CATALINA LIGHTING REPORTS THIRD QUARTER FISCAL 2004 RESULTS
Quarter Highlighted by Expanded Presence with Major U.S. Retailer.  

MIAMI ( August 13, 2004 ) … Catalina Lighting, Inc. (Nasdaq: CALA ), a leading international designer, manufacturer, and distributor of lighting products for residential and office environments, today announced results for its third quarter ended June 30, 2004 .  Net sales for the fiscal 2004 third quarter increased $2.1 million to $50.5 million from $48.4 million for the fiscal 2003 third quarter and year to date increased $3.7 million to $158.2 million from $154.5 million for the nine months ended June 30, 2003 .  Catalina reported a net loss of $1.1 million, or a loss of $0.19 per diluted share, for its fiscal 2004 third quarter, compared to net income of $1.3 million, or $0.22 per diluted share, for its fiscal 2003 third quarter.  For the nine months ended June 30, 2004 , Catalina reported net income of $144,000, or $0.02 per diluted share, compared to net income of $4.7 million, or $0.82 per diluted share, for the nine months ended June 30, 2003 .  

Catalina’s CEO, Bob Varakian, said that the successful rollout of a private label program with a major customer, significantly expands Catalina’s retail presence in the customer’s stores.  The major customer is a nationwide retailer operating over 1,000 store locations in the United States market.  He further commented, “We are fortunate to have this opportunity with such a significant U.S. retailer.  Such opportunities are rare and must be capitalized on, in spite of any short-term financial impact resulting from our initial investment.  It is also fortunate that we have the talented sales staff to nurture this relationship and the professional operational staff to deliver on such a significant event for the North America segment’s recovery.  We expect this relationship will continue to grow and with time, have a positive impact on both sales and profitability.”  

In exchange for this expanded relationship, which includes dedicated shelf space in over 800 of their locations, Catalina invested in incentive and support programs for product displays, product buybacks, store reset costs and markdown reimbursements, which totaled approximately $3.0 million.  Approximately half the total investment, or $1.5 million, was made in product buybacks and markdown reimbursement support programs.  This expenditure was recorded as a period cost in the fiscal 2004 third quarter and correspondingly reduced net sales and gross profit.  The remaining $1.5 million was invested in product displays, store resets and other product launch expense programs that correspondingly increased Catalina’s SG&A expenses for the fiscal 2004 third quarter.

Varakian continued, “We also expect this new program to benefit the China Manufacturing and Distribution segment’s factory utilization since most of the production will occur in our China factory.  Increasing factory utilization is integral in making our product more competitive.”