UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
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 Incorporation or Organization) |
(I.R.S. Employer 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 ¨.
Indicate by checkmark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes ¨ No x.
The number of shares of the registrant’s common stock, $.01 par value, outstanding as of the close of business on May 3, 2004 was 4,316,059.
CATALINA LIGHTING, INC. AND SUBSIDIARIES
INDEX
| PART I FINANCIAL INFORMATION | PAGE NO. | |
| ITEM 1—Financial Statements: |
||
| Condensed Consolidated Balance Sheets—March 31, 2004 (unaudited) and September 30, 2003 |
1 | |
| 3 | ||
| Condensed Consolidated Statements of Cash Flows (unaudited)—Six months ended March 31, 2004 and 2003 |
4 | |
| 6 | ||
| ITEM 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 | |
| ITEM 3—Quantitative and Qualitative Disclosures About Market Risk |
34 | |
| 34 | ||
| PART II OTHER INFORMATION | ||
| 35 | ||
| 35 | ||
| 35 | ||
| 37 | ||
CATALINA LIGHTING, INC. AND SUBSIDIARIES
PART I—FINANCIAL INFORMATION
| Item 1. | Financial Statements |
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
| March 31, 2004 |
September 30, 2003 | |||||
| (Unaudited) | ||||||
| Assets | ||||||
| Current assets |
||||||
| Cash and cash equivalents |
$ | 6,563 | $ | 2,899 | ||
| Restricted cash equivalents and short-term investments |
1,332 | — | ||||
| Accounts receivable, net of allowance for doubtful accounts of $918 and $880, respectively |
31,427 | 29,273 | ||||
| Inventories |
35,531 | 34,392 | ||||
| Other current assets |
5,380 | 5,032 | ||||
| Total current assets |
80,233 | 71,596 | ||||
| Property and equipment, net |
15,631 | 16,665 | ||||
| Goodwill |
28,282 | 28,282 | ||||
| Other assets, net |
15,436 | 10,732 | ||||
| Total assets |
$ | 139,582 | $ | 127,275 | ||
(Continues on Page 2)
1
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (continued)
(In thousands, except share data)
| March 31, 2004 |
September 30, 2003 |
|||||||
| (Unaudited) | ||||||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 28,250 | $ | 27,416 | ||||
| Revolving credit facilities |
3,427 | — | ||||||
| Term loans |
5,085 | — | ||||||
| Current maturities of other long-term debt |
22 | 702 | ||||||
| Other current liabilities |
14,845 | 14,648 | ||||||
| Total current liabilities |
51629 | 42,766 | ||||||
| Revolving credit facilities |
22,081 | 11,747 | ||||||
| Term loans |
474 | 12,284 | ||||||
| Subordinated notes |
2,726 | 3,038 | ||||||
| Accrued pension and other liabilities |
10,106 | 8,434 | ||||||
| Total liabilities |
87,016 | 78,269 | ||||||
| Minority interest |
1,015 | 1,211 | ||||||
| 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 4,441,496 shares and 4,420,760 shares, respectively; outstanding 4,313,109 shares and 4,292,373 shares, respectively |
44 | 44 | ||||||
| Additional paid-in capital |
39,146 | 38,604 | ||||||
| Retained earnings |
13,836 | 12,613 | ||||||
| Deferred compensation |
(76 | ) | (262 | ) | ||||
| Accumulated other comprehensive income (loss) |
1,062 | (743 | ) | |||||
| Treasury stock, at cost, 128,387 shares |
(2,461 | ) | (2,461 | ) | ||||
| Total stockholders’ equity |
51,551 | 47,795 | ||||||
| Total liabilities and stockholders’ equity |
$ | 139,582 | $ | 127,275 | ||||
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 March 31, |
Six Months Ended March 31, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales |
$ | 51,496 | $ | 49,942 | $ | 107,723 | $ | 106,112 | ||||||||
| Cost of sales |
42,271 | 39,079 | 86,189 | 83,538 | ||||||||||||
| Gross profit |
9,225 | 10,863 | 21,534 | 22,574 | ||||||||||||
| Selling, general and administrative expenses |
8,445 | 7,941 | 16,949 | 15,208 | ||||||||||||
| Operating income |
780 | 2,922 | 4,585 | 7,366 | ||||||||||||
| Other expenses: |
||||||||||||||||
| Interest expense |
(1,198 | ) | (1,039 | ) | (1,957 | ) | (2,072 | ) | ||||||||
| Net foreign currency (loss) gain |
(599 | ) | 207 | (658 | ) | 75 | ||||||||||
| Other expenses |
(79 | ) | (29 | ) | (89 | ) | (4 | ) | ||||||||
| Total other expenses |
(1,876 | ) | (861 | ) | (2,704 | ) | (2,001 | ) | ||||||||
| (Loss) income before income taxes |
(1,096 | ) | 2,061 | 1,881 | 5,365 | |||||||||||
| Income tax (benefit) provision |
(384 | ) | 721 | 658 | 1,878 | |||||||||||
| Net (loss) income |
$ | (712 | ) | $ | 1,340 | $ | 1,223 | $ | 3,487 | |||||||
| Weighted average number of |
||||||||||||||||
| shares outstanding |
||||||||||||||||
| Basic |
5,577 | 5,555 | 5,574 | 5,555 | ||||||||||||
| Diluted |
5,577 | 5,787 | 5,897 | 5,799 | ||||||||||||
| (Loss) earnings per share |
||||||||||||||||
| Basic |
$ | (0.13 | ) | $ | 0.24 | $ | 0.22 | $ | 0.63 | |||||||
| Diluted |
$ | (0.13 | ) | $ | 0.23 | $ | 0.21 | $ | 0.60 | |||||||
See accompanying notes to condensed consolidated financial statements.
3
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| Six Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
| Net income |
$ | 1,223 | $ | 3,487 | ||||
| Adjustments for non-cash items: |
||||||||
| Exchange loss (gain) |
731 | (182 | ) | |||||
| Amortization to interest expense |
846 | 645 | ||||||
| Depreciation and other amortization |
1,307 | 1,665 | ||||||
| Deferred income tax benefit |
(2,292 | ) | (1,105 | ) | ||||
| Gain on disposition of property and equipment |
(53 | ) | (19 | ) | ||||
| Non-cash compensation |
251 | 100 | ||||||
| Change in assets and liabilities |
(888 | ) | (927 | ) | ||||
| Net cash provided by operating activities |
1,125 | 3,664 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
| Capital expenditures |
(1,212 | ) | (678 | ) | ||||
| Proceeds from sale of property and equipment, net |
2,231 | 217 | ||||||
| Net cash provided by (used in) investing activities |
1,019 | (461 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
| Payments on other long-term debt |
(1,194 | ) | (244 | ) | ||||
| Net borrowings (payments) on revolving credit facilities |
12,795 | (3,850 | ) | |||||
| Net payments on term loans |
(6,985 | ) | (1,597 | ) | ||||
| Payment of financing fees |
(2,298 | ) | — | |||||
| Changes in restricted cash |
(1,103 | ) | — | |||||
| Proceeds from exercise of stock options |
92 | — | ||||||
| Net cash provided by (used in) financing activities |
1,307 | (5,691 | ) | |||||
| Effect of exchange rate changes on cash |
213 | 193 | ||||||
| Net increase (decrease) in cash and cash equivalents |
3,664 | (2,295 | ) | |||||
| Cash and cash equivalents at beginning of period |
2,899 | 2,657 | ||||||
| Cash and cash equivalents at end of period |
$ | 6,563 | $ | 362 | ||||
4
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(In thousands)
Supplemental Disclosure of Cash Flow Information
| Six Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| Cash paid for: |
||||||
| Interest |
$ | 1,291 | $ | 1,479 | ||
| Income taxes |
$ | 2,507 | $ | 730 | ||
In March 2004, warrants to purchase 5,486 shares at $0.05 per share were exercised and warrants to purchase 23 shares were canceled in a cashless exercise.
Effective January 1, 2004, the Company amended the terms of stock options previously granted to the individual who formerly served as its Chief Financial Officer, and as a result recorded compensation expense of $64,500 during the three months ended March 31, 2004.
Effective December 1, 2002, the Company entered into a two-year consulting agreement with the individual who served as its Chief Executive Officer from July 2001 through November 2002. Concurrently with entering into this agreement, the Company amended the terms of the stock options previously granted and as a result was to incur compensation expense of approximately $295,000 during the term of the consulting agreement on a straight-line basis. During the quarter ended December 31, 2003 the Company determined that the consultant had delivered all the anticipated benefit from the agreement. Consequently the remaining deferred compensation was expensed in full. Compensation expense for the three months ended March 31, 2004 and 2003 amounted to $0 and $36,000, respectively. Compensation expense for the six months ended March 31, 2004 and 2003 amounted to $172,000 and $49,000, respectively.
In November 2002, the Company issued 50,000 options to purchase shares of common stock to its new Chief Executive Officer at an exercise price of $2.31 per share below the market price on the date of grant, resulting in compensation of $116,000 that will be recognized over the four-year vesting period. Compensation expense for the three months ended March 31, 2004 and 2003 amounted to $7,000. Compensation expense for the six months ended March 31, 2004 and 2003 amounted to $14,000 and $11,000, respectively.
Effective November 1, 2002, the Company amended the terms of stock options previously granted to the individual who formerly served as its Chief Financial Officer, and as a result recorded compensation expense of $40,000 during the three months ended December 31, 2002.
See accompanying notes to condensed consolidated financial statements.
5
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)