Industries, Inc., d/b/a Dana Lighting and Jesco, Inc. dated
June 20, 1995
10.124 - Sublease Agreement between Catalina Lighting, Inc. and Form 10-Q for the quarter ended June 30, 1995
Shippers Warehouse and Agreement between Catalina
Lighting, Inc. and Shippers Warehouse, Inc. and S & W
Warehouse, Inc. effective June 15, 1995 as to sell warehouse
equipment.
10.125 - Land purchase Agreement dated March 31, 1995 between Form 10-Q for the quarter ended June 30, 1995
Community Development Foundation and Dana Lighting, Inc.
10.126 - Fifth amendment to Third Amended and Restated Credit Form 10-K dated December 27, 1995
Agreement dated December 4, 1995 between Catalina Lighting
and SunTrust Bank, Central Florida, National Association
f/k/a SunTrust, National Association
10.127 - Contract to amend Cooperative Joint Venture Contract Form 10-K dated December 27, 1995
between Shenzhen Baoanqu Fuda Industries Co. (SJE) and
Go-Gro Industries, Ltd. dated May 27, 1995
10.128 - Second Amendment to Note Agreement between Catalina Form 10-K dated December 27, 1995
Lighting and Massachusetts Mutual Life Insurance Company,
MassMutual Corporate investors, MassMutual Participation
Investors, MassMutual Corporate Value Partners, Ltd.,
Prudential Securities Inc. and SO. P.A.F. International
S.A. dated September 30, 1995
10.129 - Sixth Amendment to third Amended and Restated Credit Form 10-Q for the Quarter ended December 31, 1995
Agreement dated December 28, 1995, between Catalina
Lighting, Inc. and Sun Trust Bank, Central Florida,
National Association f/k/a SunTrust, National Association
10.130 - Second Amendment to Letter of Credit Agreement and First Form 10-Q for the Quarter ended December 31, 1995
Amendment to Security Agreement between Catalina
Industries, Inc. d/b/a Dana Lighting and SunTrust Bank,
Central Florida, National Association f/k/a SunTrust,
National Association
10.131 - Seventh Amendment to third Amended and Restated Credit Form 10-Q for the Quarter ended March 31, 1996
Agreement dated March 18, 1996, between Catalina Lighting,
Inc. and Sun Trust Bank, Central Florida, National
Association
10.132 - Third Amendment to Letter of Credit Agreement dated March Form 10-Q for the Quarter ended March 31, 1996
27, 1996 between Catalina Industries, Inc. d/b/a Dana
Lighting and SunTrust Bank, Central Florida, National
Association f/k/a SunTrust, National Association
10.133 - Third Amendment to Employment Agreement dated April 1, Form 10-Q for the Quarter ended March 31, 1996
1996 between Catalina Lighting, Inc. and Janet P. Ailstock
10.134 - License Agreement dated April 26, 1996 between Form 10-Q for the Quarter ended March 31, 1996
Westinghouse Electric Corporation and Catalina Lighting,
Inc.
10.135 - Press Release dated July 18, 1996 Form 8-K dated July 18, 1996
10.136 - Complaint in the matter of Black & Decker (U.S.), Inc., Form 10-Q for the Quarter ended June 30, 1996
Black & Decker Inc. vs. Catalina Lighting, Inc., Case No.
96-1042-A, in the United States District Court, Eastern
Division of Virginia
10.137 - Financing Agreement between Catalina Lighting Canada Form 10-K dated December 27, 1996
(1992), Inc. and National Bank of Canada dated May 1, 1996
10.138 - Lease Financing Agreement between Go-Gro Industries Ltd. Form 10-K dated December 27, 1996
and The Hong Kong and Shanghai Banking Corporation
Limited dated October 30, 1996
10.139 - Eighth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended December 31, 1996
Agreement, third Amendment to second Amended and Restated
Page 74
Security Agreement, and Fourth Amendment to Third Amended
and Restated stock and Notes Pledge dated October 4, 1996
between Catalina Lighting, Inc. and SunTrust Bank,
Central Florida, national Association.
10.140 - Ninth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended March 31, 1997
Agreement dated December 30, 1996 between Catalina
Lighting, Inc. and SunTrust Bank, Central Florida,
National Association.
10.141 - Fourth Amendment to Letter of Credit Agreement dated Form 10-Q for the Quarter ended March 31, 1997
December 30, 1996 between Catalina Industries, Inc. and
SunTrust Bank, Central Florida, National Association.
10.142 - Tenth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended March 31, 1997
Agreement dated March 31, 1997 between Catalina Lighting,
Inc. and SunTrust Bank, Central Florida, National
Association.
10.143 - Fifth Amendment to Letter of Credit Agreement dated March Form 10-Q for the Quarter ended March 31, 1997
31, 1997 between Catalina Industries, Inc. and SunTrust
Bank, Central Florida, National Association.
10.144 - Restated Arcticles of Association for Shenzhen Jiadianbao Form 10-Q for the Quarter ended March 31, 1997
Electrical Products Co., Ltd., a Cooperative Joint
Venture Company dated October 18, 1996
10.145 - Contract to Amend Cooperative Joint Venture Contract Form 10-Q for the Quarter ended March 31, 1997
between Shenzhen Baoanqu Fuda Industries Co., and
Go-Gro Industries, Ltd. dated October 18, 1996
10.146 - Financing Agreement between Go-Gro Industries, Ltd. and Form 10-Q for the Quarter ended June 30, 1997
Standard Chartered Bank dated May 12, 1997.
10.147 - Employment and non-compete agreement dated April 1, 1997 Form 10-Q for the Quarter ended June 30, 1997
between Go-Gro Industries Ltd. and Wai Check Lau.
10.148 - Amendment to Financing Agreement between Catalina Form 10-K dated December 24, 1997
Lighting Canada (1992), Inc. and National Bank of Canada
dated October 17, 1997
10.149 - Eleventh Amendment to Third Amended and Restated Credit Form 10-K dated December 24, 1997
Agreement dated September 30, 1997 between Catalina
Lighting, Inc. and SunTrust bank, Central Florida,
National Association.
10.150 - Sixth Amendment to Letter of Credit Agreement dated Form 10-K dated December 24, 1997
September 30, 1997 between Catalina Industries, Inc. and
SunTrust bank, Central Florida, National Association.
10.151 - First Amendment to Shenzhen Municipal Construction Form 10-K dated December 24, 1997
Contract dated January 30, 1996.
10.152 - First Amendment to the Loan Agreement among Mississippi Form 10-K dated December 24, 1997
Business Finance Corporation, Bank of Mississippi,
SunTrust Bank and Meridian Lamps, Inc. dated August 28,
1997.
10.153 - Escrow Agreement between Mississippi Business Finance Form 10-K dated December 24, 1997
Corporation, Meridian Lamps, Inc. and Bank of Mississippi
dated August 28, 1997.
10.154 - Seventh Amendment to Letter of Credit Agreement between Form 10-Q for the Quarter ended March 31, 1998
Catalina Industries, Inc. and SunTrust Bank, Central
Florida, N.A. dated December 31, 1997.
10.155 - Twelfth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended March 31, 1998
Agreement between Catalina Lighting, Inc. and SunTrust
Bank, Central Florida, N.A. dated December 31, 1997.
10.156 - Second Amendment to Financing Agreement between Catalina Form 10-Q for the Quarter ended March 31, 1998
Lighting Canada (1992), Inc. and National Bank of Canada
dated December 19, 1997.
10.157 - Eighth Amendment to Letter of Credit Agreement between Form 10-Q for the Quarter ended March 31, 1998
Catalina
Page 75
Industries, Inc. and SunTrust Bank, Central
Florida, N.A. dated March 31, 1998.
10.158 - Thirteenth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended March 31, 1998
Agreement between Catalina Lighting, Inc. and SunTrust
Bank, Central Florida, N.A. dated March 31, 1998.
10.159 - Lease Agreement between Dana Realty Trust and Catalina Form 10-Q for the Quarter ended June 30, 1998
Industries dated July 23, 1998.
10.160 - Offer to Lease from Catalina Lighting Canada, Inc. to TAG Form 10-Q for the Quarter ended June 30, 1998
Quattro Inc dated March 12, 1998.
10.161 - Change in Control Agreement between Thomas M. Bluth and Form 10-Q for the Quarter ended June 30, 1998
Catalina Lighting dated May 7, 1998.
10.162 - Change in Control Agreement between David W. Sasnett and Form 10-Q for the Quarter ended June 30, 1998
Catalina Lighting dated May 7, 1998.
10.163 - Ninth Amendment to Letter of Credit Agreement between Filed herewith
Catalina Industries, Inc. and SunTrust Bank, Central
Florida, N.A. dated September 30, 1998.
10.164 - Fourteenth Amendment to Third Amended and Restated Credit Filed herewith
Agreement between Catalina Lighting, Inc. and SunTrust
Bank, Central Florida, N.A. dated September 30, 1998.
10.165 - Renewal Mortgage Note between Catalina Lighting, Inc., and Form 10-Q for the Quarter ended December 31, 1998
SunTrust Bank, Central Florida, N.A. dated October 5, 1998.
10.166 - Amended and Restated By-Laws of Catalina Lighting, Inc. Form 10-Q for the Quarter ended March 31, 1999
10.167 - Agreement, dated as of April 30, 1999, among Catalina Form 10-Q for the Quarter ended March 31, 1999
Lighting, Inc., David M. Moss and DMM Investments Ltd.
10.168 - Fifteenth Amendment to Third Amended and Restated Credit Form 10-Q for the Quarter ended June 30, 1999
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 Form 10-Q for the Quarter ended June 30, 1999
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 Form 10-Q for the Quarter ended June 30, 1999
Thomas M. Bluth and Catalina Lighting, Inc,. dated March
3, 1999.
10.171 - Amendment No. 1 to Change in Control Agreement between Form 10-Q for the Quarter ended June 30, 1999
David W. Sasnett and Catalina Lighting, Inc., dated March
3, 1999.
10.172 - First Amendment to License Agreement between CBS Form 10-Q for the Quarter ended June 30, 1999
Corporation (formerly Westinghouse Electric Corporation)
and Catalina Lighting, Inc., dated March 1, 1999.
10.173 - Lease Agreement dated April 30, 1999 between Catalina Form 10-Q for the Quarter ended June 30, 1999
Industries, Inc. and Dana Realty Trust.
10.174 - Purchase and Sale Contract dated May 6, 1999, between Form 10-Q for the Quarter ended June 30, 1999
Meridian Lamps, Inc., and Saunders of Meridian, LLC.
10.175 - Form of Amendment to Employment Agreement, dated June 4, Form 10-Q for the Quarter ended June 30, 1999
1999 with Executive officers Hersh, Katz, Rappaport and
Stewart.
10.176 - Sixteenth Amendment to third Amended and Restated Credit Form 10-K for the year ended September 30, 1999
Agreement between Catalina Lighting, Inc. and SunTrust
Bank, Central Florida, N.A. dated September 30, 1999.
10.177 - Eleventh Amendment to Letter of Credit Agreement between Form 10-K for the year ended September 30, 1999
Catalina Industries, Inc. and SunTrust Bank, Central
Florida, N.A. dated September 30, 1999.
Page 76
10.178 - Consulting and Non-competition Agreement effective Form 10-K for the year ended September 30, 1999
December 24, 1999 between Catalina Lighting, Inc. and
William D. Stewart.
10.179 - General Release and Severance Agreement effective December Form 10-K for the year ended September 30, 1999
23, 1999 between Catalina Lighting, Inc. and William D.
Stewart.
10.180 - Third Amendment to Employment Agreement dated September Form 10-K for the year ended September 30, 1999
30, 1999 between Catalina Lighting, Inc. and Nathan Katz
10.181 - Consulting and Non-competition Agreement dated September Form 10-K for the year ended September 30, 1999
30, 1999 between Catalina Lighting, Inc. and Nathan Katz
10.182 - Amended and Restated Change-in-Control and Severance Form 10-K for the year ended September 30, 1999
Agreement dated July 26, 1999 between Catalina Lighting,
Inc. and Thomas M. Bluth
10.183 - First Amendment to Amended and Restated Change-in-Control Form 10-K for the year ended September 30, 1999
and Severance Agreement dated September 30, 1999 between
Catalina Lighting, Inc. and Thomas M. Bluth
10.184 - Amended and Restated Change-in-Control and Severance Form 10-K for the year ended September 30, 1999
Agreement dated June 4, 1999 between Catalina Lighting,
Inc. and David W. Sasnett
10.185 - First Amendment to Amended and Restated Change-in-Control Form 10-K for the year ended September 30, 1999
and Severance Agreement dated July 26, 1999 between
Catalina Lighting, Inc. and David W. Sasnett
10.186 - Second Amendment to Amended and Restated Change-in-Control Form 10-K for the year ended September 30, 1999
Agreement dated September 30, 1999 between Catalina
Lighting, Inc. and David W. Sasnett
10.187 - Consulting Agreement dated September 30, 1999 between Form 10-K for the year ended September 30, 1999
Catalina Lighting, Inc. and David W. Sasnett
10.188 - Form of Seventh Amendment to Employment Agreement with Form 10-K for the year ended September 30, 1999
Executive officers Hersh, Rappaport and Stewart
10.189 - Press release dated June 1, 2000 Form 8-K dated June 7, 2000
10.190 - Foreign Exchange Contract dated May 31, 2000 between Form 8-K dated June 7, 2000
Catalina Lighting, Inc. and SunTrust.
10.191 - Foreign Exchange Contract dated May 31, 2000 between Form 8-K dated June 7, 2000
Catalina International Plc and SunTrust.
10.192 - Commitment Letter dated May 31, 2000 for $37 million loan Form 8-K dated June 7, 2000
facilities for Catalina Lighting, Inc. and Catalina
International Plc by SunTrust Bank and SunTrust Equitable
Securities Corporation.
10.193 - Recommended Cash Offers by NM Rothschild & Sons Limited on Form 8-K dated July 20, 2000
behalf of Catalina International PLC, a wholly owned
subsidiary of Catalina Lighting, Inc. to acquire the whole
of the ordinary and convertible preference Share capital
of Ring PLC.
10.194 - Form 429 (4) - Notice to non-assenting shareholders by Form 8-K dated July 20, 2000
Catalina International PLC dated July 5, 2000.
10.195 - Press release dated July 5, 2000. Form 8-K dated July 20, 2000
10.196 - Third Amendment to Financing Agreement between Catalina Form 10-Q for the Quarter ended June 30, 2000
Lighting Canada (1992), Inc. and National Bank of Canada
dated May 15, 2000.
10.197 Audited Financial Statements of Ring PLC for the years Amended Form 8-K dated July 20, 2000
ended June 30, 2000, 1999 and 1998.
10.198 Amended and Restated Revolving Credit and Term Loan Filed herewith
Agreement dated September 22, 2000 between Catalina
Lighting, Inc., Catalina International PLC, Ring PLC, and
SunTrust Bank as administrative Agent.
Page 77
10.199 Financing Agreement between Go-Gro Industries Ltd. and Filed herewith
Standard Chartered Bank dated July 17, 2000.
10.200 Executive Employment Agreement entered into as of October Filed herewith
1, 2000 between Catalina Lighting, Inc. and David Sasnett
10.201 Fourth Amendment to Financing Agreement between Catalina Filed herewith
Lighting Canada (1992), Inc. and National Bank of Canada
dated December 15, 2000.
10.202 First Amendment to Amended and Restated Revolving Credit Filed herewith
and Term Loan Agreement between Catalina Lighting,
Inc., Catalina International PLC, Ring Limited and
SunTrust Bank dated December 22, 2000.
11 - Computation of Diluted Earnings Per Share Filed herewith
21 - Subsidiaries of the Registrant Filed herewith
23 - Consent of Deloitte & Touche LLP Filed herewith
(b) Reports on Form 8-K:
--------------------
On June 7, 2000, a form 8-K was filed concerning the commencement of a
cash offer of approximately $33 million to acquire all of the outstanding
ordinary and convertible preference shares of U.K.-based Ring PLC.
On July 20, 2000, a form 8-K was filed concerning the completion of a
cash offer for all of the outstanding ordinary and convertible preference shares
of U.K.-based Ring PLC.
(c) Undertaking:
------------
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933
(the "1933 Act"), the undersigned Registrant hereby undertakes as follows, which
understanding shall be incorporated by reference into Registrant's Registration
Statements on Form S-8 Nos. 33-23900, 33-33292, 33-62378 and 33-94016.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit of proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Page 78
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CATALINA LIGHTING, INC.
By: /s/ Robert Hersh
---------------------------------------
Robert Hersh, Chairman, President,
Chief Executive Officer and Director
December 26, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons of behalf of the
Company and in the capacities and on the dates indicated.
By:/s/ David W. Sasnett December 26, 2000
---------------------------------
David W. Sasnett,
Chief Financial Officer,
Senior Vice President,
Chief Accounting Officer
By:/s/ Ryan Burrow December 26, 2000
---------------------------------
Ryan Burrow, Director
By:/s/ Robert Lanzillotti December 26, 2000
---------------------------------
Robert Lanzillotti, Director
By:/s/ Henry Latimer December 26, 2000
---------------------------------
Henry Latimer, Director
By:/s/ Jesse Luxton December 26, 2000
---------------------------------
Jesse Luxton, Director
By:/s/ Howard Steinberg December 26, 2000
---------------------------------
Howard Steinberg, Director
By:/s/ Brion G. Wise December 26, 2000
---------------------------------
Brion G. Wise, Director
Page 79
Exhibit Filing In Which Exhibit
Number Description Is Incorporated By Reference
- ------------ ----------------------------------------------------------- ---------------------------------------------------
10.198 Amended and Restated Revolving Credit and Term Loan Filed herewith
Agreement dated September 22, 2000 between Catalina
Lighting, Inc., Catalina International PLC, Ring PLC, and
SunTrust Bank as administrative Agent.
10.199 Financing Agreement between Go-Gro Industries Ltd. and Filed herewith
Standard Chartered Bank dated July 17, 2000.
10.200 Executive Employment Agreement entered into as of October Filed herewith
1, 2000 between Catalina Lighting, Inc. and David Sasnett
10.201 Fourth Amendment to Financing Agreement between Catalina Filed herewith
Lighting Canada (1992), Inc. and National Bank of Canada
dated December 15, 2000.
10.202 First Amendment to Amended and Restated Revolving Credit Filed herewith
and Term Loan Agreement between Catalina Lighting,
Inc., Catalina International PLC, Ring Limited and
SunTrust Bank dated December 22, 2000.
11 - Computation of Diluted Earnings Per Share Filed herewith
21 - Subsidiaries of the Registrant Filed herewith
23 - Consent of Deloitte & Touche LLP Filed herewith
27 - Financial Data Schedule Filed herewith