e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. |
For the quarterly period ended December 31, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
Commission File Number 000-26667
CRAFTMADE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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75-2057054 |
(State or other jurisdiction of
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(I.R.S. employer |
incorporation or organization)
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identification no.) |
650 SOUTH ROYAL LANE, SUITE 100
COPPELL, TEXAS 75019
(Address of principal executive offices)
(Zip code)
(972) 393-3800
(Registrants telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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(Check one): |
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Large accelerated filer o
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Accelerated filer o |
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Non-accelerated filer o
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Smaller reporting company þ |
(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.) Yes o No þ
The number of shares outstanding of the registrants common stock, par value $0.01 per share, was
5,704,500 as of January 30, 2009.
CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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December 31, |
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December 31, |
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December 31, |
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December 31, |
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2008 |
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2007 |
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2008 |
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2007 |
Net sales |
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$ |
37,262 |
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$ |
20,812 |
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$ |
67,427 |
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$ |
43,550 |
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Cost of goods sold |
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(29,556 |
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(14,278 |
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(51,251 |
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(29,506 |
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Gross profit |
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7,706 |
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6,534 |
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16,176 |
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14,044 |
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Gross profit as a percentage of net sales |
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20.7% |
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31.4% |
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24.0% |
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32.2% |
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Selling, general and administrative expenses |
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(7,633 |
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(4,977 |
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(15,530 |
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(10,518 |
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Depreciation and amortization |
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(262 |
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(213 |
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(500 |
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(418 |
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Total operating expenses |
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(7,895 |
) |
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(5,190 |
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(16,030 |
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(10,936 |
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Income (loss) from operations |
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(189 |
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1,344 |
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146 |
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3,108 |
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Interest expense, net |
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(417 |
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(298 |
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(776 |
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(620 |
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Other income (expense) |
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(4 |
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- |
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1 |
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- |
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Income (loss) before income taxes and minority interest |
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(610 |
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1,046 |
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(629 |
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2,488 |
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Income tax (expense) / benefit |
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257 |
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(260 |
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308 |
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(586 |
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Income (loss) before minority interest |
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(353 |
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786 |
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(321 |
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1,902 |
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Minority interest |
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(192 |
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(304 |
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(353 |
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(802 |
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Net income (loss) |
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$ |
(545 |
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$ |
482 |
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$ |
(674 |
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$ |
1,100 |
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Weighted average common shares outstanding: |
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Basic |
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5,705 |
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5,205 |
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5,705 |
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5,205 |
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Diluted |
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5,705 |
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5,205 |
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5,705 |
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5,206 |
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Basic earnings (loss) per common share |
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$ |
(0.10 |
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$ |
0.09 |
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$ |
(0.12 |
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$ |
0.21 |
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Diluted earnings (loss) per common share |
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$ |
(0.10 |
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$ |
0.09 |
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$ |
(0.12 |
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$ |
0.21 |
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Cash dividends declared per common share |
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$ |
- |
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$ |
0.12 |
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$ |
- |
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$ |
0.24 |
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SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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December 31, |
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June 30, |
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2008 |
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2008 |
ASSETS |
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(Unaudited) |
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Current assets |
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Cash |
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$ |
105 |
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$ |
1,269 |
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Accounts receivable, net |
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35,531 |
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23,644 |
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Inventories, net |
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28,039 |
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22,420 |
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Income taxes receivable |
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1,946 |
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1,485 |
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Deferred income taxes |
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1,241 |
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1,332 |
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Prepaid expenses and other current assets |
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2,328 |
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2,574 |
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Total current assets |
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69,190 |
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52,724 |
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Property and equipment, net |
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11,588 |
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11,060 |
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Goodwill |
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14,664 |
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14,419 |
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Other intangibles, net |
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1,198 |
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1,300 |
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Other assets |
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1,966 |
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2,457 |
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Total non-current assets |
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29,416 |
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29,236 |
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Total assets |
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$ |
98,606 |
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$ |
81,960 |
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LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS EQUITY
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Current liabilities |
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Book overdrafts |
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$ |
10 |
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$ |
182 |
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Accounts payable |
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16,407 |
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8,411 |
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Other accrued expenses |
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2,288 |
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3,329 |
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Current portion of long-term obligations |
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29,020 |
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507 |
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Total current liabilities |
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47,725 |
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12,429 |
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Non-current liabilities |
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Long-term obligations |
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10,119 |
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27,759 |
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Deferred income taxes |
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1,117 |
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1,117 |
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Total non-current liabilities |
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11,236 |
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28,876 |
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Total liabilities |
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58,961 |
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41,305 |
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Minority interest |
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3,165 |
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3,562 |
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Stockholders equity |
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Preferred stock, $1.00 par value, 2,000,000 shares authorized;
nil shares issued |
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- |
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- |
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Common stock, $0.01 par value, 15,000,000 shares authorized;
10,204,420 shares issued |
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102 |
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102 |
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Additional paid-in capital |
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22,276 |
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22,215 |
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Retained earnings |
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52,228 |
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52,902 |
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Less: treasury stock, 4,499,920 common shares at cost |
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(38,126 |
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(38,126 |
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Total stockholders equity |
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36,480 |
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37,093 |
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Total liabilities, minority interest and stockholders equity |
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$ |
98,606 |
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$ |
81,960 |
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SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
2
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
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Six Months Ended |
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December 31, |
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December 31, |
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2008 |
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2007 |
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Net cash provided (used) in operating activities |
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$ |
(9,879 |
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$ |
3,271 |
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Cash flows from investing activities |
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Additional contingent consideration |
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(369 |
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(359 |
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Additions property, equipment and tooling |
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(879 |
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(215 |
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Cash used in investing activities |
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(1,248 |
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(574 |
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Cash flows from financing activities |
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Net proceeds from/(payments) on note payable |
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(228 |
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10,777 |
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Net proceeds from/(payments) on lines of credit |
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11,124 |
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(11,933 |
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Cash dividends |
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- |
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(1,249 |
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Distributions to minority interest members |
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(750 |
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(1,225 |
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Increase/(decrease) in book overdrafts |
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(172 |
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207 |
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Principal payments on capital lease |
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(11 |
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(26 |
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Net cash provided (used) in financing activities |
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9,963 |
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(3,449 |
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Net decrease in cash |
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(1,164 |
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(752 |
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Cash at beginning of period |
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1,269 |
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928 |
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Cash at end of period |
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$ |
105 |
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$ |
176 |
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SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
3
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - BASIS OF PREPARATION AND PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States of
America and with the rules and regulations of the Securities and Exchange Commission
(SEC) for interim financial reporting, and include all adjustments which are, in the
opinion of management, necessary for a fair presentation. The condensed consolidated
financial statements include the accounts of Craftmade International, Inc., a Delaware
corporation (Craftmade), and its wholly-owned subsidiaries, including Trade Source
International, Inc., a Delaware corporation (TSI), Prime/Home Impressions, LLC, a North
Carolina limited liability company (PHI), CM-Real Estate, LLC, a Texas limited
liability company (CM-Real Estate), Woodard-CM, LLC, a Delaware limited liability
company (Woodard-CM) and one 50% owned limited liability company, Design Trends, LLC, a
Delaware limited liability company (Design Trends). References to Craftmade, we,
our, us, its, and the Company refer to Craftmade and its subsidiaries, including
TSI, PHI CM-Real Estate, Woodard-CM and Design Trends unless the context requires
otherwise.
The balance sheet at June 30, 2008, was derived from audited financial statements, but
does not include all disclosures required by accounting principles generally accepted in
the United States of America. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In managements opinion, all adjustments necessary for a fair statement are
reflected in the interim periods presented. All significant intercompany accounts and
transactions have been eliminated in consolidation.
As of December 31, 2008 the Company re-classed as current the outstanding balance on its
line of credit with the Frost National Bank and other lenders due to the maturity of the
credit agreement on December 31, 2009. The Company is currently working on refinancing the
line of credit prior to the maturity of the existing agreement, but there can be no
assurance that we will be able to do so on terms favorable to the Company or at all. Based
on the financial covenants under the Companys line of credit, the Company was not in
compliance with its Fixed Charge Coverage Ratio covenant at December 31, 2008. The
Company has subsequently secured a waiver related to the Fixed Charge Coverage Ratio for
the quarter ended December 31, 2008. No amendments were made to the loan agreement and
there was no effect on the Companys consolidated financial statements as a result of the
noncompliance or the corresponding grant of waiver.
The Company believes that the disclosures are adequate so that the information presented
is not misleading; however, it is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto in our Annual Report on
Form 10-K for the fiscal year ended June 30, 2008, filed with the SEC on September 26,
2008. The financial data for the interim periods may not necessarily be indicative of
results to be expected for the year. Certain amounts in the prior periods financial
statements have been reclassified to conform to the current period presentation.
4
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - ACQUISITIONS
Acquisition of Certain Assets of Woodard LLC.
On January 2, 2008, Woodard-CM completed the purchase of substantially all of the assets
of Woodard, LLC (Woodard), a leading Chicago-based designer, manufacturer and
distributor of a broad line of outdoor furniture products and related accessories pursuant
to the Asset Purchase Agreement, dated as of December 18, 2007 (the Agreement), by and
among Craftmade, Woodard and Henry Crown and Company d/b/a CC Industries, Inc. In the
acquisition, the Company initially paid Woodard $19,265,000 plus a working capital
adjustment of $954,000 and warrants (the Warrants) to purchase up to 200,000 shares of
Craftmade common stock (the Common Stock) for 10 years from the date of issuance at a
purchase price of $8.10 per share, valued at $279,000. The purchase price consideration
included 500,000 shares of Common Stock valued at $8.10 per share based on the average
closing price of the Common Stock for the three days prior to signing the Agreement for an
aggregate price of $4,050,000 (price of Common Stock for financial reporting is $8.00 per
share based on the average closing price of the Common Stock on the two days prior, two
days after and day of the announcement of the signing of the Agreement, for an aggregate
price of $4,000,000), with the remaining purchase price paid in cash at closing. The
Agreement allowed the parties to adjust the purchase price to accurately reflect the
working capital up to 60 days after the closing of the acquisition, resulting in a working
capital adjustment of $1,272,000 due the Company. Including the working capital
adjustment, the total adjusted cash consideration for the acquisition is $14,896,000.
In connection with the acquisition, the Company incurred approximately $655,000 in
professional fees associated with the transaction. The Company has charged $692,000 for
expected restructuring costs. During the quarter ended June 30, 2008, the Company began
relocating and integrating certain of identified positions, which will result in closing
the Chicago, Illinois office in 2009. The Company is also exploring financing options in
relation to the Woodard facility in Owosso, Michigan. Management believes that the fair
market value of this facility significantly exceeds its allocated cost.
5
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Purchase Price Summary
(Dollars in thousands)
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Cash paid at closing |
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$ |
16,168 |
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GAAP value of 500,000 shares issued |
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4,000 |
(1) |
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Value of 200,000 Warrants |
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279 |
(2) |
Purchase price adjustment (Settled April, 2008) |
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(1,272 |
) |
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Total consideration |
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$ |
19,175 |
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(1) The value of the 500,000 shares of common stock was based on the average closing
prices of Craftmades common stock, $0.01 par value per share, for the two days before,
the day of, and the two days after the date of the announcement of the merger or $8.00 per
share.
(2) The 200,000 common stock warrants were valued using the Black-Scholes calculation at a
warrant price of $1.39 per share using the following assumptions:
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Expected volatility |
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33 |
% |
Risk-free interest rate |
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3.81 |
% |
Expected lives |
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10 years |
Dividend yield |
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5.8 |
% |
Criteria have been established in Statement of Financial Accounting Standards No. 141,
Business Combinations for determining whether intangible assets should be recognized
separately from goodwill. The amounts included in the following allocation include $2.5
million that was placed in an escrow account for a period of 18 months from the closing
date for indemnifications made by the seller in relation to its representations,
warranties or covenants pursuant to the Agreement.
The excess value of certain assets acquired over purchase price has been recorded as a
reduction of the fair value of the Owosso, Michigan facility that would otherwise have
been recorded. As a result, management believes that the fair market value of this
facility significantly exceeds its allocated cost.
6
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Preliminary Purchase Price Allocation
|
|
|
|
|
|
|
|
|
Initial estimated purchase price |
|
|
|
|
|
$ |
20,168 |
|
Less: Working capital adjustment |
|
|
|
|
|
|
(1,272 |
) |
Value of warrants |
|
|
|
|
|
|
279 |
|
|
|
|
|
|
|
|
Total Purchase Consideration |
|
|
|
|
|
|
19,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired Assets (Adjusted to estimated fair value) |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
12,708 |
|
|
|
|
|
Inventories, net |
|
|
8,212 |
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
2,450 |
|
|
|
|
|
Plant, property and equipment |
|
|
2,929 |
|
|
|
|
|
Other assets |
|
|
1,528 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
|
|
|
|
27,827 |
|
|
|
|
|
|
|
|
|
|
Assumed Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
5,852 |
|
|
|
|
|
Other accrued expenses |
|
|
1,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities incurred during transaction |
|
|
|
|
|
|
|
|
Professional fees associated with acquisition |
|
|
655 |
|
|
|
|
|
Restructuring reserve |
|
|
692 |
|
|
|
|
|
Deferred tax asset for restructuring reserve |
|
|
(249 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
|
|
|
|
8,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Purchase Price |
|
|
|
|
|
$ |
19,175 |
|
|
|
|
|
|
|
|
The following table sets forth the unaudited pro forma results of operations of the
Company as if the Woodard acquisition had occurred at the beginning of fiscal year 2008.
The results for periods prior to the acquisition are comprised of historical information
adjusted for certain expenses that were not included in the acquisition.
The pro forma amounts for the fiscal year ended June 30, 2008 do not purport to be
indicative of the results that would have actually been obtained if the merger occurred as
of the beginning of the period presented or that may be obtained in the future.
7
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unaudited Pro Forma Results
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
|
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
37,262 |
|
|
$ |
20,812 |
|
|
$ |
67,427 |
|
|
$ |
43,550 |
|
|
|
Pro forma |
|
|
37,262 |
|
|
|
38,536 |
|
|
|
67,427 |
|
|
|
70,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
(545 |
) |
|
$ |
482 |
|
|
$ |
(674 |
) |
|
$ |
1,100 |
|
|
|
Pro forma |
|
|
(545 |
) |
|
|
(343 |
) |
|
|
(674 |
) |
|
|
(152 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
(0.10 |
) |
|
$ |
0.09 |
|
|
$ |
(0.12 |
) |
|
$ |
0.21 |
|
|
|
Pro forma |
|
$ |
(0.10 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
(0.10 |
) |
|
$ |
0.09 |
|
|
$ |
(0.12 |
) |
|
$ |
0.21 |
|
|
|
Pro forma |
|
$ |
(0.10 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Shares Outstanding |
|
|
5,705 |
|
|
|
5,205 |
|
|
|
5,705 |
|
|
|
5,205 |
|
|
|
Proforma |
|
|
5,705 |
|
|
|
5,705 |
|
|
|
5,704 |
|
|
|
5,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Shares Outstanding |
|
|
5,705 |
|
|
|
5,205 |
|
|
|
5,705 |
|
|
|
5,205 |
|
|
|
Proforma |
|
|
5,705 |
|
|
|
5,705 |
|
|
|
5,704 |
|
|
|
5,704 |
|
|
|
|
|
The Company has reserved $692,000 which has been charged to the acquisition related
to restructuring costs. In the quarter ended December 31, 2008 there were severance
related cash payments of $107,000 charged to the reserve.
8
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Acquisition of Marketing Impressions, Inc.
Effective July 1, 2006, TSI acquired Marketing Impressions, Inc., a Georgia corporation
(Marketing Impressions). Marketing Impressions owned the remaining 50% interest in the
Companys limited liability company PHI and also supplied the Company with certain fan
accessory products. This acquisition increased the Companys effective ownership of PHI
to 100% and has been accounted for using the purchase method of accounting. The
acquisition is more fully described in our Annual Report on Form 10-K for the fiscal year
ended June 30, 2007.
The purchase price is based on a known initial payment plus a contingent amount that is
based upon percentage of gross profit without any reductions for vendor displays and
annual reset costs (Adjusted Gross Profit). The purchase price is summarized as
follows:
Purchase Price Summary
(Dollars in thousands)
|
|
|
|
|
As of December 31, 2008: |
|
|
|
|
Amount paid at closing, net of cash acquired |
|
$ |
1,287 |
|
Contingent payments earned |
|
|
2,687 |
|
Acquisition-related costs |
|
|
220 |
|
|
|
|
Total consideration as of December 31, 2008 |
|
$ |
4,194 |
|
|
|
|
|
|
|
|
|
Percent of Adjusted Gross Profit
July 1, 2006 to August 31, 2011 |
|
|
22% |
|
|
|
|
|
|
Additonal Percent of Adjusted Gross Profit
July 1, 2006 to June 30, 2007 (not to exceed $750) |
|
|
15% |
|
The Company has estimated the total remaining payout based on future levels of Adjusted
Gross Profit through August 31, 2011, to be approximately $1,770,000. In accordance with
SFAS No. 141, Business Combinations (SFAS 141), contingent consideration is recorded
when a contingency is satisfied and additional consideration is issued or becomes
issuable.
9
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The amount of goodwill allocated to the purchase price was $2,164,000, all of which is
deductible for tax purposes over a 15 year period. In connection with the acquisition, the
Company acquired certain identifiable intangible assets, including patents, trademarks and
covenants not-to-compete. The gross amounts of such assets along with the range of
amortizable lives are as follows:
Summary of Acquired Intangibles
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Life |
|
Gross |
|
|
in Years |
|
Amount |
Patents and trademarks |
|
|
15 |
|
|
$ |
710 |
|
Non-compete covenants |
|
|
7 |
|
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,530 |
|
|
|
|
|
|
|
|
The purchase price was allocated based on the respective market value of the net assets
acquired. Annual amortization expense is estimated to be $164,000 per fiscal year.
10
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
3 - EARNINGS (LOSS) PER SHARE
The following is a reconciliation of the numerator and denominator used in the basic and
diluted EPS calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
|
|
|
(In thousands, except per share data) |
|
Basic and diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(545 |
) |
|
$ |
482 |
|
|
$ |
(674 |
) |
|
$ |
1,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
5,705 |
|
|
|
5,205 |
|
|
|
5,705 |
|
|
|
5,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
5,705 |
|
|
|
5,205 |
|
|
|
5,705 |
|
|
|
5,205 |
|
Incremental shares for stock options/warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average common shares |
|
|
5,705 |
|
|
|
5,205 |
|
|
|
5,705 |
|
|
|
5,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
(0.10 |
) |
|
$ |
0.09 |
|
|
$ |
(0.12 |
) |
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share |
|
$ |
(0.10 |
) |
|
$ |
0.09 |
|
|
$ |
(0.12 |
) |
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
11
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
4 - SEGMENT INFORMATION
As of December 31, 2008, the Company operates in two reportable segments, Specialty and
Mass. Prior to June 30, 2008, these segments were referred to as Craftmade and TSI, but
were re-named to be more descriptive. The segment formerly identified as Craftmade
International, Inc. or Craftmade is now referred to as Specialty and the segment
formerly identified as Trade Source International, Inc. or TSI is now referred to as
Mass. Hereafter, Craftmade International, Inc. and Craftmade refer to the Company
and Craftmade ceiling fans refers to ceiling fan products sold primarily within the
Specialty segment under the Craftmade trade name. Hereafter TSI refers specifically to
the Trade Source International subsidiary rather than the entire Mass segment.
The Specialty segment primarily derives its revenue from home furnishings, including
ceiling fans, light kits, bath-strip lighting, lamps, light bulbs, door chimes,
ventilation systems, outdoor patio furniture and other accessories offered primarily
through lighting showrooms, patio dealers, hospitality customers and catalog houses. The
Mass segment derives its revenue from outdoor lighting, outdoor patio furniture, portable
lamps, indoor lighting and fan accessories marketed solely to mass retailers and certain
major retail chains.
The additional sales from the acquisition of certain net assets of Woodard, LLC come from
independent patio dealers, hospitality customers and mass retailers. Sales with the
independent patio dealers and hospitality customers are included in the Specialty segment
and sales to mass merchants are included in the Mass segment.
The accounting policies of the segments are the same as those described in Note 2
Summary of Significant Accounting Policies to the Companys Annual Report on Form 10-K for
the fiscal year ended June 30, 2008, as filed with the SEC on September 26, 2008. The
Company evaluates the performance of its segments and allocates resources to them based on
their income from operations and cash flows. All prior year financial information has
been renamed to be consistent with the current year disclosure.
12
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents net sales, gross profit, and income (loss) from operations
for the reportable segments:
Summary of Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
|
|
|
(In thousands) |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty |
|
$ |
15,958 |
|
|
$ |
12,297 |
|
|
$ |
36,429 |
|
|
$ |
26,580 |
|
Mass |
|
|
21,304 |
|
|
|
8,515 |
|
|
|
30,998 |
|
|
|
16,970 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
37,262 |
|
|
$ |
20,812 |
|
|
$ |
67,427 |
|
|
$ |
43,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty |
|
$ |
4,962 |
|
|
$ |
4,487 |
|
|
$ |
11,618 |
|
|
$ |
9,495 |
|
Mass |
|
|
2,744 |
|
|
|
2,047 |
|
|
|
4,558 |
|
|
|
4,549 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,706 |
|
|
$ |
6,534 |
|
|
$ |
16,176 |
|
|
$ |
14,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty |
|
$ |
384 |
|
|
$ |
996 |
|
|
$ |
826 |
|
|
$ |
1,902 |
|
Mass |
|
|
(573 |
) |
|
|
348 |
|
|
|
(680 |
) |
|
|
1,206 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(189 |
) |
|
$ |
1,344 |
|
|
$ |
146 |
|
|
$ |
3,108 |
|
|
|
|
|
|
|
|
|
|
13
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
5 - STOCK-BASED COMPENSATION
Effective July 1, 2005, the Company adopted SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS 123(R)). The Company elected to use the modified prospective method for
adoption, which requires compensation expense to be recorded for all unvested stock
options and restricted shares beginning in the first quarter of adoption.
The options to purchase Common Stock are issued at fair market value on the date of the
grant. Generally, the options vest and become exercisable ratably over a four-year
period, commencing one year after the grant date, and expire ten years from issuance. The
fair value of each option is recognized as compensation expense on a straight-line basis
between the grant date and the date the options become fully vested. The Company has
recognized compensation cost for all stock-based payments in the consolidated financial
statements as follows:
Stock-Based Compensation Expense
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
December 31, |
|
December 31, |
|
|
2008 |
|
2007 |
Stock-based compensation expense recognized: |
|
|
|
|
|
|
|
|
Selling, general & administrative |
|
$ |
61 |
|
|
$ |
56 |
|
Total future compensation cost related to non-vested options is expected to be amortized
over the following future periods as follows:
Future Stock-Based Compensation Expense
(Dollars in thousands)
|
|
|
|
|
|
|
Expected |
|
|
|
Future |
|
|
|
Compensation |
|
Fiscal Year Ending |
|
Cost |
June 30, 2009 (remaining 6 months) |
|
$ |
61 |
|
June 30, 2010 |
|
|
120 |
|
June 30, 2011 |
|
|
69 |
|
June 30, 2012 |
|
|
17 |
|
|
|
|
|
|
$ |
267 |
|
|
|
|
14
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes information about outstanding and exercisable options at
December 31, 2008:
Summary of Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
Exercise |
|
Average |
|
|
|
|
|
|
Exercise |
|
Price |
|
Remaining |
|
|
Shares |
|
Price |
|
Range |
|
Life (Years) |
|
Outstanding at June 30, 2008 |
|
|
162,400 |
|
|
|
13.63 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(1,000 |
) |
|
|
18.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 6.75 |
- |
|
|
|
|
Outstanding at December 31, 2008 |
|
|
161,400 |
|
|
$ |
13.60 |
|
|
$ |
25.20 |
|
|
|
8.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 6.75 |
- |
|
|
|
|
Exercisable at December 31, 2008 |
|
|
49,200 |
|
|
$ |
17.37 |
|
|
$ |
25.20 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
The fair value of each option grant is calculated on the date of grant using the
Black-Scholes option pricing model.
15
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
6 - INCOME TAXES
The Companys effective tax rate is summarized in the following table:
Summary of Effective Tax Rate
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
December 31, |
|
December 31, |
|
|
2008 |
|
2007 |
|
Effective tax rate |
|
|
32.0% |
|
|
35.0% |
The effective tax rate is calculated by dividing income tax expense by income after
minority interest and before income taxes. The effective income tax rates for the periods
presented were different from the statutory United States federal income tax rate of 34%
primarily due to state income taxes, and to the tax effect of operating losses in certain
legal entities of the Company. Based on Management projections the Company expects to
realize the benefit of current tax losses in future periods. The tax provisions for the
current fiscal year are based on our estimate of the Companys annualized income tax rate.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction
and various states and foreign jurisdictions. The statute of limitations has lapsed for
all U.S. federal returns prior to and including the fiscal year ended June 30, 2003. In
May 2007, the Internal Revenue Service completed an examination of the Companys
U.S. income tax return for the fiscal year ended June 30, 2005. There were no material
adjustments, penalties or interest resulting from this examination.
The Company believes that adequate amounts of tax, interest and penalties have been
provided for in the accompanying financial statements for any adjustments that might be
incurred due to state, local or foreign audits.
On July 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48). At the date of adoption, the gross
amount of unrecognized tax benefits, interest and penalties was $290,000 that, if
recognized, would affect the effective tax rate. As a result of the implementation of
FIN 48, we recognized no additional adjustments in the liability for unrecognized income
tax benefits. Additionally, adoption of FIN 48 resulted in the reclassification of
certain accruals for uncertain tax positions in the amount of $190,000 from current to
other long-term expenses.
16
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the three months ended December 31, 2008, there was no change in our unrecognized
income tax benefits:
Reconciliation
of Unrecognized Tax Benefits
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases/(Decreases) in Unrecognized |
|
|
|
|
|
|
|
|
|
|
Tax Benefits As a Result of |
|
|
|
|
|
|
|
|
|
Tax Positions from |
|
|
|
|
|
Lapse in |
|
|
|
|
July 1, |
|
Prior |
|
Current |
|
|
|
|
|
Statute of |
|
December 31, |
|
|
2008 |
|
Periods |
|
Period |
|
Settlements |
|
Limitations |
|
2008 |
|
Unrecognized tax benefits |
|
$ |
290 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
290 |
|
It is reasonably possible that the amount of the unrecognized benefit with respect to
certain of our unrecognized tax positions could significantly increase or decrease within
the next 12 months as a result of settling ongoing tax matters. At this time, an estimate
of the range of the reasonably possible outcomes cannot be made.
The Company has historically recognized interest relating to income tax matters as a
component of interest expense and recognized penalties relating to income tax matters as a
component of selling, general and administrative expense. Such interest and penalties have
historically been immaterial. Upon adoption of FIN 48, the Company will recognize accrued
interest and penalties related to income tax matters in income tax expense. There was
$48,000 in interest and penalties related to unrecognized tax benefits accrued at the date
of adoption and as of December 31, 2008.
Note
7 - RELATED PARTY TRANSACTIONS
The Company purchases much of its outdoor patio furniture from a Chinese factory that is
50% owned by an affiliate of Henry Crown and Company. Henry Crown and Company owns
Woodard, LLC, from which the Company purchased certain assets in January 2008. As part of
the purchase price in that transaction, Henry Crown and Company became the beneficial
owner of more than 5% of our Common Stock. For the three months ended December 31, 2008,
the Company purchased approximately $2,037,000 in products from the joint venture, which
were sold to various customers. The Company currently does not have any agreements in
place that compel either party to operate in any manner that differs from standard
customer/vendor relationships. Based on this factor, the Companys management has
determined that the transactions between the two parties are at arms-length.
In addition, the Company leases approximately 20,000 square feet of office space in
Chicago, Illinois from an affiliate of Henry Crown and Company for $34,829 per month. This
lease covers the former Woodard, LLC Chicago offices and will expire on February 28, 2009.
The Company has initiated a new agreement with Henry Crown and Company for 1,989 square
feet that commenced on January 15, 2009 and will expire on August 14, 2009. The Company
will
17
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
pay $4,475 per month for this lease. The Companys management has determined that the
terms of both agreements represent fair market value.
Effective February 1, 2008, the Board of the Company and Mr. William E. Bucek, a director
of the Company, entered into a consulting agreement (the Agreement) in which Mr. Bucek
agreed, in his capacity as a director of the Company, to (i) work with the Companys
senior management to oversee the successful integration of the recent acquisition of
certain assets of Woodard, LLC, (ii) work with the Companys senior management to develop
a strategic marketing and sales plan, (iii) assist the Board by evaluating the Companys
members of senior management during the search for a Chief Executive Officer and (iv) help
facilitate the retirement of James R. Ridings from the position of Chief Executive Officer
of the Company. The original term of the agreement was until June 30, 2008. Effective
July 1, 2008, the Company amended the Agreement to extend the term at each successive
regular Board meeting at the discretion of the Board. Effective September 30, 2008 the
Board determined that Mr. Bucek had fulfilled his consulting responsibilities and agreed
to terminate the Agreement. Pursuant to the Agreement Mr. Bucek received $12,500 per
month for his services, which the Board deemed to be reasonable and based upon rates that
would prevail in an arms-length transaction.
Note 8 COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims, lawsuits and proceedings arising in the
ordinary course of business. There are uncertainties inherent in the ultimate outcome of
such matters and it is difficult to determine the ultimate costs that we may incur. We
believe the resolution of such uncertainties and the incurrence of such costs will not
have a material adverse effect on our consolidated financial position, results of
operations or cash flows.
18
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Disclosure Regarding Forward-looking Statements
With the exception of historical information, the matters discussed in this document
contain forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned not to place undue reliance on forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance or
achievements of Craftmade to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. These
forward-looking statements include, but are not limited to, (i) statements concerning
future financial condition and operations, including future cash flows, revenues, gross
margins, earnings and variations in quarterly results, (ii) statements relating to
anticipated completion dates for new products and (iii) other statements identified by
words such as may, will, should, could, might, expects, plans,
anticipates, believes, estimates, projects, predicts, forecasts, intends,
potential, continue, and similar words or phrases. These factors that could affect our
financial and other results can be found in the risk factors section of our Annual Report
on Form 10-K for the fiscal year ended June 30, 2008, filed with the SEC on September 26,
2008. The forward-looking statements included in this Quarterly Report on Form 10-Q are
made only as of the date of this filing with the SEC, and we undertake no obligation to
update the forward-looking statements to reflect subsequent events or other circumstances.
Critical Accounting Policies and Estimates
Managements discussion and analysis of the Companys financial condition and results of
operations is based upon the Companys consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Companys management to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. The Companys
estimates are based on historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form the basis for the
Companys conclusions. The Company continually evaluates the information used to make
these estimates as its business and the economic environment change. The Companys
management believes that certain estimates, assumptions and judgments derived from the
accounting policies have significant impact on its financial statements, so the Company
considers these to be its critical accounting policies. A summary of significant
accounting policies and a description of accounting policies that are considered critical
may be found in the Companys Annual Report on Form 10-K for the year ended June 30, 2008,
as filed with the SEC on September 26, 2008.
19
Results of Operations
Management reviews a number of key indicators to evaluate the Companys financial performance,
including net sales, gross profit and selling, general and administrative expenses by segment.
This discussion and analysis includes references to historical Craftmade. Historical Craftmade
consists of ceiling fans, lighting, door chimes and pushbutton sales and related operations that
have historically comprised the Companys operations prior to the acquisition of certain net assets
of Woodard, LLC.
Three Months Ended December 31, 2008 Compared to Three Months Ended December 31, 2007
An unaudited, condensed overview of results for the three months ended December 31, 2008, and the
corresponding prior year period is summarized as follows:
Summary Income Statement by Segment
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
December 31, 2008 |
|
December 31, 2007 |
|
|
Specialty |
|
Mass |
|
Total |
|
Specialty |
|
Mass |
|
Total |
Net sales |
|
$ |
15,958 |
|
|
$ |
21,304 |
|
|
$ |
37,262 |
|
|
$ |
12,297 |
|
|
$ |
8,515 |
|
|
$ |
20,812 |
|
Cost of goods sold |
|
|
(10,996 |
) |
|
|
(18,560 |
) |
|
|
(29,556 |
) |
|
|
(7,810 |
) |
|
|
(6,468 |
) |
|
|
(14,278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
4,962 |
|
|
|
2,744 |
|
|
|
7,706 |
|
|
|
4,487 |
|
|
|
2,047 |
|
|
|
6,534 |
|
As a % of net sales |
|
|
31.1% |
|
|
|
12.9% |
|
|
|
20.7% |
|
|
|
36.5% |
|
|
|
24.0% |
|
|
|
31.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
(4,381 |
) |
|
|
(3,252 |
) |
|
|
(7,633 |
) |
|
|
(3,344 |
) |
|
|
(1,633 |
) |
|
|
(4,977 |
) |
As a % of net sales |
|
|
27.5% |
|
|
|
15.3% |
|
|
|
20.5% |
|
|
|
27.2% |
|
|
|
19.2% |
|
|
|
23.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(197 |
) |
|
|
(65 |
) |
|
|
(262 |
) |
|
|
(147 |
) |
|
|
(66 |
) |
|
|
(213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
(4,578 |
) |
|
|
(3,317 |
) |
|
|
(7,895 |
) |
|
|
(3,491 |
) |
|
|
(1,699 |
) |
|
|
(5,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
$ |
384 |
|
|
$ |
(573 |
) |
|
|
(189 |
) |
|
$ |
996 |
|
|
$ |
348 |
|
|
|
1,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
(417 |
) |
|
|
|
|
|
|
|
|
|
|
(298 |
) |
Other expense |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and minority interest |
|
|
|
|
|
|
|
|
|
|
(610 |
) |
|
|
|
|
|
|
|
|
|
|
1,046 |
|
Income taxes (expense) / benefit |
|
|
|
|
|
|
|
|
|
|
257 |
|
|
|
|
|
|
|
|
|
|
|
(260 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest |
|
|
|
|
|
|
|
|
|
|
(353 |
) |
|
|
|
|
|
|
|
|
|
|
786 |
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
(192 |
) |
|
|
|
|
|
|
|
|
|
|
(304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
$ |
(545 |
) |
|
|
|
|
|
|
|
|
|
$ |
482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales. Net sales for the Company increased $16,450,000 or 79% to $37,262,000 for the quarter
ended December 31, 2008, from $20,812,000 for the quarter ended December 31, 2007. The increase is
due to the acquisition of certain assets of Woodard, LLC, offset by declines in sales in both
segments.
20
Management believes that the decline in the housing market and the overall economic downturn will
continue to negatively impact the sales of the Companys various product lines in both the
Specialty and Mass segments. The Company continues to pursue its strategic growth plans, while
increasingly focusing
on developing and implementing more immediate plans to mitigate the impact of the current economic
downturn.
Net sales from the Specialty segment increased $3,661,000 or 30% to $15,958,000 for the quarter
ended December 31, 2008, compared to $12,297,000 for the quarter ended December 31, 2007, as
summarized in the following table.
Net Sales of the Speciality Segment
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fans |
|
Woodard |
|
|
|
|
Lighting & |
|
Outdoor |
|
Segment |
Three Months Ended |
|
Accessories |
|
Furniture |
|
Total |
December 31, 2008 |
|
$ |
9,135 |
|
|
$ |
6,823 |
|
|
$ |
15,958 |
|
December 31, 2007 |
|
|
12,297 |
|
|
|
- |
|
|
|
12,297 |
|
|
|
|
|
|
|
|
Dollar increase (decrease) |
|
$ |
(3,162 |
) |
|
$ |
6,823 |
|
|
$ |
3,661 |
|
|
|
|
|
|
|
|
Percent increase (decrease) |
|
|
(26%) |
|
|
100% |
|
|
30% |
While the sales of fans and lighting related products continue to be affected by the extremely weak
overall housing market, overall segment sales increased due to the addition of outdoor furniture
sales.
Management continues to focus on introducing new products and expanding accounts to offset the weak
housing market and economic downturn. Management believes that long-term growth will be favorably
affected by additional product offerings through enhanced product development efforts, as well as
cross-selling outdoor furniture products to lighting showrooms and outdoor lighting and ceiling
fans to patio dealers, and focusing efforts on the hospitality markets.
The first and second quarter net sales of Woodard outdoor furniture were expected to decline versus
the third and fourth quarters of the prior fiscal year given Woodard seasonality. Historically,
sales of outdoor furniture to patio dealers are seasonally higher during the third and fourth
quarters of the Companys fiscal year, with the first and second quarter being considered the
off-season for outdoor furniture sales.
Net sales of the Mass segment increased $12,789,000 or 150% to $21,304,000 for the quarter ended
December 31, 2008, from $8,515,000 for the quarter ended December 31, 2007, as summarized in the
following table:
21
Net Sales of Mass Segment
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fans |
|
Woodard |
|
|
|
|
Lighting & |
|
Outdoor |
|
Segment |
Three Months Ended |
|
Accessories |
|
Furniture |
|
Total |
December 31, 2008 |
|
$ |
6,633 |
|
|
$ |
14,671 |
|
|
$ |
21,304 |
|
December 31, 2007 |
|
|
8,515 |
|
|
|
- |
|
|
|
8,515 |
|
|
|
|
|
|
|
|
Dollar increase (decrease) |
|
$ |
(1,882 |
) |
|
$ |
14,671 |
|
|
$ |
12,789 |
|
|
|
|
|
|
|
|
Percent increase (decrease) |
|
|
(22%) |
|
|
100% |
|
|
150% |
The decrease in net sales of fans, lighting and accessories was primarily the result of a decline
in: (i) orders from Lowes related to indoor lighting and outdoor lighting; (ii) non-core drop
shipped products; (iii) sales of fan accessories; and (iv) sales of the mix and match portable
lamps through Lowes.
Woodard sales were primarily comprised of sales to its various mass merchant customers. Most of
its products are shipped directly from China. Due to the seasonal nature of outdoor furniture, the
majority of sales to mass merchants occur from December to April each year.
Based on the most recent annual product line reviews, management believes that Lowes plans to
continue the respective programs it currently has with the Company. Management believes that,
based on the amount of product currently shipped to Lowes, the Company remains a primary vendor
for Lowes mix and match portable lamp and fan accessory/ceiling medallion programs. Management
has no reason not to believe that the Company will continue to be invited to participate in each of
Lowes scheduled reviews for its existing and new product lines. The line reviews occur on an
annual basis for each product category throughout the year and give us the potential to add new
SKUs to the Lowes program. However, participation in line reviews could also result in a partial
or complete reduction of the existing SKUs in the product lines currently offered to by the Company
to Lowes.
While competitive pricing is essential in the Mass segment, management believes that future growth
is contingent upon the success of the Companys ongoing efforts to introduce new products, styles
and marketing concepts to existing customers and the expansion of the business to new customers.
Gross Profit. Gross profit of the Company as a percentage of net sales decreased 10.7% to 20.7%
for the quarter ended December 31, 2008, from 31.4% for the quarter ended December 31, 2007,
primarily due to consolidated sales of Woodard products that carry a lower gross profit percentage
than the Companys historical operations.
Gross profit as a percentage of net sales of the Specialty segment decreased 5.4% to 31.1% for the
quarter ended December 31, 2008, from 36.5% in the quarter ended December 31, 2007. The decrease
is summarized in the following table.
22
Gross Profit as a Percentage of Net Sales of Specialty Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fans |
|
Woodard |
|
|
|
|
Lighting & |
|
Outdoor |
|
Segment |
Three Months Ended |
|
Accessories |
|
Furniture |
|
Total |
December 31, 2008 |
|
|
34.3% |
|
|
26.8% |
|
|
31.1% |
December 31, 2007 |
|
|
36.5% |
|
|
- |
|
|
|
36.5% |
|
|
|
|
|
|
|
Percent decrease |
|
|
(2.2%) |
|
|
- |
|
|
|
(5.4%) |
|
|
|
|
|
|
|
Decreases in gross margin for ceiling fans and lighting is primarily due to changes in sales mix to
items that carry a lower margin, as well as the sell-through of higher cost inventory on hand from
earlier inflationary periods.
For fiscal year 2009, we expect gross profit as a percentage of net sales of ceiling fans and
lighting in the Specialty segment to be down slightly versus the results generated in the fiscal
year ended June 30, 2008, as the current economic downturn makes it more difficult for the Company
to increase pricing to its
customers. Gross profit as a percentage of net sales of Woodard outdoor furniture is expected to
increase slightly over fiscal 2008, as the Company has implemented higher pricing for the 2009
season, to offset cost of goods increases from its suppliers.
Gross profit as a percentage of net sales of the Mass segment decreased 11.1% to 12.9% of net sales
for the quarter ended December 31, 2008, from 24.0% of net sales in the same prior year period, as
summarized in the following table:
Gross Profit as a Percentage of Net Sales of Mass
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fans |
|
Woodard |
|
|
|
|
Lighting & |
|
Outdoor |
|
Segment |
Three Months Ended |
|
Accessories |
|
Furniture |
|
Total |
December 31, 2008 |
|
|
21.8% |
|
|
|
8.8% |
|
|
|
12.9% |
|
December 31, 2007 |
|
|
24.0% |
|
|
|
- |
|
|
|
24.0% |
|
|
|
|
|
|
|
|
Percent decrease |
|
|
(2.2%) |
|
|
|
- |
|
|
|
(11.1%) |
|
|
|
|
|
|
|
|
Gross profit as a percentage of net sales for the Mass segment decreased due to higher material
costs experienced in our Design Trends subsidiary. Mass gross profit as a percent of net sales for
Woodard outdoor furniture is low relative to other channels as all sales are direct import.
For fiscal year 2009, gross profit as a percentage of net sales of fans, lighting and accessories
are expected to remain consistent with the fiscal year ended June 30, 2008, provided that the
segment maintains a sales mix, customer concentration and level of vendor program commitment
similar to that maintained during fiscal year 2008.
Selling, General and Administrative Expenses. Total selling, general and administrative (SG&A)
expenses of the Company increased $2,656,000 to $7,633,000 or 20.5% of net sales for the quarter
ended December 31, 2008, from $4,977,000 or 23.9% of net sales for the same period last year.
23
Selling, General and Administrative Expenses
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
Three Months Ended |
|
(Decrease) |
|
|
December 31, |
|
December 31, |
|
Over Prior |
|
|
2008 |
|
2007 |
|
Year Period |
Historical Craftmade |
|
$ |
4,922 |
|
|
$ |
4,977 |
|
|
$ |
(55 |
) |
Woodard Incremental |
|
|
2,711 |
|
|
|
- |
|
|
|
2,711 |
|
|
|
|
|
|
|
|
|
|
$ |
7,633 |
|
|
$ |
4,977 |
|
|
$ |
2,656 |
|
|
|
|
|
|
|
|
The decrease in historical Craftmade expenses was primarily due to lower commissions and a
reduction in advertising spending offset by an increase in bad debt expense, incremental bank
charges and an increase in contract labor related to the integration of Woodard. These variances
are summarized below:
Historical Craftmade
Selling, General and Administrative Expenses
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
Three Months Ended |
|
(Decrease) |
|
|
December 31, |
|
December 31, |
|
Over Prior |
|
|
2008 |
|
2007 |
|
Year Period |
Advertising |
|
$ |
297 |
|
|
$ |
487 |
|
|
$ |
(190 |
) |
Commissions |
|
|
562 |
|
|
|
649 |
|
|
|
(87 |
) |
Bad Debt |
|
|
80 |
|
|
|
20 |
|
|
|
60 |
|
Bank Charges |
|
|
95 |
|
|
|
41 |
|
|
|
54 |
|
Contract Labor |
|
|
267 |
|
|
|
181 |
|
|
|
86 |
|
Other |
|
|
3,621 |
|
|
|
3,599 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
$ |
4,922 |
|
|
$ |
4,977 |
|
|
$ |
(55 |
) |
|
|
|
|
|
|
|
Management is focused on reducing SG&A expenses and anticipates that SG&A expenses for the second
half of fiscal year 2009 will decrease versus results generated in the first half. The integration
of the Woodard business is nearing completion, with most corporate functions having been relocated
from Chicago, Illinois and integrated into the Coppell, Texas location. As of early February the
former Woodard, LLC offices in Chicago have been closed, with the few remaining Chicago-based
personnel moving into a much smaller office space, generating significant savings. The Company has
also implemented a company-wide reorganization and reduction in force, impacting all locations and
functions and resulting in over 5% decrease in the number of employees. Management anticipates that
these actions will significantly reduce SG&A in future quarters.
Interest Expense. Net interest expense of the Company increased $119,000 to $417,000 for the
quarter ended December 31, 2008, from $298,000 for the quarter ended December 31, 2007. This
increase is primarily due to increased working capital associated with the acquisition of certain
assets of Woodard, LLC, partially offset by lower interest rates in effect as compared to the
previous year.
Minority Interest. Minority interest expense decreased $112,000 to $192,000 for the quarter ended
December 31, 2008, from $304,000 for the same period in the previous quarter. The decrease in
minority interest resulted from lower profits at Design Trends as a result of the decline in net
sales.
24
Provision for Income Taxes. The income tax benefit was $257,000 or 32.0% of loss before income
taxes for the quarter ended December 31, 2008, compared to an income tax provision of $260,000 or
35.0% of income before income taxes for the quarter ended December 31, 2007. The effective income
tax rate for the current quarter was different from the prior year quarter primarily due to the
weighted average tax effect of operating losses in certain legal entities of the Company. See Note
6 in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional detail
regarding the Companys policy for determining the provision for income taxes.
Six Months Ended December 31, 2008 Compared to Six Months Ended December 31, 2007
An unaudited, condensed overview of results for the six months ended December 31, 2008, and the
corresponding prior year period is summarized as follows:
Summary Income Statement by Segment
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
December 31, 2008 |
|
December 31, 2007 |
|
|
Specialty |
|
Mass |
|
Total |
|
Specialty |
|
Mass |
|
Total |
Net sales |
|
$ |
36,429 |
|
|
$ |
30,998 |
|
|
$ |
67,427 |
|
|
$ |
26,580 |
|
|
$ |
16,970 |
|
|
$ |
43,550 |
|
Cost of goods sold |
|
|
(24,811 |
) |
|
|
(26,440 |
) |
|
|
(51,251 |
) |
|
|
(17,085 |
) |
|
|
(12,421 |
) |
|
|
(29,506 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
11,618 |
|
|
|
4,558 |
|
|
|
16,176 |
|
|
|
9,495 |
|
|
|
4,549 |
|
|
|
14,044 |
|
As a % of net sales |
|
|
31.9% |
|
|
|
14.7% |
|
|
|
24.0% |
|
|
|
35.7% |
|
|
|
26.8% |
|
|
|
32.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
(10,423 |
) |
|
|
(5,107 |
) |
|
|
(15,530 |
) |
|
|
(7,306 |
) |
|
|
(3,212 |
) |
|
|
(10,518 |
) |
As a % of net sales |
|
|
28.6% |
|
|
|
16.5% |
|
|
|
23.0% |
|
|
|
27.5% |
|
|
|
18.9% |
|
|
|
24.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(369 |
) |
|
|
(131 |
) |
|
|
(500 |
) |
|
|
(287 |
) |
|
|
(131 |
) |
|
|
(418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
(10,792 |
) |
|
|
(5,238 |
) |
|
|
(16,030 |
) |
|
|
(7,593 |
) |
|
|
(3,343 |
) |
|
|
(10,936 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
$ |
826 |
|
|
$ |
(680 |
) |
|
|
146 |
|
|
$ |
1,902 |
|
|
$ |
1,206 |
|
|
|
3,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
(776 |
) |
|
|
|
|
|
|
|
|
|
|
(620 |
) |
Other income |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and minority interest |
|
|
|
|
|
|
|
|
|
|
(629 |
) |
|
|
|
|
|
|
|
|
|
|
2,488 |
|
Income taxes (expense) / benefit |
|
|
|
|
|
|
|
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
(586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest |
|
|
|
|
|
|
|
|
|
|
(321 |
) |
|
|
|
|
|
|
|
|
|
|
1,902 |
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
(353 |
) |
|
|
|
|
|
|
|
|
|
|
(802 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
$ |
(674 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales. Net sales for the Company increased $23,877,000 or 55% to $67,427,000 for the six
months ended December 31, 2008, from $43,550,000 for the six months ended December 31, 2007. The
increase is due to the acquisition of certain assets of Woodard, LLC, offset by declines in sales
in both segments.
Net sales from the Specialty segment increased $9,849,000 or 37% to $36,429,000 for the six months
ended December 31, 2008, from $26,580,000 for the six months ended December 31, 2007, as summarized
in the following table.
25
Net Sales of the Speciality Segment
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fans |
|
Woodard |
|
|
|
|
Lighting & |
|
Outdoor |
|
Segment |
Six Months Ended |
|
Accessories |
|
Furniture |
|
Total |
December 31, 2008 |
|
$ |
21,495 |
|
|
$ |
14,934 |
|
|
$ |
36,429 |
|
December 31, 2007 |
|
|
26,580 |
|
|
|
- |
|
|
|
26,580 |
|
|
|
|
|
|
|
|
Dollar increase (decrease) |
|
$ |
(5,085 |
) |
|
$ |
14,934 |
|
|
$ |
9,849 |
|
|
|
|
|
|
|
|
Percent increase (decrease) |
|
|
(19% |
) |
|
|
100% |
|
|
|
37% |
|
While the sales of fans and lighting related products continue to be affected by the extremely weak
overall housing market, overall segment sales increased due to the addition of outdoor furniture
sales.
Management continues to focus on introducing new products and expanding accounts to offset the weak
housing market and economic downturn. Management believes that long-term growth will be favorably
affected by additional product offerings through enhanced product development efforts, as well as
cross-selling outdoor furniture products to lighting showrooms and outdoor lighting and ceiling
fans to patio dealers, and focusing efforts on the hospitality markets.
The first and second quarter net sales of Woodard outdoor furniture were expected to decline versus
the third and fourth quarters of the prior fiscal year given Woodard seasonality. Historically,
sales of outdoor furniture to patio dealers are seasonally higher during the third and fourth
quarters of the Companys fiscal year, with the first and second quarter being considered the
off-season for outdoor furniture sales.
Net sales of the Mass segment increased $14,028,000 or 83% to $30,998,000 for the six months ended
December 31, 2008, from $16,970,000 for the six months ended December 31, 2007, as summarized in
the following table:
Net Sales of Mass Segment
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fans |
|
Woodard |
|
|
|
|
Lighting & |
|
Outdoor |
|
Segment |
Six Months Ended |
|
Accessories |
|
Furniture |
|
Total |
December 31, 2008 |
|
$ |
13,992 |
|
|
$ |
17,006 |
|
|
$ |
30,998 |
|
December 31, 2007 |
|
|
16,970 |
|
|
|
- |
|
|
|
16,970 |
|
|
|
|
|
|
|
|
Dollar increase (decrease) |
|
$ |
(2,978 |
) |
|
$ |
17,006 |
|
|
$ |
14,028 |
|
|
|
|
|
|
|
|
Percent increase (decrease) |
|
|
(18% |
) |
|
|
100% |
|
|
|
83% |
|
The decrease in net sales of fans, lighting and accessories was primarily the result of a decline
in: (i) orders from Lowes related to indoor lighting and outdoor lighting; (ii) non-core drop
shipped products; (iii) sales of fan accessories; and (iv), sales of the mix and match portable
lamps through Lowes.
26
Woodard sales were primarily comprised of sales to its various mass merchant customers. Most of
its products are shipped directly from China. Due to the seasonal nature of outdoor furniture, the
majority of sales to mass merchants occur from December to April each year.
Based on the most recent annual product line reviews, management believes that Lowes plans to
continue the respective programs it currently has with the Company. Management believes that,
based on the amount of product currently shipped to Lowes, the Company remains a primary vendor
for Lowes mix and match portable lamp and fan accessory/ceiling medallion programs. Management
has no reason not to believe that the Company will continue to be invited to participate in each of
Lowes scheduled reviews for its existing and new product lines. The line reviews occur on an
annual basis for each product category throughout the year and give us the potential to add new
SKUs to the Lowes program. However, participation in line reviews could also result in a partial
or complete reduction of the existing SKUs in the product lines currently offered to by the Company
to Lowes.
While competitive pricing is essential in the Mass segment, management believes that future growth
is contingent upon the success of the Companys ongoing efforts to introduce new products, styles
and marketing concepts to existing customers and the expansion of the business to new customers.
Gross Profit. Gross profit of the Company as a percentage of net sales decreased 8.2% to 24.0% for
the six months ended December 31, 2008, from 32.2% for the six months ended December 31, 2007,
primarily due to consolidated sales of Woodard products that carry a lower gross profit percentage
than the Companys historical operations.
Gross profit as a percentage of net sales of the Specialty segment decreased 3.8% to 31.9% for the
six months ended December 31, 2008, from 35.7% in the six months ended December 31, 2007. The
decrease is summarized in the following table.
Gross Profit as a Percentage of Net Sales of Specialty Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fans |
|
Woodard |
|
|
|
|
|
Lighting & |
|
Outdoor |
|
Segment |
Six Months Ended |
|
Accessories |
|
Furniture |
|
Total |
December 31, 2008 |
|
|
34.1 |
% |
|
|
28.7 |
% |
|
|
31.9 |
% |
December 31, 2007 |
|
|
35.7 |
% |
|
|
- |
|
|
|
35.7 |
% |
|
|
|
|
|
|
|
Percent decrease |
|
|
(1.6 |
%) |
|
|
- |
|
|
|
(3.8 |
%) |
|
|
|
|
|
|
|
Decreases in gross margin for ceiling fans and lighting is primarily due to changes in sales mix to
items that carry a lower margin, as well as inflation in the cost of goods sold.
For fiscal year 2009, we expect gross profit as a percentage of net sales of ceiling fans and
lighting in the Specialty segment to be down slightly versus the results generated in the fiscal
year ended June 30, 2008, as the current economic downturn makes it more difficult for the Company
to increase pricing to its customers. Gross profit as a percentage of net sales of Woodard outdoor
furniture is expected to increase slightly over fiscal 2008, as the Company has implemented higher
pricing for the 2009 season, to offset cost of goods increases from its suppliers.
Gross profit as a percentage of net sales of the Mass segment decreased 12.1% to 14.7% of net sales
for the six months ended December 31, 2008, from 26.8% of net sales in the same prior year period,
as summarized in the following table:
27
Gross Profit as a Percentage of Net Sales of Mass
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fans |
|
Woodard |
|
|
|
|
|
Lighting & |
|
Outdoor |
|
Segment |
Six Months Ended |
|
Accessories |
|
Furniture |
|
Total |
December 31, 2008 |
|
|
22.5 |
% |
|
|
8.3 |
% |
|
|
14.7 |
% |
December 31, 2007 |
|
|
26.8 |
% |
|
|
- |
|
|
|
26.8 |
% |
|
|
|
|
|
|
|
Percent decrease |
|
|
(4.3 |
%) |
|
|
- |
|
|
|
(12.1 |
%) |
|
|
|
|
|
|
|
Gross profit as a percentage of net sales for the Mass segment decreased due to higher material
costs experienced in our Design Trends subsidiary. Mass gross profit as a percent of net sales for
Woodard outdoor furniture is low relative to other channels as all sales are direct import.
For fiscal year 2009, gross profit as a percentage of net sales of fans, lighting and accessories
are expected to remain consistent with the fiscal year ended June 30, 2008, provided that the
segment maintains a sales mix, customer concentration and level of vendor program commitment
similar to that maintained during fiscal year 2008.
Selling, General and Administrative Expenses. Total selling, general and administrative (SG&A)
expenses of the Company increased $5,012,000 to $15,530,000 or 23.0% of net sales for the six
months ended December 31, 2008, from $10,518,000 or 24.2% of net sales for the same period last
year.
Selling, General and Administrative Expenses
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
Six Months Ended |
|
|
(Decrease) |
|
|
|
December 31, |
|
|
December 31, |
|
|
Over Prior |
|
|
|
2008 |
|
2007 |
|
Year Period |
Historical Craftmade |
|
$ |
10,244 |
|
|
$ |
10,518 |
|
|
$ |
(274 |
) |
Woodard Incremental |
|
|
5,286 |
|
|
|
- |
|
|
|
5,286 |
|
|
|
|
|
|
|
|
|
|
$ |
15,530 |
|
|
$ |
10,518 |
|
|
$ |
5,012 |
|
|
|
|
|
|
|
|
The decrease in historical Craftmade expenses was primarily due to lower commissions, lower
insurance claims and a reduction in advertising spending, offset by an increase in bad debt
expense, incremental bank charges and an increase in contact labor related to the integration of
Woodard. These variances are summarized below:
28
Historical Craftmade
Selling, General and Administrative Expenses
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
Six Months Ended |
|
(Decrease) |
|
|
|
December 31, |
|
December 31, |
|
Over Prior |
|
|
2008 |
|
2007 |
|
Year Period |
Advertising |
|
$ |
778 |
|
|
$ |
1,002 |
|
|
$ |
(224 |
) |
Commissions |
|
|
1,254 |
|
|
|
1,410 |
|
|
|
(156 |
) |
Group insurance |
|
|
456 |
|
|
|
605 |
|
|
|
(149 |
) |
Accounting, legal and consulting |
|
|
1,189 |
|
|
|
1,247 |
|
|
|
(58 |
) |
Contract labor |
|
|
464 |
|
|
|
359 |
|
|
|
105 |
|
Bank charges |
|
|
151 |
|
|
|
86 |
|
|
|
65 |
|
Travel |
|
|
304 |
|
|
|
243 |
|
|
|
61 |
|
Bad debt |
|
|
97 |
|
|
|
41 |
|
|
|
56 |
|
Other |
|
|
5,551 |
|
|
|
5,525 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
$ |
10,244 |
|
|
$ |
10,518 |
|
|
$ |
(274 |
) |
|
|
|
|
|
|
|
Management is focused on reducing SG&A expenses and anticipates that SG&A expenses for the second
half of fiscal year 2009 will decrease versus results generated in the first half. The integration
of the Woodard business is nearing completion, with most corporate functions having been relocated
from Chicago, Illinois and integrated into the Coppell, Texas location. As of early February the
former Woodard, LLC offices in Chicago have been closed, with the few remaining Chicago-based
personnel moving into a much smaller office space, generating significant savings. The Company has
also implemented a company-wide reorganization and reduction in force, impacting all locations and
functions and resulting in over 5% decrease in the number of employees. Management anticipates that
these actions will have significant impact on SG&A in future quarters.
Interest Expense. Net interest expense of the Company increased $156,000 to $776,000 for the six
months ended December 31, 2008, from $620,000 for the six months ended December 31, 2007. This
increase is primarily due to increased working capital associated with the acquisition of certain
assets of Woodard, LLC, partially offset by lower interest rates in effect as compared to the
previous year.
Minority Interest. Minority interest expense decreased $449,000 to $353,000 for the six months
ended December 31, 2008, from $802,000 for the same period in the previous six months. The
decrease in minority interest resulted from lower profits at Design Trends as a result of the
decline in net sales.
Provision for Income Taxes. The income tax benefit was $308,000 or 31.3% of loss before income
taxes for the six months ended December 31, 2008, compared to an income tax provision of $586,000
or 34.8% of income before income taxes for the six months ended December 31, 2007. The effective
income tax rate for the current six months was different from the prior year six months primarily
due to the weighted average tax effect of operating losses in certain legal entities of the
Company. See Note 6 in the Notes to the Unaudited Condensed Consolidated Financial Statements for
additional detail regarding the Companys policy for determining the provision for income taxes.
29
Liquidity and Capital Resources
The Companys cash decreased $1,164,000 from $1,269,000 at June 30, 2008 to $105,000 at
December 31, 2008. Net cash used by the Companys operating activities was $9,878,000 for the six
months ended December 31, 2008, compared to cash provided by the Companys operating activities of
$3,271,000 for the same period last year. The increased use of cash was primarily due to increased
inventories and receivables related to the beginning of the Woodard furniture selling season in
December, and higher overall inventory levels related to the rapid drop in demand as the economic
downturn accelerated during the last months of calendar 2008.
The $1,248,000 of cash used in investing activities for the six months ended December 31, 2008
was primarily related to additional contingent consideration for the acquisition of Marketing
Impressions, Inc., investing in tooling for the Owosso, Michigan production facility, and leasehold
improvements in both the new outdoor furniture showroom in Chicago, Illinois, and the existing fan
and lighting showroom in Dallas, Texas.
The $9,962,000 of cash provided by financing activities for the six months ended December 31,
2008 primarily resulted from drawing on the Companys lines of credit to support increased
inventory and receivable levels.
As of December 31, 2008 the Company re-classed as current the outstanding balance on its line
of credit with the Frost National Bank and certain other lenders due to the maturity of the credit
agreement on December 31, 2009. The Company is currently working on refinancing the line of credit
prior to the maturity of the existing agreement, but there can be no assurance that we will be able
to do so on terms favorable to the Company or at all. In addition, the Company is currently
evaluating various financing options regarding its facilities in Owosso, Michigan and Coppell,
Texas.
Based on the financial covenants under the Companys line of credit with Frost National Bank
and certain other lenders, the Company was not in compliance with its Fixed Charge Coverage Ratio
covenant at December 31, 2008. The Company has subsequently secured a waiver related to the Fixed
Charge Coverage Ratio for the quarter ended December 31, 2008. No amendments were made to the loan
agreement and there was no effect on the Companys consolidated financial statements as a result of
the noncompliance or the corresponding grant of waiver.
Management anticipates that future cash flows will be used primarily to retire existing debt,
fund potential acquisitions, repurchase Common Stock or fund other investments that will enhance
long-term shareholder value and distribute earnings to its minority interest member. The Company
remains committed to its business strategy of creating long-term earnings growth, maximizing
stockholder value through internal improvements, making selective acquisitions and dispositions of
assets, focusing on cash flow and retaining quality personnel.
Recent Accounting Pronouncements
In December 2007, FASB issued Statement of Financial Accounting Standards No. 141 (revised
2007), Business Combinations, (SFAS 141(R)). SFAS 141(R) amends the principles and requirements
for how an acquirer recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquired company and the
goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination. SFAS 141(R) is effective for the
Company on July 1, 2009, and the Company will apply SFAS 141(R) prospectively to all business
combinations subsequent to the effective date.
30
In December 2007, FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements an amendment of Accounting Research
Bulletin No. 51 (SFAS 160). SFAS 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish between the
controlling and noncontrolling interests and requires the separate disclosure of income
attributable to controlling and noncontrolling interests. SFAS 160 is effective for fiscal years
beginning after December 15, 2008. The Company is currently evaluating the impact that the adoption
of SFAS 160 will have on its consolidated financial statements.
In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. Companies should report unrealized
gains and losses on items for which the fair value option has been elected in earnings at each
subsequent reporting date. This statement was effective for the Company as of July 1, 2008 but
currently has no impact on the Companys consolidated financial statements.
In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). This
statement defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value measurements. This
statement applies under other accounting pronouncements that require or permit fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim
periods within those years. The FASB has also issued Staff Position FAS 157-2 (FSP 157-2), which
delays the effective date of SFAF 157 for non-financial assets and liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a recurring basis
(at least annually), until fiscal years beginning after November 15, 2008. The Company has adopted
SFAS 157 and will apply it where, and if, appropriate and is currently assessing the impact of FSP
157-2 which is effective for the Company as of July 1, 2009.
In July 2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48) which clarifies the accounting for uncertainty in income taxes recognized under FASB
Statement No. 109, Accounting for Income Taxes. FIN 48 addresses the recognition and measurement
of tax positions taken or expected to be taken, and also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods and disclosure. We adopted
and applied FIN 48 under the transition provisions to all of our income tax positions at the
required effective date of July 1, 2007. See Note 6 in the Notes to the Unaudited Condensed
Consolidated Financial Statements for additional detail.
31
Long-Term Obligations
The Companys long-term obligations are summarized in the following table:
Summary of Long Term Obligations
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
Balance |
|
Current |
|
|
|
|
Commitment |
|
Dec. 31, 2008 |
|
Interest Rate |
|
Maturity |
Revolving line of credit |
|
$ |
50,000 |
|
|
$ |
28,496 |
|
|
LIBOR plus 1.50% |
|
|
December 31, 2009 |
|
Note payable
- facility |
|
|
n/a |
|
|
|
10,552 |
|
|
6.5% |
|
|
|
December 10, 2017 |
|
Capital lease obligation |
|
|
n/a |
|
|
|
91 |
|
|
|
|
|
|
November 5, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
|
|
|
|
39,139 |
|
|
|
|
|
|
|
|
|
Less: current amounts due |
|
|
|
|
|
|
29,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations |
|
|
|
|
|
$ |
10,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 31, 2007, Craftmade entered into a Third Amended and Restated Loan Agreement (the
Loan Agreement) with The Frost National Bank (Frost). The Loan Agreement amends the Second
Amended and Restated Loan Agreement dated September 18, 2006, between Craftmade and Frost. Also,
on March 31, 2008, Craftmade executed (i) a Revolving Promissory Note (the Frost Note) payable to
the order of Frost, in the principal amount of $20,000,000, (ii) a Revolving Promissory Note (the
Whitney Note) payable to the order of Whitney National Bank, in the principal amount of
$20,000,000 and (iii) a Revolving Promissory Note (the Commerce Note and, together with the Frost
Note and the Whitney Note, the Notes) payable to the order of Commerce Bank, N.A. in the
principal amount of $10,000,000. Each Note bears an interest rate equal to the London Interbank
Offered Rate (LIBOR) plus 1.5%. All Notes will mature on December 31, 2009. The Notes replace
the Promissory Note in the principal amount of $30,000,000, payable to the order of Frost dated
September 18, 2006. As a result of this transaction, total credit lines available to Craftmade and
its subsidiaries have increased from $30,000,000 to $50,000,000. Per the borrowing base
established in the Loan Agreement, there was $9,240,186 available to borrow under the Notes at
December 31, 2008.
Pursuant to the Loan Agreement, the financial covenants require Craftmade to maintain a ratio
of total liabilities (excluding any subordinated debt) to tangible net worth of not greater than
2.5 to 1.0 for the quarters ending June, 30, September 30 and December 31 and not greater than 3.25
to 1.0 for the quarter ending March 31. The financial covenants require a Fixed Charge Coverage
Ratio (as defined in the Loan Agreement) of not less than 1.25 to 1.0, tested quarterly.
Effective September 30, 2008 the Company entered into a First Amendment (the Amendment) to
the Loan Agreement which excludes non-financed capital expenditures less than $500,000 in aggregate
from the calculation of the numerator of the Fixed Charge Coverage Ratio. In addition, the Company
has agreed not to purchase stock or issue a dividend unless the Fixed Charge Coverage Ratio for the
preceding fiscal quarter exceeds 1.75 to 1.0.
Based on the Loan Agreement and the Amendment, the Company was not in compliance with its
Fixed Charge Coverage Ratio covenant at December 31, 2008. The Company has subsequently secured a
waiver related to the Fixed Charge Coverage Ratio for the quarter ended December 31, 2008. No
amendments were made to the Loan Agreement or the Amendment and there was no effect on the
Companys consolidated financial statements as a result of the noncompliance or the corresponding
grant of waiver.
All wholly-owned subsidiaries of Craftmade and Design Trends LLC, a 50% owned subsidiary of
Craftmade, have agreed to be guarantors of the Loan Agreement (the Guarantors). Each of Craftmade
32
and the Guarantors has granted a security interest to Frost in each of its accounts and
inventory. Further information regarding this Loan Agreement and Notes is detailed in the
Companys Form 8-K filed with the SEC on January 7, 2008.
As of December 31, 2008 the Company re-classed the outstanding balance on its line of credit
to current liabilities due to the maturity of the credit agreement on December 31, 2009. The
Company is currently working on refinancing its line of credit prior to the maturity of the
existing agreement.
On November 14, 2007, the Company entered into a term loan to refinance its home office and
warehouse with an original principal balance of $11,000,000. The loan is payable in equal monthly
installments of principal and interest of $95,822. The loan bears an interest rate of 6.5% per
year. The loan is collateralized by the building and land. The loan is scheduled to mature on
December 10, 2017. Further information regarding this loan is detailed in the Companys Form 8-K
filed with the SEC on November 20, 2007.
|
|
|
Item 3.
|
|
Quantitative and Qualitative Disclosures About Market Risk |
|
|
|
|
|
Market risks at December 31, 2008 have not changed significantly from those discussed in
Item 7A of the Companys Annual Report on Form 10-K for the year ended June 30, 2008, as
filed with the SEC on September 26, 2008. |
|
|
|
Item 4.
|
|
Controls and Procedures |
|
|
|
|
|
Disclosure Controls and Procedures |
|
|
|
|
|
As of the end of the period covered by this report, the Company conducted an evaluation,
under the supervision and with the participation of the principal executive officer and
principal financial officer, of the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this
evaluation, the principal executive officer and principal financial officer concluded
that, as of the end of the period covered by this report, the Companys disclosure
controls and procedures are effective. Notwithstanding the foregoing, a control system,
no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that it will detect or uncover failures within the Company to disclose material
information otherwise required to be set forth in the Companys periodic reports. |
|
|
|
|
|
Changes in Internal Controls |
|
|
|
|
|
There was no change in the Companys internal control over financial reporting (as such
term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
Companys most recently completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over financial
reporting. |
33
PART II
OTHER INFORMATION
|
|
|
Item 1.
|
|
Legal Proceedings |
|
|
|
|
|
The Company is involved in various claims, lawsuits and proceedings arising in the
ordinary course of business. There are uncertainties inherent in the ultimate outcome of
such matters and it is difficult to determine the ultimate costs that we may incur. We
believe the resolution of such uncertainties and the incurrence of such costs will not
have a material adverse effect on our consolidated financial position, results of
operations or cash flows. |
|
|
|
Item 1A.
|
|
Risk Factors |
|
|
|
|
|
The Company published an extensive list of risk factors in the Companys Annual Report on
Form 10-K for the fiscal year ended June 30, 2008, as filed with the SEC on September 26,
2008. While there have been no material changes in the specific risk factors noted at that
time, the overall level of business risk across most industries, including those which the
Company participates in, have increased significantly since June 30, 2008. The current
broad economic downturn has affected all aspects of business, including but not limited to
employment levels, consumer spending, inflation, interest rates, availability of credit,
and foreign exchange rates. These factors have and will continue to affect the Company and
its suppliers, customers, employees, bank partners and competitors. Management is focused
on continuing to create value for our shareholders, but there can be no certainty as to
the length and severity of this current severe downturn or to the impact on the Companys
future operating results. |
|
|
|
Item 2.
|
|
Unregistered Sales of Equity Securities and Use of Proceeds |
|
|
|
|
|
Not Applicable |
|
|
|
Item 3.
|
|
Defaults Upon Senior Securities |
|
|
|
|
|
Not Applicable |
|
|
|
Item 4.
|
|
Submission of Matters to a Vote of Security Holders |
The Company held its annual meeting of stockholders on November 25, 2008. With respect to
the election of directors, the shares were voted as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Votes |
|
|
of Common Stock |
Nominee |
|
For |
|
|
Withheld |
James R. Ridings |
|
|
4,527,741 |
|
|
|
365,764 |
|
William E. Bucek |
|
|
4,553,503 |
|
|
|
340,002 |
|
A. Paul Knuckley |
|
|
4,520,770 |
|
|
|
372,735 |
|
R. Don Morris |
|
|
4,666,828 |
|
|
|
226,677 |
|
Lary C. Snodgrass |
|
|
4,670,183 |
|
|
|
223,322 |
|
With respect to the ratification of BDO Seidman, LLP as the Companys independent auditors for
2009, the votes were as follows:
|
|
|
|
|
|
|
|
|
Number of Votes |
|
Number of Votes |
|
|
|
|
Voted For |
|
Voted Against |
|
|
Abstentions |
4,878,469 |
|
|
11,305 |
|
|
|
3,731 |
|
34
|
|
|
Item 5.
|
|
Other Information |
On February 13, 2009, the Company secured a Waiver to Third Amended and Restated Loan
Agreement (the Waiver) with The Frost National Bank (Frost) and certain other lenders.
The Waiver is only in relation to the Fixed Charge Coverage Ratio covenant under the Loan
Agreement and Amendment, and is only in effect for the quarter ended December 31, 2008.
35
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
2.1
|
|
Asset Purchase Agreement dated as of December 18, 2007, by and among
Woodard, LLC, Henry Crown and Company d/b/a CC Industries, Inc. and Craftmade
International, Inc., previously filed as Exhibit 2.1 to Form 8-K on January 4, 2008
(File No. 000-26667), and incorporated by reference herein. |
|
|
|
|
|
Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed
herewith the schedules and exhibits to the foregoing exhibit and agrees to
furnish supplementally to the Securities and Exchange Commission, upon request,
any omitted schedules or similar attachments to the foregoing exhibit. |
|
|
|
2.2
|
|
Stock Purchase Agreement between Craftmade International, Inc., Trade
Source International, Inc., and Robert W. Lackey, dated September 15, 2006,
previously filed as Exhibit 10.1 to Form 8-K dated September 15, 2006 (File
No. 000-26667), and incorporated by reference herein. |
|
|
|
|
|
Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed
herewith the schedules and exhibits to the foregoing exhibit and agrees to
furnish supplementally to the Securities and Exchange Commission, upon request,
any omitted schedules or similar attachments to the foregoing exhibit. |
|
|
|
2.3
|
|
Agreement for the Purchase and Sale of Personal Goodwill between Trade
Source International, Inc. and Robert Lackey, dated September 15, 2006, previously
filed as Exhibit 10.2 to Form 8-K dated September 15, 2006 (File No. 000-26667),
and incorporated by reference herein. |
|
|
|
2.4
|
|
Agreement for the Purchase and Sale of Personal Goodwill between Trade
Source International, Inc. and Robert Lackey, Jr., dated September 15, 2006,
previously filed as Exhibit 10.3 to Form 8-K dated September 15, 2006 (File
No. 000-26667), and incorporated by reference herein. |
|
|
|
2.5
|
|
Intellectual Property Assignment by and between Trade Source
International, Inc., Robert W. Lackey, Robert W. Lackey, Jr., RWL Incorporated
f/k/a Robert W. Lackey Corporation and R.L. Products Corporation, dated
September 15, 2006, previously filed as Exhibit 10.4 to Form 8-K dated September
15, 2006 (File No. 000-26667), and incorporated by reference herein. |
|
|
|
2.6
|
|
Non-Competition Agreement between Trade Source International, Inc. and
Robert W. Lackey, dated September 15, 2006, previously filed as Exhibit 10.5 to
Form 8-K dated September 15, 2006 (File No. 000-26667), and incorporated by
reference herein. |
|
|
|
2.7
|
|
Non-Competition Agreement between Trade Source International and Robert
W. Lackey, Jr., dated September 15, 2006, previously filed as Exhibit 10.6 to
Form 8-K dated September 15, 2006 (File No. 000-26667), and incorporated by
reference herein. |
|
|
|
2.8
|
|
Consulting Agreement by and between Craftmade International, Inc.,
Trade Source |
36
|
|
|
|
|
International, Inc. and Imagine One Resources, LLC, dated
September 15, 2006, previously filed as Exhibit 10.7 to Form 8-K dated September
15, 2006 (File No. 000-26667), and incorporated by reference herein. |
|
|
|
2.9
|
|
Partially Subordinate Security Agreement among Trade Source
International, Inc., Marketing Impressions, Inc., Prime Home Impressions, LLC, and
Robert Lackey, (Lackey), as collateral agent for Lackey, Robert W. Lackey, Jr.,
Imagine One Resources, LLC, RWL Corporation and R.L. Products Corporation, dated
September 15, 2006, previously filed as Exhibit 10.8 to Form 8-K dated September
15, 2006 (File No. 000-26667), and incorporated by reference herein. |
|
|
|
2.10
|
|
Subordination Agreement by and among Robert W. Lackey (Lackey), as
collateral agent for Lackey, Robert W. Lackey, Jr., Imagine One Resources, LLC, RWL
Corporation, R.L. Products Corporation, and The Frost National Bank, Trade Source
International, Inc., Marketing Impressions, Inc., Prime/Home Impressions, LLC and
Craftmade International, Inc., dated September 15, 2006, previously filed as
Exhibit 10.9 to Form 8-K dated September 15, 2006 (File No. 000-26667), and
incorporated by reference herein. |
|
|
|
2.11
|
|
Agreement and Plan of Merger by and among Craftmade International,
Inc., Bill Teiber Co., Inc., Teiber Lighting Products, Inc., Todd Teiber and Edward
Oberstein dated March 1, 2005, previously filed as Exhibit 10.1 to Form 8-K dated
March 1, 2005 (File No. 000-26667), and incorporated by reference herein. |
|
|
|
2.12
|
|
Agreement and Plan of Merger, dated as of July 1, 1998, by and among
Craftmade International, Inc., Trade Source International, Inc. a Delaware
corporation, Neall and Leslie Humphrey, John DeBlois, the Wiley Family Trust, James
Bezzerides, the Bezzco Inc. Employee Retirement Trust and Trade Source
International, Inc, a California corporation, filed as Exhibit 2.1 to Form 8-K
filed July 15, 1998 (File No. 33-33594-FW) and incorporated by reference herein. |
|
|
|
3.1
|
|
Certificate of Incorporation of the Company, filed as Exhibit 3(a)(2)
to the Companys Post Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW),
and incorporated by reference herein. |
|
|
|
3.2
|
|
Certificate of Amendment of Certificate of Incorporation of the
Company, dated March 24, 1992, and filed as Exhibit 4.2 to the Companys Form S-8
(File No. 333-44337), and incorporated by reference herein. |
|
|
|
3.3
|
|
Amended and Restated Bylaws of the Company, filed as Exhibit 3(b)(2) to
the Companys Post Effective Amendment No. 1 to Form S-8 (File No. 33-33594-FW),
and incorporated by reference herein. |
|
|
|
4.1
|
|
Specimen Common Stock Certificate, filed as Exhibit 4.4 to the
Companys registration statement on Form S-3 (File No. 333-70823), and incorporated
by reference herein. |
|
|
|
4.2
|
|
Rights Agreement, dated as of June 23, 1999, between Craftmade
International, Inc. and Harris Trust and Savings Bank, as Rights Agent, previously
filed as Exhibit 4 to Form 8-K dated July 9, 1999 (File No. 000-26667), and
incorporated by reference herein. |
37
|
|
|
10.1
|
|
Promissory Note dated November 14, 2007, in the original principal
amount of $11,000,000 payable to the order of Allianz Life Insurance Company of
North America and executed by CM Real Estate, LLC., previously filed as Exhibit
10.1 to Form 8-K on November 20, 2007 (File No. 000-26667), and incorporated by
reference herein. |
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10.2
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Deed of Trust, Mortgage and Security Agreement by CM Real Estate, LLC,
effective November 14, 2007, previously filed as Exhibit 10.2 to Form 8-K on
November 20, 2007 (File No. 000-26667), and incorporated by reference herein. |
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10.3
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Guaranty Agreement dated November 14, 2007, by Craftmade International,
Inc. in favor of Allianz Life Insurance Company of North America, previously filed
as Exhibit 10.3 to Form 8-K on November 20, 2007 (File No. 000-26667), and
incorporated by reference herein. |
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10.4
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Lease Agreement dated as of November 14, 2007, between CM Real Estate,
LLC and Craftmade International, Inc., previously filed as Exhibit 10.4 to Form 8-K
on November 20, 2007 (File No. 000-26667), and incorporated by reference herein. |
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10.5
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Third Amended and Restated Loan Agreement Among Craftmade
International, Inc., the Frost National Bank, As Administrative Agent, and the
Other Lenders Party Hereto, dated December 31, 2007, previously filed as Exhibit
10.1 to Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by
reference herein. |
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10.6
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First Amendment to Credit Agreement, effective September 30, 2008,
Among Craftmade International, Inc., the Frost National Bank, As Administrative
Agent, and the Other Lenders Party Thereto, dated November 10, 2008, previously
filed as Exhibit 10.6 to Form 10-Q on November 14, 2008 (File No. 000-26667), and
incorporated by reference herein. |
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10.7*
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Waiver to Third Amended and Restated Loan Agreement, dated February
13, 2009, Among Craftmade International, Inc., the Frost National Bank, As
Administrative Agent, and the Other Lenders Party Thereto. |
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10.8
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Revolving Promissory Note Between Craftmade International, Inc., and
The Frost National Bank, dated December 31, 2007, previously filed as Exhibit 10.2
to Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by reference
herein. |
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10.9
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Revolving Promissory Note Between Craftmade International, Inc., and
Whitney National Bank, dated December 31, 2007, previously filed as Exhibit 10.3 to
Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by reference
herein. |
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10.10
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Revolving Promissory Note Between Craftmade International, Inc., and
Commerce Bank, N.A., dated December 31, 2007, previously filed as Exhibit 10.4 to
Form 8-K on January 7, 2008 (File No. 000-26667), and incorporated by reference
herein. |
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10.11
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Craftmade International, Inc. 2006 Long-Term Incentive Plan,
previously filed as Exhibit 10.1 to Form 8-K dated November 28, 2006 (File No.
000-26667), and incorporated by reference herein. |
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10.12
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Incentive Stock Option Agreement, previously filed as Exhibit 10.2 to
Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein. |
38
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10.13
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Non-qualified Stock Option Agreement, previously filed as Exhibit 10.3
to Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein. |
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10.14
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Stock Appreciation Rights Agreement, previously filed as Exhibit 10.4
to Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein. |
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10.15
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Restricted Stock Award Agreement, previously filed as Exhibit 10.5 to
Form 8-K dated November 28, 2006 (File No. 000-26667), and incorporated by
reference herein. |
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31.1*
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Certification of J. Marcus Scrudder, Chief Executive Officer of the
Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2*
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Certification of C. Brett Burford, Chief Financial Officer of the
Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1*
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Certification of J. Marcus Scrudder, Chief Executive Officer of the
Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2*
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Certification of C. Brett Burford, Chief Financial Officer of the
Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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* |
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Each document marked with an asterisk is filed or furnished
herewith. |
39
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.
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CRAFTMADE INTERNATIONAL, INC. |
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(Registrant) |
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Date: February 17, 2009
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/s/ J. Marcus Scrudder
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J. MARCUS SCRUDDER
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Chief Executive Officer |
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Date: February 17, 2009
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/s/ C. Brett Burford
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C. BRETT BURFORD
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Chief Financial Officer |
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40