UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
Commission File Number 0-49881
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 No.)
18191 N.W. 68th Avenue
Miami, Florida 33015
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (305) 558-4777
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 [_]
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of the close of business on August 5, 2002 was 4,413,460, which
reflects the one-for-five reverse stock split effective April 8, 2002.
CATALINA LIGHTING, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 2002 and September 30, 2001......................................................... 1
Condensed Consolidated Statements of Operations -
Three and nine months ended June 30, 2002 and 2001........................................... 3
Condensed Consolidated Statements of Cash Flows -
Nine months ended June 30, 2002 and 2001..................................................... 4
Notes to Condensed Consolidated Financial Statements......................................... 5
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................... 13
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk............................... 23
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings....................................................................... 24
ITEM 4 - Submission of Matters to a Vote of Security Holders..................................... 24
ITEM 6 - Exhibits and Reports on Form 8-K........................................................ 24
Signatures........................................................................................ 26
CATALINA LIGHTING, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
June 30, September 30,
Assets 2002 2001
------ --------------- -------------
(Unaudited) *
Current assets
Cash and cash equivalents $ 4,041 $ 4,613
Restricted cash equivalents and short-term investments - 1,066
Accounts receivable, net of allowance for doubtful accounts
of $600 and $1,423, respectively 24,793 27,761
Inventories 39,495 37,425
Other current assets 14,064 5,114
--------------- -------------
Total current assets 75,238 75,979
Property and equipment, net 18,856 30,227
Goodwill, net 28,227 28,812
Other assets, net 8,655 11,079
--------------- -------------
Total assets $ 130,976 $ 146,097
=============== =============
*Condensed from audited financial statements.
See accompanying notes to condensed consolidated financial statements.
(Continued on Page 2)
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (continued)
(In thousands, except share data)
June 30, September 30,
Liabilities and Stockholders' Equity 2002 2001
------------------------------------ --------------- -----------------
(Unaudited) *
Current liabilities
Accounts payable $ 27,994 $ 27,586
Revolving credit facilities 2,387 7,078
Term loans 2,553 818
Bonds payable related to assets held for sale - 900
Current maturities of other long-term debt 480 878
Other current liabilities 13,107 12,466
--------------- --------------
Total current liabilities 46,521 49,726
Revolving credit facilities 13,615 16,366
Term loans 18,101 23,479
Subordinated notes 2,746 6,110
Bonds payable - 4,200
Other long-term debt 748 1,085
Other liabilities 5,205 5,926
--------------- --------------
Total liabilities 86,936 106,892
--------------- --------------
Minority interest 1,113 1,073
--------------- --------------
Commitments and Contingencies - -
Stockholders' equity
Preferred stock, $.01 par value
authorized 1,000,000 shares; none issued
Common stock, $.01 par value 44 33
authorized 20,000,000 shares; issued and outstanding
4,413,460 and 3,304,036 shares outstanding
Additional paid-in capital 38,349 34,411
Retained earnings 6,495 6,764
Accumulated other comprehensive income (loss) 500 (615)
Treasury stock, at cost, 128,387 shares (2,461) (2,461)
--------------- --------------
Total stockholders' equity 42,927 38,132
--------------- --------------
$ 130,976 $ 146,097
=============== ==============
* Condensed from audited financial statements
See accompanying notes to condensed consolidated financial statements.
2
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net sales $ 53,351 $ 60,548 $ 163,463 $ 180,945
Cost of sales 42,920 52,571 131,329 155,095
--------- --------- --------- ---------
Gross profit 10,431 7,977 32,134 25,850
Selling, general and administrative expenses 8,121 10,072 24,739 30,840
Litigation settlement 959 (714) 959 (714)
Loss on disposal of warehouse and related equipment -- -- 1,098 --
--------- --------- --------- ---------
Operating income (loss) 1,351 (1,381) 5,338 (4,276)
--------- --------- --------- ---------
Other expenses:
Interest expense (1,899) (1,729) (5,751) (5,135)
Other income (expenses) (62) 64 12 46
--------- --------- --------- ---------
Total other income (expenses) (1,961) (1,665) (5,739) (5,089)
--------- --------- --------- ---------
Income (loss) before income taxes (610) (3,046) (401) (9,365)
Income tax expense (benefit) (201) (629) (132) (1,681)
--------- --------- --------- ---------
Net income (loss) $ (409) $ (2,417) $ (269) $ (7,684)
========= ========= ========= =========
Weighted average number of shares outstanding
Basic 3,371 1,472 3,241 1,472
Diluted 3,371 1,472 3,241 1,472
Earnings (loss) per share
Basic $ (0.12) $ (1.64) $ (0.08) $ (5.22)
Diluted $ (0.12) $ (1.64) $ (0.08) $ (5.22)
See accompanying notes to condensed consolidated financial statements.
3
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
June 30,
-----------------------------------------
2002 2001
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (269) $ (7,684)
Loss on disposal of warehouse and related equipment 1,098 -
Adjustments for non-cash items 4,981 3,644
Change in assets and liabilities 2,613 9,641
------------------- ------------------
Net cash provided by operating activities 8,423 5,601
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (599) (4,204)
Proceeds from sale of property and equipment 8,454 95
Purchase of minority interest -- (1,029)
Increase in Ring acquisition costs -- (119)
Decrease (increase) in restricted cash equivalents and
short-term investments 1,066 (144)
------------------- ------------------
Net cash provided by (used in) investing activities 8,921 (5,401)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from other long-term debt -- 323
Payments on other long-term debt (737) (1,125)
Payments on bonds payable (5,100) (900)
Net proceeds from revolving credit facilities -- 4,906
Net payments on revolving credit facilities (7,619) --
Payments on term loans (4,013) (2,459)
Sinking fund redemption payments on bonds payable (515) (655)
------------------- ------------------
Net cash used in financing activities (17,984) 90
------------------- ------------------
Effect of exchange rate changes on cash 68 33
------------------- ------------------
Net (decrease) and increase in cash and cash equivalents (572) 323
Cash and cash equivalents at beginning of period 4,613 2,309
------------------- ------------------
Cash and cash equivalents at end of period $ 4,041 $ 2,632
=================== ==================
Supplemental Cash Flow Information
Nine Months Ended
June 30,
-----------------------------------
2002 2001
---------------- ---------------
(In thousands)
Cash paid for:
Interest $ 3,248 $ 3,738
Income tax $ 626 $ 1,589
On June 14, 2002, the Company entered into a transaction whereby it converted
$6.0 million of subordinated debt into stockholders' equity.
See accompanying notes to condensed consolidated financial statements.
4
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Catalina Lighting, Inc. and Subsidiaries (the "Company") have been prepared
in accordance with the accounting policies described in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 2001 and should be
read in conjunction with the consolidated financial statements and notes which
appear in that report. These statements do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America ("generally accepted accounting principles") for complete
financial statements.
In the opinion of management, the condensed consolidated financial
statements include all adjustments (which consist mostly of normal, recurring
accruals) considered necessary for a fair presentation. The results of
operations for the three months and nine months ended June 30, 2002 may not
necessarily be indicative of operating results to be expected for any subsequent
quarter or for the full fiscal year due to seasonal fluctuations in the
Company's business, changes in economic conditions and other factors.
Accounts Receivable
The Company provides allowances against accounts receivable for sales
deductions, returns and doubtful accounts. The Company's agreements with its
major customers provide for various sales allowances (i.e., deductions given the
customer from purchases made from the Company), the most common of which are for
volume discounts, consumer product returns and cooperative advertising. These
allowances are usually defined as a percentage of the gross sales price and are
recognized as a reduction of gross sales revenue at the time the related sales
are recorded. If the customer agreement does not provide for the deduction of
the allowance amount directly from the amount invoiced the customer at time of
billing, the Company records an accrual for the amounts due. These accrued sales
allowances are settled periodically either by subsequent deduction from the
accounts receivable from the customer or by cash payment. For financial
statement presentation purposes, these sales allowances are netted against
accounts receivable and amounted to $8,304,000 and $10,442,000 at June 30, 2002
and September 30, 2001, respectively.
Comprehensive Loss
Comprehensive income (loss) consisted of the following:
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------------------- ---------------------------------------
2002 2001 2002 2001
----------------- -------------------- ---------------- --------------------
(In thousands) (In thousands)
Net income (loss) $ (409) $ (2,417) $ (269) $ (7,684)
Foreign currency translation loss 1,621 (98) 976 (833)
Change in unrealized loss on derivative
instrument, net of taxes - 10 139 (42)
----------------- -------------------- ---------------- --------------------
Total comprehensive income (loss) $ 1,212 $ (2,505) $ 846 $ (8,559)
================= ==================== ================ ====================
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS 141"), was issued in July 2001. SFAS 141 addresses
financial accounting and reporting for business combinations and supercedes
Accounting Principles Board Opinion No. 16, "Business Combinations", and
Statement of Financial Accounting No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises". All business combinations in the scope
of SFAS 141 are to be accounted for under the purchase method. SFAS 141 became
effective June 30, 2001. The adoption of SFAS 141 did not have a material impact
on the Company's financial position, results of operations or cash flows for the
nine months ended June 30, 2002.
5
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), was also issued in July 2001. SFAS 142
addresses financial accounting and reporting for intangible assets acquired
individually or with a group of other assets at acquisition. SFAS 142 also
addresses financial accounting and reporting for goodwill and other intangible
assets subsequent to their acquisition. With the adoption of SFAS 142, goodwill
is no longer subject to amortization. Rather, goodwill will be subject to at
least an annual assessment for impairment by applying a fair-value based test.
The impairment loss is the amount, if any, by which the implied fair value of
goodwill is less than carrying or book value. SFAS 142 is effective for fiscal
years beginning after December 15, 2001. Impairment loss for goodwill arising
from the initial application of SFAS 142 is to be reported as resulting from a
change in accounting principle. The Company is currently assessing the new
standard and has not yet determined its impact on its consolidated results of
operations, cash flows or financial position.
Statement of Financial Accounting Standards No. 143, "Accounting for
Obligations Associated with the Retirement of Long-Lived Assets" ("SFAS 143"),
was also issued in July 2001. SFAS 143 provides the accounting requirements for
retirement obligations associated with tangible long-lived assets. SFAS 143 is
effective for fiscal years beginning after June 15, 2002, and early adoption is
permitted. The Company is currently assessing the new standard and has not yet
determined its impact on its consolidated results of operations, cash flows or
financial position.
Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), was issued in
October 2001. SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operation-Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transitions" for the disposal of a "Segment of a Business" (as
previously defined in that Opinion). SFAS 144 also amends ARB No. 51,
"Consolidated Financial Statements", to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. SFAS 144 is
effective for fiscal years beginning after December 15, 2001, and early adoption
is permitted. The Company is currently assessing this new standard and has not
yet determined its impact on its consolidated results of operations, cash flows
or financial position.
Reclassifications
Certain amounts presented in the financial statements of prior periods
have been reclassified to conform to the current period's presentation.
2. Inventories
Inventories consisted of the following:
June 30, September 30,
2002 2001
--------------- -----------------
(In thousands)
Raw materials $ 2,403 $ 2,869
Work-in-progress 650 892
Finished goods 36,442 33,664
--------------- -----------------
Total inventories $ 39,495 $ 37,425
=============== =================
3. Loss on Disposal of Warehouse and Related Equipment
During the three months ended March 31, 2002, the Company began
actively marketing for sale its underutilized Tupelo, Mississippi distribution
center, which had a carrying value of $8.1 million as of March 31, 2002. On May
6, 2002, the building and substantially all of the equipment in the distribution
center were sold to a third party, resulting in a loss on sale of $1.1 million.
This loss was recognized in the quarter ended March 31, 2002 as a loss on
disposal of warehouse and related equipment. The net proceeds from the sale
after the pay-off of the mortgage bonds of approximately $3.3 million were used
to pay down the Company's term loans.
6
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. Conversion of Subordinated Debt
On June 14, 2002, the Company entered into a transaction with Sun
Catalina Holdings, LLC ("SCH"), an affiliate of Sun Capital Partners, Inc., and
SunTrust Banks, Inc. ("SunTrust") whereby it issued and sold 924,572 and 184,843
shares of the Company's common stock, to SCH and SunTrust, respectively, for an
aggregate purchase price of $5,001,937 and $1,000,000, respectively,
representing a price of $5.41 per share. As payment for their shares, SCH and
SunTrust each surrendered a corresponding amount of subordinated debt and
accrued interest, and the Company was released from all obligations and
liabilities associated with the surrendered debt. In connection with the
transaction a special committee of independent members of the Board of Directors
obtained a fairness opinion from a major investment bank regarding the $5.41 per
share sale price. The amount of subordinated debt reflected in the condensed
consolidated balance sheet as of June 30, 2002 consists of the following:
Additions of
Original Principal for Interest Unamortized
Principal Not Paid in Cash Discount Total
------------ ---------------------- ------------ ---------
(In thousands)
Balance as of September 30, 2001 $ 8,800 $ 199 $ (2,899) $ 6,110
Additions to principal for interest not paid in cash 692 692
Discount amortization 435 435
Repayment of subordinated debt (5,400) (602) 1,511 (4,491)
------------ -------------------- ------------ --------
Balance as of June 30, 2002 $ 3,400 $ 289 $ (943) $ 2,746
============ ==================== =========== ========
5. Common Stock and Stock Warrants
Effective April 8, 2002, the Company announced a one-for-five reverse
stock split. As a result, the number of shares of the Company's common stock
authorized, and issued and outstanding, decreased from 100,000,000 to
20,000,000, and from 16,520,179 to 3,304,036, respectively. Earnings per share
in the financial statements reflect the reverse stock split for all periods
presented.
On January 11, 2002, the Company entered into a three-year consulting
agreement with a related party, who is an executive officer of an entity under
common control with the Company, whereby it issued to the consultant a warrant
to purchase 64,400 shares of the Company's common stock with an exercise price
of $2.20 per share which was the market value on the date of grant. Half of the
warrants vest on January 24, 2003, and the remainder vest one year later.
However, if the Company terminates the consulting agreement without cause, the
warrant becomes fully exercisable on the date of such termination.
During May 2002, the Company granted options valued at $24,000 and paid
$26,000 cash to an employee of an entity under common control with the Company.
During the nine months ended June 30, 2002, the Company issued 91,000
stock options to employees and directors at prices between $1.75 and $25.00 per
share.
Interest on the subordinated notes is payable quarterly in arrears in
cash commencing March 31, 2003. Interest for quarters prior to the quarter
ending March 31, 2003 will be added to the principal amount of the note. The
note holders are also entitled to additional warrants to purchase shares of
common stock at $.05 per share for the quarters during which interest on the
notes is not paid in cash. Interest was not paid on the notes for the six months
ended March 31, 2002, for which the note holders received additional warrants to
purchase, in the aggregate, 69,065 shares of common stock. The interest due on
the remaining subordinated notes for the quarter ended June 30, 2002 was paid in
cash, and no additional warrants were issued. The Company anticipates that it
will continue to make cash payments for interest due. If the Company does not
make such payments, it will be required to issue additional warrants for up to
17,411 shares of common stock.
7
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
6. Revolving Credit Facility
The Company has a $75 million credit facility which funded the
Company's acquisition of Ring Limited (formerly known as Ring plc) ("Ring") and
provides funds through revolving facilities for the Company's U.S. and U.K.
operations. The credit facility agreement requires that the Company meet certain
financial covenants and minimum levels of adjusted quarterly earnings beginning
with the quarter ended September 30, 2001 and quarterly debt to adjusted
earnings and fixed charge ratios beginning with the quarter ending December 31,
2002.
The Company was in compliance with the financial covenants of its
credit facility for the quarter ended June 30, 2002. Based upon its current
assessment of market conditions for its business and its projections for the
remainder of its 2002 fiscal year, the Company expects to be in compliance with
the credit facility's financial covenants for the September 30, 2002 and
subsequent quarters.
7. Segment Information
Information on operating segments and a reconciliation to income (loss)
before income taxes for the three and nine months ended June 30, 2002 and 2001
are as follows (in thousands):
Three Months Ended June 30,
--------------------------------------------------------------------------------
2002 2001
Net Sales ----------------------------------------- --------------------------------------
by Operating Segment: External External
Customers Intersegment Total Customers Intersegment Total
----------------------------------------- --------------------------------------
United States $ 17,210 $ 70 $ 17,280 $ 24,864 $ 137 $ 25,001
China 4,068 20,478 24,546 5,756 26,317 32,073
United Kingdom 25,941 - 25,941 24,415 - 24,415
Other segments 6,132 - 6,132 5,513 35 5,548
Eliminations - (20,548) (20,548) - (26,489) (26,489)
--------------------------------------- -------------------------------------
$ 53,351 $ - $ 53,351 $ 60,548 $ - $ 60,548
======================================= =====================================
Nine Months Ended June 30,
--------------------------------------------------------------------------------
2002 2001
----------------------------------------- --------------------------------------
External External
Customers Intersegment Total Customers Intersegment Total
----------------------------------------- --------------------------------------
United States $ 46,025 $ 269 $ 46,294 $ 60,044 $ 547 $ 60,591
China 13,789 52,980 66,769 19,030 66,553 85,583
United Kingdom 83,925 - 83,925 80,453 - 80,453
Other segments 19,724 62 19,786 21,418 309 21,727
Eliminations - (53,311) (53,311) - (67,409) (67,409)
--------------------------------------- -------------------------------------
$ 163,463 $ - $ 163,463 $ 180,945 $ - $ 180,945
======================================= =====================================
8
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Net Sales by Location Three Months Ended Nine Months Ended
of External Customers: June 30, June 30,
------------------------------ ------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
United States $ 17,362 $ 25,031 $ 46,455 $ 60,425
United Kingdom 25,140 24,099 82,122 77,877
Canada 5,659 4,550 17,438 18,544
Other countries 5,190 6,868 17,448 24,099
------------ ------------ ------------ ------------
$ 53,351 $ 60,548 $ 163,463 $ 180,945
============ ============ ============ ============
Segment Contribution (Loss): Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------ ------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
United States $ 103 $ (437) $ 108 $ (1,831)
China 1,069 1,650 3,357 4,684
United Kingdom 362 (773) 2,554 (3,273)
Other segments 261 (948) 1,266 (1,348)
------------ ------------ ------------ ------------
Subtotal for segments 1,795 (508) 7,285 (1,768)
Parent/administrative expenses (2,405) (2,538) (7,686) (7,597)
------------ ------------ ------------ ------------
Income (loss) before income taxes $ (610) $ (3,046) $ (401) $ (9,365)
============ ============ ============ ============
Interest Expense (Income) (1): Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------ ------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
United States $ (223) $ (168) $ (400) $ (381)
China (5) (7) (19) (120)
United Kingdom 1,201 1,266 3,288 3,768
Other segments 72 81 207 324
------------ ------------ ------------ ------------
Subtotal for segments 1,045 1,172 3,076 3,591
Parent interest expense 854 557 2,675 1,544
------------ ------------ ------------ ------------
Total interest expense $ 1,899 $ 1,729 $ 5,751 $ 5,135
============ ============ ============ ============
Total Assets (2): June 30, September 30,
2002 2001
-------------- -----------------
United States $ 32,380 $ 51,550
China 43,440 45,920
United Kingdom 70,972 68,368
Other segments 10,297 8,836
Eliminations (26,113) (28,577)
----------- ------------
Total assets $ 130,976 $ 146,097
=========== ============
9
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Long-Lived Assets (3):
June 30, September 30,
2002 2001
-------- ------------
United States $ 1,783 $ 10,891
China 14,153 15,329
United Kingdom 2,852 3,910
Other segments 68 97
------- ------------
Total long-lived assets $18,856 $ 30,227
======= ============
Expenditures for Additions to Long-Lived Assets:
Nine Months Ended June 30,
--------------------------
2002 2001
--------- ---------
United States $ 22 $ 102
China 249 3,754
United Kingdom 308 335
Other segments 20 13
--------- ---------
Total expenditures $ 599 $ 4,204
========= =========
(1) The interest expense shown for each segment includes interest
charged or earned on intersegment advances.
(2) Total assets for United States include parent/administrative
assets.
(3) Represents property and equipment, net.
Major Customers
During the three months ended June 30, 2002 and 2001, one customer
(included in the United Kingdom operations) accounted for 14.7% and 16.9%,
respectively, of the Company's consolidated net sales. Two additional customers
(included in the United States and other operations) accounted for 13.6% and
10.5% of the Company's consolidated net sales for the three months ended June
30, 2002, compared to 13.9% and 12.2% during the same period in 2001. No other
customers accounted for more than 10% of consolidated net sales during the three
months ended June 30, 2002 and 2001.
During the nine months ended June 30, 2002 and 2001, one customer
(included in the United Kingdom operations) accounted for 17.4% and 17.1%,
respectively, of the Company's consolidated net sales. One additional customer
(included in the United States and other operations) accounted for 13.7% of the
Company's consolidated net sales for the nine months ended June 30, 2002,
compared to 12.8% during the same period in 2001. No other customers accounted
for more than 10% of consolidated net sales during the nine months ended June
30, 2002.
8. Commitments and Contingencies
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. 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.
Originally, subject to the minimum sales conditions discussed below, the
agreement would terminate on September 30, 2002, with the Company having options
to extend the agreement for two additional five-year terms.
10
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Either party had the right to terminate the agreement if the Company did not
meet the minimum net shipments of $30 million for fiscal 2001 and $60 million
for fiscal 2002. Effective as of October 1, 2001, the Company and Westinghouse
signed an amendment to the license agreement that eliminates the minimum net
shipments requirement but also eliminates the Company's option to extend the
license agreement upon the agreement's expiration on September 30, 2002. Net
sales of Westinghouse branded products amounted to $8.6 million and $13.3
million for the nine months ended June 30, 2002 and 2001, respectively. The
Company does not intend to sell Westinghouse labeled goods after September 30,
2002 and does not believe that the loss of the Westinghouse license will have a
material effect on the Company's financial condition or results of operations.
Litigation
During the past few years, the Company has received a number of claims
relating to halogen torchieres sold by the Company to various retailers. The
Company maintains primary product liability insurance coverage of $1 million per
occurrence and $5 million in the aggregate, as well as umbrella insurance
policies providing an aggregate of $75 million in excess umbrella insurance
coverage. The primary insurance policy requires the Company to self-insure for
up to $10,000 per incident. Based on experience, the Company has accrued
$302,000 for this contingency as of June 30, 2002. No assurance can be given
that the number of claims will not exceed historical experience, that claims
will not exceed available insurance coverage or that the Company will be able to
maintain the same level of insurance.
On September 15, 1999, the Company filed a complaint entitled Catalina
Lighting, Inc. v. Lamps Plus, Civil Action 99-7200, in the U.S. District Court
for the Southern District of Florida. In the complaint, the Company requested
declaratory relief regarding claims of trade dress and patent infringement made
by Lamps Plus against a major customer of the Company. Lamps Plus filed an
Answer and Counterclaim against the Company and its customer on October 6, 1999,
alleging patent infringement and trade dress. The trade dress claim was
dismissed with prejudice before trial in March 2001. In April 2001, a jury
returned a verdict finding liability against the Company on the patent
infringement claim, and in June 2001 the Court entered a judgment of
approximately $1.6 million for damages and interest thereon. The Company
appealed the judgment entered by the Court and posted a surety bond in the
amount of $1.8 million for the appeal (for which the Company posted $1.5 million
in cash collateral). In a decision published on June 28, 2002, the Court of
Appeals affirmed the finding of liability against the Company but reduced the
lower court's award of damages. The final judgment including related costs is
reflected in the financial statements as a $959,000 litigation settlement.
Subsequent to June 28, 2002, the Company received the cash collateral for the
surety bond net of the judgment amount.
Kmart Bankruptcy
On January 22, 2002, Kmart Corporation filed a Chapter 11 bankruptcy
petition with the U.S. Bankruptcy Court for the Northern District of Illinois.
The Company's sales to Kmart amounted to $10.7 million for the year ended
September 30, 2001 and $3.2 million and $8.4 million for the nine months ended
June 30, 2002 and 2001, respectively. The Company has no outstanding receivables
from Kmart for the period prior to January 22, 2002, and has resumed shipments
subsequent to the bankruptcy filing. The Company is continuing to assess the
effect of the bankruptcy proceedings on future sales to Kmart.
Pension Plan
Ring has a defined benefit pension plan which covers 22 current
employees and approximately 750 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 reviews the plan on a periodic basis, and in the future
it may determine to continue the plan or terminate the plan. If the Company were
to terminate the plan, it is anticipated that this would require accelerated
payments based on the "Minimum Funding Requirement" ("MFR") shortfall. The most
recent estimate as of March 2002 placed the MFR shortfall at approximately $3.2
million. The U.K. government announced that it intends to abolish the MFR and to
replace it with funding standards individually tailored to the circumstances of
plans and employers. Based on current information, it appears that this change
is not likely to occur before April 2003. Should the Company not terminate its
U.K. pension plan prior to that date, the cost to terminate the plan under the
new rules
11
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
could be significantly greater than the current $3.2 million deficit under the
MFR method. The accrued liability for the U.K. pension at June 30, 2002 was $4.4
million.
IRS Audit
The Internal Revenue Service has started its field work in its
examination of the Company's 1999 tax return. To date, no adjustments have been
proposed. Management believes that adequate provision for taxes has been made
for the years under examination and those not yet examined.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. In some cases, you can identify "forward-looking
statements" by words such as "expects", "anticipates", "believes", "plans",
"intends", "estimates", variations of such words and similar expressions. These
statements involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Factors that would cause or
contribute to the inability to obtain the results or to fulfill the other
forward-looking statements include, but are not limited to, the following: the
highly competitive nature of the lighting industry; our 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 our 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 our products in the marketplace, new products
and technological changes, and changing trends in customer tastes, each of which
can affect demand and pricing for our products; pressures on product pricing and
pricing inventories; cost of labor and raw materials; the availability of
capital; the ability to satisfy the terms of, and covenants under, credit and
loan agreements and the impact of increases in borrowing costs, each of which
affect our short-term and long-term liquidity; the costs and other effects of
legal and administrative proceedings; foreign currency exchange rates; changes
in our effective tax rate (which is dependent on our U.S. and foreign source
income); and other factors referenced in this Form 10-Q and our Annual Report on
Form 10-K for the fiscal year ended September 30, 2001, as amended. We will not
undertake and specifically decline any obligation to update or correct any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
In the following comparison of the results of operations, the three and
nine months ended June 30, 2002 and 2001 are referred to as "Q3 2002" and "YTD
2002", respectively, and "Q3 2001" and "YTD 2001", respectively. Unless
otherwise noted, U.S. dollar equivalents of foreign currency amounts are based
upon the exchange rates prevailing at June 30, 2002.
Comparison of Three Months Ended June 30, 2002 and 2001
Consolidated Results
We had operating income of $1.4 million in Q3 2002 compared to an
operating loss of $1.4 million in Q3 2001. The $2.7 million operating income
improvement resulted from an increase in gross profit combined with a decrease
in selling, general and administrative expenses ("SG&A"). During Q3 2002, we
settled a patent infringement lawsuit resulting in a charge of $959,000. Net
loss for Q3 2002 was $409,000 or $.12 per diluted share compared to a net loss
of $2.4 million or $1.64 per diluted share in Q3 2001.
Net sales for Q3 2002 were $53.4 million, a $7.2 million decrease from
the same period in the prior year. The decrease in net sales is primarily
attributable to lower sales in the United States and Continental Europe.
Shipments to Kmart during the quarter were $2.0 million below the same period in
the prior year. Kmart filed a Chapter 11 bankruptcy petition with the U.S.
Bankruptcy Court for the Northern District of Illinois on January 22, 2002. We
are continuing to assess the effect of the bankruptcy proceedings on future
sales to Kmart. Continued weakness in the economy and other competitive factors
also continue to affect order volume with other North American customers. See
"Results by Segment" for further discussion.
Portable lamps, hardwired lighting fixtures, automotive after-market
products and industrial consumables accounted for 31%, 49%, 15% and 5% of net
sales in Q3 2002 compared to 40%, 44%, 12% and 4% in Q3 2001. In Q3 2002 and Q3
2001, Ring's largest customer, B & Q, a subsidiary of Kingfisher PLC, accounted
for $7.8 million (15%) and $10.2 million (17%), respectively, of our net sales.
In Q3 2002 and Q3 2001, Home Depot accounted for $7.3 million (14%) and $8.4
million (14%), respectively, of our net sales. In Q3 2002 and Q3 2001, WalMart
accounted for $5.6 million (10.5%) and $7.4 million (12.2%), respectively, from
net sales. Sales made from warehouses constituted 60% of our net sales in Q3
2002, up from 52% in Q3 2001.
13
Gross profit in total dollars increased from $8.0 million in Q3 2001 to
$10.4 million in Q3 2002. Gross profit as a percentage of sales increased from
13.2% in Q3 2001 to 19.6% in Q3 2002. The increase in gross profit as a
percentage of sales is attributable primarily to decreased warehousing costs,
product development costs and freight costs as well as a more favorable product
mix resulting from new product introductions.
SG&A for Q3 2002 was $8.1 million, a decrease of $2.0 million from the
same period in the prior year. The decrease in SG&A is a result of our
Company-wide efforts to reduce operating and overhead costs. Expense categories
in which we experienced significant declines included payroll and related
expenses in the U.S. ($490,000), the United Kingdom ($190,000), and Hong Kong
($66,000), travel and entertainment ($110,000), legal and professional
($371,000) and bad debt ($393,000). See "Results by Segment" for further
discussion.
On September 15, 1999, we filed a complaint entitled Catalina Lighting,
Inc. v. Lamps Plus, Civil Action 99-7200, in the U.S. District Court for the
Southern District of Florida. In the complaint, we requested declaratory relief
regarding claims of trade dress and patent infringement made by Lamps Plus
against a major customer of the Company. Lamps Plus filed an Answer and
Counterclaim against us and our customer on October 6, 1999, alleging patent
infringement and trade dress. The trade dress claim was dismissed with prejudice
before trial in March 2001. In April 2001, a jury returned a verdict finding
liability against us on the patent infringement claim, and in June 2001 the
Court entered a judgment of approximately $1.6 million for damages and interest
thereon. We appealed the judgment entered by the Court and posted a surety bond
in the amount of $1.8 million for the appeal (for which we posted $1.5 million
in cash collateral). In a decision published on June 28, 2002, the Court of
Appeals affirmed the finding of liability against us but reduced the lower
court's award of damages. The final judgment including related costs is
reflected in the financial statements as a $959,000 litigation settlement.
Subsequent to June 28, 2002, we received the cash collateral for the surety bond
net of the judgment amount.
Interest expense was $1.9 million in Q3 2002 compared to $1.7 million
in Q3 2001. The increased expense is primarily attributable to the amortization
of debt discount and financing costs associated with the subordinated notes
issued in July 2001 ($196,000 of non-cash charges), partially offset by lower
average outstanding borrowings.
The effective income tax rates for Q3 2002 and Q3 2001 were 33.0% and
20.7%, respectively. The lower effective tax rate for Q2 2001 is attributable to
significant losses, primarily in foreign jurisdictions, for which no benefit
could be recorded. Our effective income tax rate is dependent on both the total
amount of pretax income generated and the source of such income (i.e., domestic
or foreign). Consequently, our effective tax rate may vary in future periods.
Our effective income tax rate reflects the anticipated tax benefits associated
with the 1999 restructuring of our international operations. Should these tax
benefits not materialize, we may experience an increase in our effective
consolidated income tax rate.
Results By Segment
See Note 7 of Notes to Condensed Consolidated Financial Statements for
the financial tables for each business segment.
Catalina Industries (United States)
Catalina Industries had a segment contribution in Q3 2002 of $1.1
million before a $959,000 loss on settlement of litigation ($103,000 after this
non-recurring loss) as compared to a segment loss of $437,000 in Q3 2001. The
increase in segment contribution in Q3 2002 is primarily attributable to
decreased SG&A and other operating costs.
Sales by Catalina Industries to external customers were $17.2 million
in Q3 2002, a decrease of $7.7 million from Q3 2001.
Gross profit for Catalina Industries was $2.2 million in Q3 2002
compared to $1.7 million in 2001. Gross profit as a percentage of net sales
increased from 6.7% in Q3 2001 to 12.5% in Q3 2002. The increase in gross profit
as a percentage of net sales is primarily attributable to changes in our
customer mix, as well as reduced product development expenses and warehousing
costs.
14
Presently, most major U.S. customers 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. Catalina Industries
serves these customers by placing orders directly with our factory in China and
with other Far East suppliers. As more U.S. customers have changed their
sourcing method, warehouse sales to U.S. customers have declined each fiscal
year in the six-year period commencing fiscal 1995, when Catalina Industries'
warehouse was constructed in Tupelo, Mississippi, and warehouse sales were 61%
of annual U.S. sales compared to 15% for the current quarter. This percentage
decline represents a significant reduction in orders flowing through the Tupelo
warehouse. On May 6, 2002, the building and substantially all the equipment in
the building were sold to a third party, resulting in a loss on sale of $1.1
million. This loss was recognized in the quarter ended March 31, 2002 as a loss
on disposal of warehouse and related equipment. In connection with the sale, we
entered into a short-term lease with the purchaser for a portion of the property
sufficient for our current operations. In August 2002, we entered into a lease
for considerably smaller warehousing space in Tupelo and intend to relocate our
warehouse operations to the new property by November 2002.
SG&A decreased from $2.3 million in Q3 2001 to $1.3 million in Q3 2002.
This decrease reflects reduced salary and related costs, bad debt, legal, travel
and entertainment, merchandising and tradeshow costs.
Go-Gro (China)
Go-Gro's segment contribution in Q3 2002 was $1.1 million, compared to
$1.7 million in Q3 2001.
Go-Gro's sales for Q3 2002 were $24.5 million, a decrease of $7.5
million from the $32.1 million generated in Q3 2001. Sales of products
manufactured by Go-Gro in Q3 2002 (as opposed to sales of products purchased for
resale by Go-Gro from other manufacturers) decreased by $5.1 million, to $11.4
million. Third-party and intercompany sales by Go-Gro in Q3 2002 were $4.1
million and $20.5 million, respectively, while the comparable sales amounts for
Q3 2001 were $5.7 million and $26.3 million, respectively. The decline in the
intercompany sales in Q3 2002 primarily reflects the lower overall sales to
Catalina Industries attributable to a decline in Catalina Industries' U.S.
business.
SG&A was $1.5 million in Q3 2002 and Q3 2001.
Ring Limited (United Kingdom)
Ring's segment contribution for Q3 2002 was $362,000 compared to a loss
of ($773,000) in Q3 2001.
Net sales and gross profit for Q3 2002 were $25.9 million and $4.7
million, respectively, as compared to $24.4 million and $3.1 million,
respectively, for the same period of 2001. The increase in net sales is
primarily attributable to an increase of $916,000 in Ring's consumer lighting
business, an increase of $726,000 in its automotive division, offset by a
decrease primarily in its commercial division. Gross profit percentage increased
to 18.2% in Q3 2002 compared to 12.7%, primarily as a result of a change in
product mix, and reduced freight charges.
SG&A was $3.1 million in Q3 2002 compared to $3.9 million in Q3 2001.
The decrease is primarily related to lower salary and related costs. During
2001, Ring received $714,000 from the settlement of litigation.
Comparison of Nine Months Ended June 30, 2002 and 2001
Consolidated Results
We had operating income of $5.3 million in YTD 2002 compared to an
operating loss of $4.3 million in YTD 2001. The $9.6 million operating income
improvement primarily resulted from an improvement in gross profit and a
significant decrease in SG&A. Included in the YTD 2002 net loss are the
settlement of a patent lawsuit ($959,000) and a loss on the disposal of a
warehouse facility ($1.1 million).
Net sales for YTD 2002 were $163.4 million, a $17.5 million decrease
from the same period in the prior year. The decrease in net sales is primarily
attributable to lower sales in the United States, Continental Europe and Canada,
offset by an increase in the United Kingdom. Shipments to Kmart during the nine
months were $5.2 million below the same period in the prior year. Kmart filed a
Chapter 11 bankruptcy petition with the U.S.
15
Bankruptcy Court for the Northern District of Illinois on January 22, 2002. We
are continuing to assess the effect of the bankruptcy proceedings on future
sales to Kmart. Continued weakness in the economy and other competitive factors
also continue to affect order volume with other North American customers. See
"Results by Segment" for further discussion.
Portable lamps, hardwired lighting fixtures, automotive after-market
products and industrial consumables accounted for 31%, 49%, 15% and 5% of net
sales in YTD 2002 compared to 39%, 45%, 12% and 4% in YTD 2001. In YTD 2002 and
YTD 2001, Ring's largest customer, B & Q, a subsidiary of Kingfisher PLC,
accounted for $28.4 million (17%) and $30.9 million (17%), respectively, of our
net sales. In YTD 2002 and YTD 2001, Home Depot accounted for $22.4 million
(13.7%) and $23.1 million (12.8%), respectively, of our net sales. Sales made
from warehouses constituted 63% of our net sales in YTD 2002, up from 57% in YTD
2001.
Gross profit in total dollars increased from $25.9 million in YTD 2001
to $32.1 million in YTD 2002, and gross profit as a percentage of sales
increased from 14.3% in 2001 to 19.1% in YTD 2002. The increase in gross profit
as a percentage of sales is attributable primarily to changes in our customer
mix as well as decreased warehousing and product development costs as a result
of our initiatives to lower operating costs.
SG&A for YTD 2002 was $24.7 million, a decrease of $6.1 million from
the same period in the prior year. The decrease in SG&A is a result of our
Company-wide efforts to reduce operating and overhead costs. Expense categories
in which we experienced significant declines included payroll and related
expenses in the U.S. ($1.7 million), the United Kingdom ($1.3 million), and Hong
Kong ($314,000), travel and entertainment ($536,000), merchandising and displays
($283,000), bad debt and VAT tax provisions ($868,000), partially offset by
employee related severance ($518,000) and management fees ($375,000) and the
proceeds from an insurance claim, net of expenses incurred ($244,000). See
"Results by Segment" for further discussion.
On September 15, 1999, we filed a complaint entitled Catalina Lighting,
Inc. v. Lamps Plus, Civil Action 99-7200, in the U.S. District Court for the
Southern District of Florida. In the complaint, we requested declaratory relief
regarding claims of trade dress and patent infringement made by Lamps Plus
against a major customer of the Company. Lamps Plus filed an Answer and
Counterclaim against us and our customer on October 6, 1999, alleging patent
infringement and trade dress. The trade dress claim was dismissed with prejudice
before trial in March 2001. In April 2001, a jury returned a verdict finding
liability against us on the patent infringement claim, and in June 2001 the
Court entered a judgment of approximately $1.6 million for damages and interest
thereon. We appealed the judgment entered by the Court and posted a surety bond
in the amount of $1.8 million for the appeal (for which we posted $1.5 million
in cash collateral). In a decision published on June 28, 2002, the Court of
Appeals affirmed the finding of liability against us but reduced the lower
court's award of damages. The final judgment including related costs is
reflected in the financial statements as a $959,000 litigation settlement.
Subsequent to June 28, 2002, we received the cash collateral for the surety bond
net of the judgment amount.
Interest expense was $5.8 million in YTD 2002 compared to $5.1 million
in YTD 2001. The increased expense is primarily attributable to the amortization
of debt discount and financing costs associated with the subordinated notes
issued in July 2001 ($813,000 of non-cash charges), partially offset by lower
average outstanding borrowings.
The effective income tax rates for YTD 2002 and YTD 2001 were 32.9% and
17.9%, respectively. The lower effective tax rate for YTD 2001 is attributable
to significant losses, primarily in foreign jurisdictions, for which no benefit
could be recorded. Our effective income tax rate is dependent on both the total
amount of pretax income generated and the source of such income (i.e., domestic
or foreign). Consequently, our effective tax rate may vary in future periods.
Our effective income tax rate reflects the anticipated tax benefits associated
with the 1999 restructuring of our international operations. Should these tax
benefits not materialize, we may experience an increase in our effective
consolidated income tax rate.
Results By Segment
See Note 7 of Notes to Condensed Consolidated Financial Statements for
the financial tables for each business segment.
16
Catalina Industries (United States)
Catalina Industries had a segment profit in YTD 2002 of $2.1 million
before a $1.1 million loss on disposal of warehouse and related equipment and a
$959,000 charge for settlement of litigation ($108,000 after these non-recurring
items) as compared to a segment loss of $1.8 million in YTD 2001. The increase
in segment contribution in YTD 2002 is primarily attributable to an improvement
in gross profit and decreased SG&A and other operating costs.
Sales by Catalina Industries to external customers were $46.0 million
in YTD 2002, a decrease of $14.0 million from YTD 2001.
Gross profit for Catalina Industries was $6.0 million in YTD 2002
compared to $4.2 million in 2001. Gross profit as a percentage of net sales
increased from 6.9% in YTD 2001 to 12.9% in YTD 2002. The increase in gross
profit as a percentage of net sales is primarily attributable to changes in our
customer mix, as well as reduced product development expenses, warehousing costs
and reduced provision for excess and obsolete inventory.
Presently, most major U.S. customers 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. Catalina Industries
serves these customers by placing orders directly with our factory in China and
with other Far East suppliers. As more U.S. customers have changed their
sourcing method, warehouse sales to U.S. customers have declined each fiscal
year in the six-year period commencing fiscal 1995, when Catalina Industries'
warehouse was constructed in Tupelo, Mississippi, and warehouse sales were 61%
of annual U.S. sales compared to 18.2% for the nine months. This percentage
decline represents a significant reduction in orders flowing through the Tupelo
warehouse. On May 6, 2002, the building and substantially all the equipment in
the building were sold to a third party, resulting in a loss on sale of $1.1
million. This loss was recognized during the quarter ended March 31, 2002 as
loss on disposal of warehouse and related equipment.
SG&A decreased from $6.4 million in YTD 2001 to $4.2 million in YTD
2002. This decrease reflects reduced salary and related costs, travel and
entertainment, merchandising costs, legal and professional fees and bad debt
expense.
Go-Gro (China)
Go-Gro's segment contribution in YTD 2002 was $3.4 million, compared to
$4.7 million in YTD 2001.
Go-Gro's sales for YTD 2002 were $66.8 million, a decrease of $18.8
million from the $85.6 million generated in YTD 2001. Sales of products
manufactured by Go-Gro in YTD 2002 (as opposed to sales of products purchased
for resale by Go-Gro from other manufacturers) decreased by $11.8 million, to
$35.4 million. Third-party and intercompany sales by Go-Gro in YTD 2002 were
$13.4 million and $22.0 million, respectively, while the comparable sales
amounts for YTD 2001 were $17.7 million and $29.5 million, respectively. The
decline in the intercompany sales in YTD 2002 primarily reflects the lower
overall sales to Catalina Industries and Catalina Canada attributable to a
decline in U.S. and Canadian business.
SG&A decreased from $5.3 million in YTD 2001 to $4.5 million in YTD
2002, primarily as a result of lower payroll and related costs, travel and
entertainment and lower third-party management fees and lower bank charges
partially offset by increased bad debt.
Ring Limited (United Kingdom)
Ring's segment contribution for YTD 2002 was $2.6 million compared to a
loss of ($3.3) million in YTD 2001.
Net sales and gross profit for YTD 2002 were $83.9 million and $14.9
million, respectively, as compared to $80.5 million and $9.9 million,
respectively, for the same period of 2001. The increase in net sales is
primarily attributable to growth in Ring's automotive division. Gross profit
percentage increased to 17.8% in YTD 2002 compared to 12.3% for the same period
in 2001, primarily as a result of a change in product mix, reduced freight
charges and lower warehousing costs as a result of personnel reductions.
17
SG&A was $9.1 million in YTD 2002 compared to $10.6 million in YTD
2001. The decrease is primarily related to lower salary and related costs.
During 2001, Ring received $714,000 from the settlement of litigation.
Liquidity and Capital Resources
We meet our 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 our
direct import sales activities. Term loans, lease obligations, mortgage notes,
bonds, subordinated debt and capital stock are sources for our longer-term
liquidity and financing needs.
Cash Flows and Financial Condition
During the nine months ended June 30, 2002, we used funds generated
from operations of $8.4 million, proceeds from the sale of property of $8.5
million and cash on hand to pay down debt of $18.0 million and make capital
investment of $599,000. Availability under our revolving credit facility
increased from $7.9 million at September 30, 2001 to $15.1 million at June 30,
2002.
Accounts receivable balances decreased to $24.8 million at June 30,
2002 from $27.8 million at September 30, 2001 primarily as a result of lower
sales in May and June 2002 compared to August and September 2001. Inventory
levels at June 30, 2002 were $39.5 million, as compared to $37.4 million at
September 30, 2001, due to initial stock requirements for significant new sales
programs that are expected to start in the fourth quarter in the Ring segment.
Our agreements with our major customers provide for various sales
allowances (i.e., deductions given the customer from purchases made from us),
the most common of which are for volume discounts, consumer product returns and
cooperative advertising. These allowances are usually defined as a percentage of
the gross sales price and are recognized as a reduction of gross sales revenue
at the time the related sales are recorded. If the customer agreement does not
provide for the deduction of the allowance amount directly from the amount
invoiced the customer at time of billing, we record an accrual for the amounts
due. These accrued sales allowances are settled periodically either by
subsequent deduction from the accounts receivable from the customer or by cash
payment. For financial statement presentation purposes, these sales allowances
are netted against accounts receivable and amounted to $8,304,000 and
$10,442,000 at June 30, 2002 and September 30, 2001, respectively. The amounts
of our accrued sales allowances, by customer and in the aggregate, are dependent
upon various factors, including sales volumes, the specific terms negotiated
with each customer (including whether the allowance amounts are deducted
immediately from the invoice or accrued) and the manner and timing of
settlement.
Revolving Credit and Term Loan Facilities
In July 2000, we entered into a credit facility for approximately $75
million with a bank syndication group to finance the acquisition of Ring and
repay and terminate our existing U.S. credit facility and Ring's U.K. facility.
The facility consists of two term loans originally amounting to $15 million and
the GBP equivalent of U.S. $15 million (GBP 9.8 million), respectively, and two
revolving facilities for loans, acceptances and trade and stand-by letters of
credit for our ongoing operations in the U.S. and the U.K. Amounts outstanding
under the revolving facilities are limited under a borrowing base defined as
percentages of the combined accounts receivable and inventory balances for the
U.S. and U.K. Obligations under the facility are secured by substantially all of
our U.S. and U.K. assets, including 100% of the common stock of our U.S.
subsidiaries and 65% of the stock of our Canadian and first-tier United Kingdom
and Hong Kong subsidiaries. The agreement prohibits the payment of cash
dividends or other distribution on any shares of our common stock, other than
dividends payable solely in shares of common stock, unless approval is obtained
from the lenders. We pay a quarterly commitment fee of .50% per annum based on
the unused portion of the revolving facilities.
Under English law, a British company cannot lawfully provide financial
assistance for the purpose of the acquisition of its own shares (which would
include using its cash flows and other sources of funds to make payments due on
debt used to fund its acquisition) unless certain conditions are met. In
addition, lenders providing the financing for the acquisition cannot perfect
their collateral interest in the assets of the acquired British company unless
such conditions are met. In order to lawfully provide financial assistance, the
acquired British company must
18
complete a "whitewash procedure" under English law. In essence, the whitewash
procedure requires the following: (1) every director of the acquired British
company must make a statutory declaration as to the solvency of the acquired
company and its ability to pay its debts for the next twelve months; and (2) the
statutory declarations must be accompanied by an independent auditors' report
stating that the auditors are not aware of anything to indicate that the
statutory declarations of the directors are not reasonable. In addition, English
law requires that the net assets of the acquired British company are not reduced
by the financial assistance or, to the extent that the net assets are reduced,
the reduction is funded out of distributable profits. "Net assets" and
"distributable profits" have prescribed meanings under the statute governing the
whitewash procedure. Failure to comply with the whitewash procedure will mean
the financial assistance is unlawful, which could result in the acquired British
company facing a fine and its directors and managers facing a fine or
imprisonment or both. In addition, the transaction constituting the financial
assistance together with any security given in contravention of the financial
assistance rules, may be held by English courts to be void and unenforceable.
The financial assistance rules apply to any subsidiaries of the acquired company
which are also involved in providing financial assistance. Until the whitewash
procedure was completed, cash flows from Ring could not be used to repay our
term loans, and cash payments by Ring to other Company subsidiaries were limited
to trade transactions in the normal course of business. On May 30, 2002, the
whitewash procedure was completed.
On July 23, 2001, we obtained $11.8 million in additional funding as a
result of closing a transaction (the "Sun transaction") with Sun Catalina
Holdings, LLC ("SCH"), an affiliate of Sun Capital Partners, Inc. (a private
investment firm based in Boca Raton, Florida) and other parties. Our $75 million
credit facility was amended and restructured in connection with the Sun
transaction.
As a part of the restructuring, available borrowings under the
revolving loans were reallocated under the amendment to increase the U.S.
revolver to $21.4 million and decrease the U.K. revolver to the British pound
equivalent of U.S. $23.6 million. Borrowings under the facility bear interest,
payable monthly, at our option of either the prime rate plus an applicable
margin or the LIBOR rate plus an applicable margin. The applicable margin is
determined by a leverage ratio calculation. Because of our improved performance
and reduced debt levels the leverage ratio decreased at June 30, 2002 resulting
in a 2.25% and .50% decrease in the LIBOR and prime rate margins, respectively.
Substantially all of our borrowings are LIBOR based. The effective rate on the
facility was 9.5% for the nine months ended June 30, 2002. Under the amended
facility, we are required to meet minimum levels of adjusted quarterly earnings
beginning with the quarter ended September 30, 2001 and quarterly debt to
adjusted earnings and fixed charge ratios beginning with the quarter ending
December 31, 2002. Annual capital expenditures are limited under the amendment
to $3.75 million. The term loans are now repayable in installments aggregating
approximately (i) $200,000 on each of December 31, 2001, March 31, 2002, June
30, 2002 and September 30, 2002; (ii) $750,000 on each of December 31, 2002,
March 31, 2003, June 30, 2003, and September 30, 2003, and; (iii) $17,454,000 on
December 31, 2003. The revolving loans under the facility mature on December 31,
2003. The bank syndication group's fee for the amendment consisted of the right
to obtain warrants to purchase 130,828 shares of common stock at a price of $.05
per share. The July 23, 2001 amendment to the $75 million credit facility
eliminated (as an event of default) a previous requirement of the credit
facility that we complete the whitewash procedure. However, if the whitewash
procedure was not completed by December 31, 2001, 50 basis points would be added
to the facility's effective interest rate. We did not complete the whitewash
procedure by December 31, 2001 and, consequently, the effective interest rate on
the credit facility increased. On May 30, 2002, we completed the whitewash
procedure, and the loans' effective interest rate was reduced by 50 basis
points.
Ring has an arrangement with a U.K. bank which is secured by standby
letters of credit issued under the GBP revolving loan facility of our $75
million credit facility. The arrangement provides for borrowings, trade letters
of credit, bonds and foreign currency forward contracts and transactions.
Borrowings, trade letters of credit, bonds and foreign currency forward
contracts outstanding under this arrangement amounted to approximately $2.4
million, $4.1 million, $961,000 and $5.9 million, respectively, at June 30,
2002.
Catalina Canada has a credit facility with a Canadian company that
provides U.S. dollar and Canadian dollar revolving credit loans up to $7.0
million Canadian dollars in the aggregate. The facility matures in December
2004. Borrowings in Canadian dollars bear interest at the Canadian prime rate
plus 1.5%, while borrowings in U.S. dollars bear interest at the rate of the
U.S. prime rate plus 0.5%. Borrowings under the facility are limited to a
borrowing base calculated from receivables and inventory. The credit facility is
secured by substantially all of the assets of Catalina Canada. The facility
limits the payment of dividends, advances or loans from Catalina Canada to
19
Catalina Lighting, Inc. to $500,000 annually, and no such amounts may be
transferred if Catalina Canada does not have sufficient excess borrowing
availability under the facility's borrowing base. The facility contains a
financial covenant requiring Catalina Canada to maintain a minimum net worth.
Go-Gro has a 60 million Hong Kong dollars (approximately U.S. $7.7
million) facility with a Hong Kong bank. The facility provides limited credit in
the form of acceptances, trade and stand-by letters of credit and negotiation of
discrepant documents presented under export letters of credit issued by banks.
The facility is secured by Go-Gro's assets and a guarantee issued by us 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 total
amount of trade receivables, loans or advances from Go-Gro to our other
companies. This facility is repayable upon demand and is subject to an annual
review by the bank. At June 30, 2002, Go-Gro had used none of this line for
letters of credit and there were no borrowings. The Hong Kong bank requires
Go-Gro to fully collaterize any outstanding borrowing or trade letter of credit
with cash or export letters of credit sent for collection and under lien to the
bank. At June 30, 2002, there were no cash deposits outstanding.
The terms of our credit facilities and U.S. and foreign income tax
considerations impact the flow of funds between our major subsidiaries. Our $75
million credit facility prohibits loans to Go-Gro from either Ring or our other
companies other than normal intercompany payables arising from trade. This
facility permits loans from our U.S. companies to Ring but restricts the flow of
funds from Ring to our non-U.K. companies to payments constituting dividends or
a return of capital. Our 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 our other companies. Any loan made or dividends paid
either directly or indirectly by Go-Gro to us or our 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 our U.S. income taxes payable and our effective tax rate. The credit facility
for Catalina Canada also limits payments to our other companies other than trade
payments in the ordinary course of business.
We utilize the revolving portions of our $75 million credit facility
to support our operations in the U.S. and U.K. Our U.S. operations are also
supported to a limited extent by cash flows from our China operations. Because
of the completion of the whitewash on May 30, 2002 the U.K. operations are able
to make payments on the term loans. As of August 5, 2002, we had $15.1 million
available under our revolving facilities to support U.S. and U.K. operations, an
increase of $7.2 million from September 30, 2001.
Since July 2001, we have significantly reduced our overhead and
operating costs in the U.S., U.K. and China through personnel reductions and the
elimination of discretionary expenditures. As of June 30, 2002, we were in
compliance with the terms and covenants of our $75 million credit facility.
Based upon (i) current assessments of market conditions for our business and
(ii) sales, profitability and cash flow projections, we believe we will continue
to be in compliance with the terms and covenants of our $75 million credit
facility and that we will have adequate available borrowings and other sources
of liquidity for the remainder of the 2002 fiscal year. However, there can be no
assurances that market conditions will not deteriorate in the future or that we
will be able to achieve our projected results.
Subordinated Notes
We issued $8.8 million in secured subordinated notes in July 2001 in
connection with the Sun transaction which are due in full on July 23, 2006.
These notes bear interest at 12%, compounded quarterly. Interest on the
subordinated notes is payable quarterly in arrears in cash commencing March 31,
2003. Interest for quarters prior to the quarter ending March 31, 2003 may be
added to the principal amount of the note. The note holders are also entitled to
additional warrants to purchase shares of common stock at $.05 per share for the
quarters during which interest on the notes is not paid in cash. Interest was
not paid on the notes for the six months ended March 31, 2002, for which the
note holders received additional warrants to purchase, in the aggregate, 69,061
shares of common stock.
On June 14, 2002, we entered into a transaction with Sun Catalina
Holdings, LLC ("SCH"), an affiliate of Sun Capital Partners, Inc., and SunTrust
Banks, Inc. ("SunTrust") whereby we issued and sold 924,572 and 184,843 shares
of common stock to SCH and SunTrust, respectively, for an aggregate purchase
price $5,001,937 and
20
$1,000,000, respectively, representing a price of $5.41 per share. As payment
for their shares, SCH and SunTrust each surrendered a corresponding amount of
subordinated debt and accrued interest, and we were released from all
obligations and liabilities associated with the surrendered debt. In connection
with the transaction, a special committee of independent members of the Board of
Directors obtained a fairness opinion from a major investment bank regarding the
$5.41 per share sale price.
At June 30, 2002, the interest due on the remaining subordinated debt
was paid in cash and no additional warrants were issued. We anticipate that we
will continue to make cash payments for interest due. If we do not make such
payments, we will be required to issue additional warrants for up to 17,411
shares of common stock.
Ring Preference Shares
We have accrued approximately $367,000 as of June 30, 2002 for the
payment of dividends on Ring's preference shares. At the time Ring filed its
U.K. statutory reports in April 2002, it was determined that Ring has
sufficient equity under English law to pay these accrued dividends. We expect to
make payment during the fourth quarter of the 2002 fiscal year.
Westinghouse License
On April 26, 1996, we entered into a license agreement with
Westinghouse Electric Corporation to market and distribute a full range of
lighting fixtures, lamps and other lighting products under the Westinghouse
brand name in exchange for royalty payments. The royalty payments are due
quarterly and are based on a percent of the value of our net shipments of
Westinghouse branded products, subject to annual minimum net shipments.
Originally, subject to the minimum sales conditions discussed below, the
agreement would terminate on September 30, 2002, after which we had options to
extend the agreement for two additional five-year terms. Either party had the
right to terminate the agreement if we did not meet the minimum net shipments of
$30 million for fiscal 2001 and $60 million for fiscal 2002. Effective as of
October 1, 2001, we and Westinghouse signed an amendment to the license
agreement that eliminates the minimum net shipments requirement but also
eliminates our option to extend the license agreement upon the agreement's
expiration on September 30, 2002. Net sales of Westinghouse branded products
amounted to $8.6 million and $13.3 million for the nine months ended June 30,
2002 and 2001, respectively. We do not intend to sell Westinghouse labeled goods
after September 30, 2002 and does not believe that the loss of the Westinghouse
license will have a material effect on our financial condition or results of
operations.
Litigation
During the past few years, we have received a number of claims
relating to halogen torchieres sold by us to various retailers. We maintain
primary product liability insurance coverage of $1 million per occurrence, $5
million in the aggregate, as well as umbrella insurance policies providing an
aggregate of $75 million in excess umbrella insurance coverage. The primary
insurance policy requires us to self-insure for up to $10,000 per incident.
Based on experience, we have accrued $304,000 for this contingency as of June
30, 2002. 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 we will be able to maintain the same level of insurance.
On September 15, 1999, we filed a complaint entitled Catalina Lighting,
Inc. v. Lamps Plus, Civil Action 99-7200, in the U.S. District Court for the
Southern District of Florida. In the complaint, we requested declaratory relief
regarding claims of trade dress and patent infringement made by Lamps Plus
against one of our major customers. Lamps Plus filed an Answer and Counterclaim
against us and our customer on October 6, 1999 alleging patent infringement and
trade dress. The trade dress claim was dismissed with prejudice before trial in
March 2001. In April 2001, a jury returned a verdict finding liability against
us on the patent infringement claim, and in June 2001 the Court entered a
judgment of approximately $1.6 million for damages and interest thereon. We
appealed the judgment entered by the Court and posted a surety bond in the
amount of $1.8 million for the appeal (for which we posted $1.5 million in cash
collateral). In a decision published on June 28, 2002, the Court of Appeals
affirmed the finding of liability against us but reduced the lower court's award
of damages. The final judgment, including related costs is reflected in the
financial statements as a $959,000 litigation settlement. Subsequent to June 28,
2002, we received the cash collateral for the surety bond net of the judgment
amount.
21
Other Matters
Our ability to import products from China at current tariff levels
could be materially and adversely affected if the normal trade relations ("NTR",
formerly "most favored nation") status the U.S. government has granted to China
for trade and tariff purposes is terminated. As a result of its NTR status,
China receives the same favorable tariff treatment that the United States
extends to its other "normal" trading partners. China's NTR status, coupled with
its admission to the World Trade Organization ("WTO"), could eventually reduce
barriers to manufacturing products in and exporting products from China.
However, we cannot provide any assurance that China's WTO membership or NTR
status will not change.
Ring has a defined benefit pension plan which covers 22 current
employees and over approximately 750 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. We are reviewing the future of the plan and believe
that in the future we may begin the process of terminating our liability under
the plan. We anticipate that a termination will require payment of a lump sum
equal to the "Minimum Funding Requirement" ("MFR") shortfall. The most recent
estimate as of June 30, 2002 placed the MFR shortfall at approximately $3.2
million. The U.K. government announced that it intends to abolish the MFR and to
replace it with funding standards individually tailored to the circumstances of
plans and employers. Based on current information, it appears that this change
is not likely to occur before April 2003, and should we not terminate our U.K.
pension plan prior to that date, the cost to terminate the plan under the new
rules is likely to be significantly greater than the current $3.2 million
deficit under the MFR method. The accrued liability for the U.K. pension plan
was $4.4 million at June 30, 2002.
As of June 30, 2002, 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 at the option of the holder 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.
Effective June 24, 2002, our common stock was approved for listing on
the NASDAQ Small Cap Market under the trading symbol "CALA".
Impact of New Accounting Pronouncements
Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS 141"), was issued in July 2001. SFAS 141 addresses
financial accounting and reporting for business combinations and supercedes
Accounting Principles Board Opinion No. 16, "Business Combinations" and
Statement of Financial Accounting No. 38 "Accounting for Preacquisition
Contingencies of Purchased Enterprises". All business combinations in the scope
of SFAS 141 are to be accounted for under the purchase method. SFAS 141 became
effective June 30, 2001. The adoption of SFAS 141 did not have a material impact
on our financial position, results of operations or cash flows for the nine
months ended June 30, 2002.
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"), was also issued in July 2001. SFAS 142
addresses financial accounting and reporting for intangible assets acquired
individually or with a group of other assets (but not those acquired in a
business combination) at acquisition. SFAS 142 also addresses financial
accounting and reporting for goodwill and other intangible assets subsequent to
their acquisition. With the adoption of SFAS 142, goodwill is no longer subject
to amortization. Rather, goodwill will be subject to at least an annual
assessment for impairment by applying a fair-value based test. The impairment
loss is the amount, if any, by which the implied fair value of goodwill is less
than carrying or book value. SFAS 142 is effective for fiscal years beginning
after December 15, 2001. Impairment loss for goodwill arising from the initial
application of SFAS 142 is to be reported as resulting from a change in
accounting principle. As of August 2002, we have not assessed the impact of
adopting SFAS 142.
22
Statement of Financial Accounting Standards No. 143, "Accounting for
Obligations Associated with the Retirement of Long-Lived Assets" ("SFAS 143"),
was also issued in July 2001. SFAS 143 provides the accounting requirements for
retirement obligations associated with tangible long-lived assets. SFAS 143 is
effective for fiscal years beginning after June 15, 2002, and early adoption is
permitted. We are currently assessing the new standard and have not yet
determined its impact on our consolidated results of operations, cash flows or
financial position.
Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), was issued in
October 2001. SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operation-Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transitions" for the disposal of a "Segment of a Business" (as
previously defined in that Opinion). SFAS 144 also amends ARB No. 51,
"Consolidated Financial Statements", to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. SFAS 144 is
effective for fiscal years beginning after December 15, 2001, and early adoption
is permitted. We are currently assessing this new standard and have not yet
determined its impact on our consolidated results of operations, cash flows or
financial position.
Impact of Inflation and Economic Conditions
Go-Gro has periodically experienced price increases in the costs of raw
materials, which reduce 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 our net sales and income
from continuing operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our market risk exposure during
the nine months ended June 30, 2002 that would require an update to the
disclosure in our Annual Report on Form 10-K for the fiscal year ended September
30, 2001, as filed with the Securities and Exchange Commission on December 24,
2001.
23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In our Annual Report on Form 10-K for the fiscal year ended September
30, 2001, as filed with the Securities and Exchange Commission on December 24,
2001, we reported that we had appealed a judgment of $1.6 million for damages
and interest thereon that was entered by the U.S. District Court for the
Southern District of Florida in June 2001 in connection with a patent
infringement counterclaim filed against us in Catalina Lighting, Inc. v. Lamps
Plus, Civil Action 99-7200. As we reported, we posted a surety bond in the
amount of $1.8 million for the appeal (for which we posted $1.5 million in cash
collateral). In a decision published on June 28, 2002, the Court of Appeals
affirmed the finding of liability against us but reduced the lower court's award
of damages. The final judgment, including related costs is reflected in the
financial statements as a $959,000 litigation settlement. Subsequent to June 28,
2002, we received the cash collateral for the surety bond net of the judgment
amount.
In addition, during the past few years, we have received a number of
claims relating to halogen torchieres sold by us to various retailers. We
maintain primary product liability insurance coverage of $1 million per
occurrence, $5 million in the aggregate, as well as umbrella insurance policies
providing an aggregate of $75 million in excess umbrella insurance coverage. The
primary insurance policy requires us to self-insure for up to $10,000 per
incident. Based on experience, we have accrued $302,000 for this contingency as
of June 30, 2002. 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 we will be able to maintain the same level of insurance.
We are also a party to routine litigation incidental to our business.
We believe the ultimate resolution of any such legal proceedings will not have a
material adverse effect on our financial position or annual results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
24
Exhibit
Number Description
10.15(b) Amendment No. 1 to Registration Rights Agreement, dated as of
June 14, 2002, by and among the registrant, Sun Catalina
Holdings, LLC, SunTrust Banks, Inc. and SunTrust Bank (1)
10.38 Stock Purchase Agreement, dated as of June 14, 2002, by and
between the registrant and Sun Catalina Holdings, LLC (1)
10.39 Stock Purchase Agreement, dated as of June 14, 2002, by and
between the registrant and SunTrust Banks, Inc. (1)
16.1 Letter dated May 1, 2002 from Deloitte & Touche LLP regarding
change in independent public accountant. (2)
99.1 Certification dated August 13, 2002 by the Chief Executive
Officer and Chief Financial Officer Relating to a Periodic
Report Containing Financial Statements.
________________________
(1) Incorporated by reference to exhibit filed with the registrant's Report
on Form 8-K, as filed with the Securities and Exchange Commission on
June 19, 2002.
(2) Incorporated by reference to exhibit filed with the registrant's Report
on Form 8-K, as filed with the Securities and Exchange Commission on
May 2, 2002.
(b) Reports on Form 8-K.
On April 8, 2002, we filed with the Securities and Exchange Commission
a Current Report on Form 8-K (a "Form 8-K") to report that we had effected a
one-for-five share combination, whereby every five shares of common stock
outstanding as of 8:00 a.m. (Eastern Time) on April 8, 2002 were automatically
combined into one share of common stock.
On May 2, 2002, we filed a Form 8-K to report that, on April 29, 2002,
our Board of Directors, upon recommendation of the Audit Committee, terminated
the engagement of Deloitte & Touche LLP as our independent certified public
accountants and appointed Grant Thornton LLP as our independent accountants for
the year ending September 30, 2002.
On June 19, 2002, we filed a Form 8-K to report the purchase by each of
Sun Catalina Holdings, LLC, a Delaware limited liability company, and SunTrust
Banks, Inc., a Georgia corporation, of shares of our common stock at a price of
$5.41 per share, payable in each case by the cancellation of subordinated debt.
On June 20, 2002, we filed a Form 8-K to report our announcement that
our shares of common stock were approved for listing on the Nasdaq SmallCap
Market, effective as of June 24, 2002.
* * * * *
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CATALINA LIGHTING, INC.
/s/ Eric Bescoby
----------------------------------
Eric Bescoby
Chief Executive Officer
/s/ Lynn Skillen
----------------------------------
Lynn Skillen
Chief Financial Officer
(Chief Accounting Officer)
Date: August 13, 2002
26
INDEX TO EXHIBITS
Exhibit
Number Description
99.1 Certification dated August 13, 2002 by the Chief Executive
Officer and Chief Financial Officer Relating to a Periodic
Report Containing Financial Statements.
27