Catalina Lighting, Inc.

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Catalina Lighting, Inc.

18191 North West 68th Avenue
Hialeah, Florida 33015
U.S.A.
Telephone: (305) 558-4777
Toll Free: (800) 966-7074
Fax: (305) 558-3024
Web site:http://www.catalinaltg.com

Public Company
Incorporated: 1974
Employees: 3,800
Sales: $202.6 million (2000)
Stock Exchanges: New York
Ticker Symbol: LTG
NAIC: 335121 Residential Electric Lighting Fixture Manufacturing; 335122 Commercial, Industrial, and Institutional Electric Lighting Fixture Manufacturing

Florida-based Catalina Lighting, Inc., designs, manufactures, imports, and distributes an extensive line of lighting fixtures and lamps under a variety of brand names, notably Westinghouse, but also Catalina, Dana, Illuminada, and Meridian. As an original equipment manufacturer, it also makes privately-labeled products for high sales-volume customers, including major retail chains. Altogether, Catalina sells over 15 million items per year, mostly in the United States. Its products are merchandised by a wide range of retailers, including home centers, warehouse clubs, discount department stores, and hardware outlets. The company also sells products abroad, principally in Europe and Canada, but also in Mexico, other Latin American countries, Asia, and Australia. Catalina operates a 475,000 square foot distribution center in Tupelo, Mississippi, plus warehouses in Toronto and Mexico City. It also owns a manufacturing subsidiary, Go-Gro Industries, Ltd., which is based in Hong Kong but has its production facilities in Guangdong Province, China. The subsidiary, which manufactures about 40 percent of Catalina’s product line, exports its lamps and fixtures both to distributors and retailers in Europe and to Catalina’s subsidiaries and customers in Canada and the United States. The remaining 60 percent of Catalina’s sold products are made by independent suppliers in China. In 2000, Catalina also acquired Ring Ltd., a U.K. manufacturer of automotive replacement parts as well as lighting products for trains and buses. Catalina’s largest customers are Home Depot and Wal-Mart, which, between them, account for about 32 percent of the company’s total sales.

1980-89: Origins and Growth

David Moss, Catalina Lighting, Inc.’s founder, started the company in 1980 as Moss Manufacturing, a ceiling fan manufacturing business. Some accounts trace Catalina’s origin back to 1974, when Moss started up a firm to represent other equipment manufacturers. That forerunner, incorporated in Florida in 1974, is technically the seminal company on which Catalina Lighting was built, although that first firm failed before Moss started again in the ceiling fan business.

In an innovative move in 1985 that helped build his maverick reputation, Moss began importing low-cost lighting fixtures from Far Eastern manufacturers. Throughout the 1980s, Moss would routinely spend over 200 days a year in China and other Far East countries. He knew that he could cut manufacturing costs by using overseas factories and workers, bringing prices on popular but cost prohibitive products down to affordable levels for average-income Americans. The key was selling huge lots of such fixtures to large store chains, making everything from coach lanterns to track lighting and portable lamps available at 40 to 50 percent below the market price on comparable items produced by other manufacturers.

Moss renamed his company Catalina Lighting in 1987 and in the next year took it public, with an initial public offering of common stock at $3.50 per share. By that time, Catalina had become a favorite with home-improvement merchandisers, thanks to the fact that the company’s price competitive-products were boxed in eye-catching, colorful cartons that attracted customers wandering around floor to ceiling shelving filled with unattractive, cardboard-brown boxes.

In August 1989, Moss resigned as Catalina’s chairman, president, CEO, and director. He believed that the time had come for him to turn the active leadership of the company over to others. He also indicated that his 260 days on the road in Asia the previous year had contributed to a sense of burn-out and that he simply wanted to slow down. Under the terms of his resignation, Moss agreed to serve a five-year term as a company consultant in international marketing and product development. At the time he stepped down, Moss owned about 1.3 million shares of Catalina’s stock, or approximately 25 percent. He was replaced as CEO and president by John Browder, president of Catalina’s Dallas-based subsidiary, Christina Lighting Inc. Browder had joined Catalina in July 1988, after his own ceiling fan company, Unitex, was bought by Catalina. David Friedson, president and CEO of Windmere Corp., which owned 17.9 percent of Catalina, succeeded to Catalina’s chairmanship. Dean Rappaport served as vice-president and COO, while Robert Hersh was executive vice-president.

Moss left Catalina on very solid footing. In its second-quarter report for the period ending March 31, 1989, Catalina listed assets of $22.19 million. It had also built a solid customer base, including such major chains as Home Depot, Kmart, Pay n’ Pak, Grossman’s, and Hand Andy. Nevertheless, because Moss had been the energetic force behind the company, his resignation led to considerable speculation about Catalina’s future. For some industry watchers, the company had been what Brian Major, writing in HFD-The Weekly Home Furnishing Newspaper, termed “a one-man show.” Doubts arose about its impending purchase of Dana Imports, a Boston-based supplier of functional lighting and desk lamps with annual revenues of about $9 million. As it turned out, the transition was smooth enough, and the deal with Dana went through without a hitch.

1990-95: A Completely Imported Line Begets Foreign Manufacturing

By 1990, Catalina, with revenues of $55 million, ranked third behind its lighting supply competitors, Thomas Industries, with $74 million in sales, and Dynasty Classics, with $65 million in sales. However, Catalina’s executives were predicting that it would soon lead the pack. It was a new kind of lighting supplier: a well-financed public company in a position to provide complete lighting programs to high-volume retail chains. It was also rapidly expanding its product line, which ran the gamut between coach lanterns and desk lamps. Moreover, although not unique, it was one of the few companies in the industry with no domestic plants. Its complete line was imported.

In the summer of 1990, Catalina introduced a line of outdoor lanterns and chandeliers for the lighting showroom market, a segment of the industry that it had not previously tried to crack. Including in its new offerings were the Illuminada line, which included coach and post lanterns exported from Italy. Catalina was also redesigning some of its product packaging, and had begun building a new 350,000 square foot distribution center near Dallas. Its success could be measured by the increased space given its products in the country’s biggest home-improvement outlets and mass-merchandise and warehouse clubs.

In 1991, in an internal shake-up, Catalina terminated Browder. Robert Hersh replaced him as president and CEO. Browder, the company alleged, had broken securities laws and had to be fired, but the move resulted in a legal battle when Browder sued Catlina for his wrongful termination and, to the company’s embarrassment, eventually won his suit in court.

Catalina’s success in the 1990s continued to be based on its manufacture and distribution of derivative or knock-off items. In 1994, as cited in a July 25 Fortune article, “Companies to Watch,” Hersh, tongue in cheek, described the company as “co-originators,” thereafter cheerfully admitting that the term was the equivalent of “copycats.” For years, Catalina modeled many of its fixtures on high-ticket items found in lighting showrooms, manufacturing and selling imitations of those items at much lower prices through such large home-center and department store chains as Home Depot and Kmart. The strategy entailed legal risks, including patent infringement suits.

In 1994, Catalina made two strategic decisions, one of which was to buy its own manufacturing plant in China; the other was to build a domestic factory in Mississippi. The first of these decisions turned out well. In August 1994, Catalina purchased Go-Gro Industries of Hong Kong, a decorative residential lighting manufacturer. In the deal, Catalina paid $7.5 million in cash and 750,000 shares of its common stock.

Go-Gro, which maintained production facilities in Shenzhen Province, China, had about 2,500 employees. At the time, more than 50% of its sales were made in Europe, and it was producing revenues of $38 million. The acquisition brought the promise of fulfilling Catalina’s expansion plans, which called for broadening its markets, establishing a presence both in China’s domestic marketplace and those of other countries. Go-Gro would prove to be a wise investment for the company.

Not so its venture in Mississippi. Started in 1994, the Meridian factory was built to produce a line of portable lighting products and decorative table lamps. The company created the line to be marketed in home centers, office superstores, and mass merchant outlets. Although plans called for production to start almost immediately, the Meridian plant did not reach its full operational capacity until 1996. By that time, the domestic lighting market had softened considerably, with a serious drop in the demand for table lamps, and it was soon clear that the facility was turning into a costly white elephant.

Company Perspectives:

At Catalina Lighting we are dedicated to providing today’s best value in lighting products, whether decorative or functional in nature. Our knowledge and resources enable us to deliver true lighting excellence. Whether it’s basic lighting products, or those on the cutting edge of style and technology, Catalina Lighting is committed to being the lighting supplier of choice. And we’ll continue to do so by providing the latest in lighting products, supported by our dedication to complete customer satisfaction.

Challenges in the Late 1990s

The market downswing of the mid-1990s compelled Catalina to take some belt tightening moves and to streamline its operation for greater efficiency. Looking for ways to save, at the beginning of 1996, the company closed its warehouses in Boston and Carrollton, Texas. It also began building a new 475,000 square-foot facility in Baldwin, Mississippi, near Tupelo, in which two of its distribution operations would be consolidated and streamlined through the use of full, computerized automation.

In what perhaps was an inevitable turn because of its “co-origination,” Catalina was hit with four patent infringement suits in 1996, brought by Black and Decker Corp. after Catalina started selling a line of hands-free, flexible flashlights based on B & D’s popular SnakeLight. Catalina’s Portable Hugger and its variations sold for less than the comparable B & D items, prompting B & D to bring its suits against the company. In a 1997 settlement agreement, Catalina had to pay Black and Decker $1 million and refrain from the further manufacture and sale of all its patent-infringing products. At about the same time, Browder won his lawsuit against Catalina in a jury trial and was awarded damages of around $1.1 million for past salary losses and another $400,000 for lost stock options.

Those settlements and other problems led to Catalina’s net loss of $3.1 million in 1997, despite the fact that its revenues had reached a decade high of $197.0 million. It was the first time that the company had gone into the red since 1991. The principal cause was not litigation, however; it was the cost of operating the unprofitable Meridian plant. By 1996, when the plant finally went on line, the market for table lamps had taken a negative shift and turned the enterprise into a poor gamble. Facing the fact that the same kind of products could be made both more cheaply and easily in the Orient, Catalina decided to close down the Meridian operation and lease out the facility. According to CEO Hersh, quoted in a September 26, 1997 article in the South Florida Business Journal, for two years the Meridian plant had “sucked away” the company’s earnings at the rate of “$400,000 to $500,000 a quarter.” Also in 1997, the company also was hit with a product safety recall imposed by the Consumer Product Safety Commission on halogen torchiere-style floor lamps after it was found that the lamps posed definite fire hazzards. As a group, Catalina and nine other manufacturers took financial hits when 40 million such lamps were ordered off the market.

Catalina survived the bad year, however, and returned to profitability in 1998, despite the fact that its total revenues fell by over $35 million. Although its net income, at $1.1 million, barely put it back in the black, it was at least a turnaround. The closing of the Meridian plant had reduced Catalina’s costs by downsizing its operations and reducing its personnel from 3,225 in 1997 to 2,815 in 1998, a 12.7 percent cut. Moreover, with most of its problems in the past, Catalina’s prospects seemed good; in fact, its revenues over the next two years would continue to grow, producing respectable if not noteworthy profits.

1999 and Beyond: Continued Growth Through Product Development and Acquisition

Some of Catalina’s gains towards the end of the decade came from new products that commanded a wider market margin than the halogen torchiere lamps, which, with their novelty worn thin, were losing popularity and suffering a rapidly narrowing market margin. Also, the company continued its rollout of products under the Westinghouse brand, which it had been developing since 1996.

By 2000, the company’s sales had reached $202.6 million, rising above its previously high of $197 million attained in 1997. Its workforce had also grown above that of 1997, reaching 3,600. The company also positioned itself to fend off any takeover attempts by renewing its stockholder rights plan, a type of plan sometimes called an anti-takeover defense. Under its terms, potential buyers of the company would have to offer a fair price to all stockholders.

Despite the increased revenues, Catalina’s net income in 2000 dropped to $2.8 million or $0.37 a share, down from $6.5 million and $0.80 a share in 1999. The downturn was partly the result of actions taken by management that imposed charges that lowered pretax earnings by $1.3 million. To offset further profit-draining costs and improve its customer service, in September 2000 the company completed plans to shutdown its Boston office and consolidate its activities in Miami.

Still, Catalina remained upbeat and bent on expansion, not just through new product development but also through acquisition. Its chief end-of-the decade move was its purchase of Ring PLC, a British competitor that took Catalina into some new market segments. Ring, for which Catalina paid $33.8 million in July 2000, manufactures both automotive and home lighting as well as fixtures for trains and buses. If things went as planned, the purchase would give Catalina an enhanced image in its European markets and help grow its annual revenues considerably.

Principal Subsidiaries

Go-Gro Industries, Ltd. (Hong Kong); Ring Ltd. (U.K.).

Key Dates:

1974:: David Moss starts up a manufacturers’ representative firm.
1980:: Moss founds Moss Manufacturing, a ceiling fan supplier.
1985:: Moss starts importing lighting fixtures.
1987:: Moss renames company Catalina Lighting.
1988:: Catalina Lighting goes public.
1989:: Moss leaves company and is succeeded by John Browder as president and CEO; Catalina acquires Dana Imports.
1994:: Catlina purchases Go-Gro Industries.
1996:: Company enters licensing agreement with Westinghouse.
1997:: Catalina is required to recall halogen torchiere-style floor lamps and closes Mississippi plant.
1999:: Catalina licenses GE’s fluorescent torchiere technology.
2000:: Company acquires Ring plc, a British competitor.

Principal Competitors

Cooper Industries, Inc.; General Electric Company; The Genlyte Group Incorporated; Holophane Corporation; Juno Lighting, Inc.; Koninklijke Philips Electronics N.V.