Attached files
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EX-32.2 - EXHIBIT 32.2 - CRAFTMADE INTERNATIONAL INC | c92518exv32w2.htm |
EX-31.2 - EXHIBIT 31.2 - CRAFTMADE INTERNATIONAL INC | c92518exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - CRAFTMADE INTERNATIONAL INC | c92518exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - CRAFTMADE INTERNATIONAL INC | c92518exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended September 30, 2009
OR
o | 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)
DELAWARE | 75-2057054 | |
(State or other jurisdiction of | (I.R.S. employer | |
incorporation or organization) | identification no.) |
650 SOUTH ROYAL LANE, SUITE 100
COPPELL, TEXAS 75019
(Address of principal executive offices)
(Zip code)
COPPELL, TEXAS 75019
(Address of principal executive offices)
(Zip code)
(972) 393-3800
(Registrants telephone number, including area code)
(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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o 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.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
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 November 6, 2009.
CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
AND SUBSIDIARIES
TABLE OF CONTENTS
1 | ||||||||
19 | ||||||||
30 | ||||||||
30 | ||||||||
31 | ||||||||
31 | ||||||||
31 | ||||||||
31 | ||||||||
31 | ||||||||
32 | ||||||||
33 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
Table of Contents
PART I
FINANCIAL INFORMATION
FINANCIAL INFORMATION
Item 1. | Financial Statements |
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended | ||||||||
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
Net sales |
$ | 21,048 | $ | 30,165 | ||||
Cost of goods sold |
(15,231 | ) | (21,695 | ) | ||||
Gross profit |
5,817 | 8,470 | ||||||
Gross profit as a percentage of net sales |
27.6 | % | 28.1 | % | ||||
Selling, general and administrative expenses |
(5,876 | ) | (7,897 | ) | ||||
Depreciation and amortization |
(263 | ) | (238 | ) | ||||
Total operating expenses |
(6,139 | ) | (8,135 | ) | ||||
Income (loss) from operations |
(322 | ) | 335 | |||||
Interest expense, net |
(343 | ) | (359 | ) | ||||
Other income |
| 5 | ||||||
Loss before income taxes |
(665 | ) | (19 | ) | ||||
Income tax benefit |
288 | 51 | ||||||
Net income (loss) |
(377 | ) | 32 | |||||
Less: Net income attributable to noncontrolling interest |
218 | 161 | ||||||
Net loss attributable to Craftmade International |
$ | (595 | ) | $ | (129 | ) | ||
Weighted average common shares outstanding: |
||||||||
Basic |
5,705 | 5,705 | ||||||
Diluted |
5,705 | 5,705 | ||||||
Basic loss per common share |
$ | (0.10 | ) | $ | (0.02 | ) | ||
Diluted loss per common share |
$ | (0.10 | ) | $ | (0.02 | ) | ||
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
1
Table of Contents
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, | June 30, | |||||||
2009 | 2009 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash |
$ | 126 | $ | 384 | ||||
Accounts receivable, net |
21,326 | 25,290 | ||||||
Inventories, net |
20,078 | 20,563 | ||||||
Income taxes receivable |
2,052 | 1,780 | ||||||
Deferred income taxes |
1,392 | 1,367 | ||||||
Prepaid expenses and other current assets |
2,569 | 2,443 | ||||||
Total current assets |
47,543 | 51,827 | ||||||
Property and equipment, net |
10,955 | 11,141 | ||||||
Goodwill |
15,249 | 14,947 | ||||||
Other intangibles, net |
1,050 | 1,097 | ||||||
Other assets |
2,290 | 1,856 | ||||||
Total non-current assets |
29,544 | 29,041 | ||||||
Total assets |
$ | 77,087 | $ | 80,868 | ||||
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Book overdrafts |
$ | 191 | $ | 8 | ||||
Accounts payable |
7,273 | 7,231 | ||||||
Other accrued expenses |
1,732 | 2,422 | ||||||
Current portion of long-term obligations |
826 | 542 | ||||||
Total current liabilities |
10,022 | 10,203 | ||||||
Non-current liabilities |
||||||||
Long-term obligations |
26,638 | 29,886 | ||||||
Deferred income taxes |
1,127 | 1,122 | ||||||
Total non-current liabilities |
27,765 | 31,008 | ||||||
Total liabilities |
37,787 | 41,211 | ||||||
Stockholders equity |
||||||||
Craftmade International stockholders equity: |
||||||||
Common stock, $0.01 par value, 15,000,000 shares authorized;
10,204,420 shares issued |
102 | 102 | ||||||
Additional paid-in capital |
22,353 | 22,335 | ||||||
Retained earnings |
51,220 | 51,814 | ||||||
Less: treasury stock, 4,499,920
common shares at cost |
(38,126 | ) | (38,126 | ) | ||||
Total Craftmade International stockholders equity |
35,549 | 36,125 | ||||||
Noncontrolling interest |
3,751 | 3,532 | ||||||
Total equity |
39,300 | 39,657 | ||||||
Total liabilities and stockholders equity |
$ | 77,087 | $ | 80,868 | ||||
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
2
Table of Contents
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Three Months Ended | ||||||||
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
Net cash provided by (used in) operating activities |
$ | 2,789 | $ | (1,801 | ) | |||
Cash flows from investing activities |
||||||||
Additional contingent consideration |
(170 | ) | (201 | ) | ||||
Additions property, equipment and tooling |
(98 | ) | (646 | ) | ||||
Cash used in investing activities |
(268 | ) | (847 | ) | ||||
Cash flows from financing activities |
||||||||
Net proceeds from (payments on) notes payable |
3,331 | (113 | ) | |||||
Net proceeds from (payments on) lines of credit |
(6,283 | ) | 2,145 | |||||
Increase (decrease) in book overdrafts |
185 | (164 | ) | |||||
Principal payments on capital lease |
(12 | ) | (11 | ) | ||||
Net cash provided by (used in) financing activities |
(2,779 | ) | 1,857 | |||||
Net decrease in cash |
(258 | ) | (791 | ) | ||||
Cash at beginning of period |
384 | 1,269 | ||||||
Cash at end of period |
$ | 126 | $ | 478 | ||||
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
3
Table of Contents
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2009, 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.
The Company believes that the disclosures are adequate to provide fair presentation of the
results of operations and financial position for the interim periods. The current interim
period information reported herein should 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, 2009, filed with the SEC on September 28, 2009. 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
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 resulted in closing the
Chicago, Illinois office in February 2009. The Company has since opened a small satellite
office in Chicago to house the few remaining Chicago-based Woodard personnel.
5
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Purchase Price Summary
(Dollars in thousands)
(Dollars in thousands)
Cash paid at closing |
$ | 16,168 | ||
GAAP value of 500,000 shares issued |
4,000 | (1) | ||
Value of 200,000 Warrants |
279 | (2) | ||
Purchase price adjustment (Settled April, 2008) |
(1,272 | ) | ||
Total consideration |
$ | 19,175 | ||
(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: |
Expected volatility |
33 | % | ||
Risk-free interest rate |
3.81 | % | ||
Expected lives |
10 years | |||
Dividend yield |
5.8 | % |
Criteria have been established by FASB for business combinations which determine
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.
6
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 Company reserved $692,000 which was charged to the acquisition, related to
restructuring costs at the date of the acquisition. In the quarter ended September 30,
2009 there were severance related cash payments of $142,000 charged to the reserve, and an
aggregate of $679,000 has been paid since the date of acquisition.
7
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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)
(Dollars in thousands)
As of September 30, 2009: |
||||
Amount paid at closing, net of cash acquired |
$ | 1,287 | ||
Contingent payments earned |
3,116 | |||
Acquisition-related costs |
220 | |||
Total consideration as of September 30, 2009 |
$ | 4,623 | ||
Percent of Adjusted Gross Profit |
||||
July 1, 2006 to August 31, 2011 |
22 | % | ||
Additional 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 $826,000. In
accordance with FASB standards for business combinations, contingent consideration is
recorded when a contingency is satisfied and additional consideration is issued or becomes
issuable.
8
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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)
(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.
9
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 LOSS PER SHARE
The following is a reconciliation of the numerator and denominator used in the basic and
diluted EPS calculations:
Three Months Ended | ||||||||
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
(In thousands, except per share data) | ||||||||
Basic and diluted loss per share: |
||||||||
Numerator |
||||||||
Net loss
attributable to Craftmade International |
$ | (595 | ) | $ | (129 | ) | ||
Denominator for basic loss per share |
||||||||
Weighted average common shares outstanding |
5,705 | 5,705 | ||||||
Denominator for diluted loss per share |
||||||||
Weighted average common shares outstanding |
5,705 | 5,705 | ||||||
Incremental shares for stock options/warrants |
| | ||||||
Dilutive weighted average common shares |
5,705 | 5,705 | ||||||
Basic loss per share |
$ | (0.10 | ) | $ | (0.02 | ) | ||
Diluted loss per share |
$ | (0.10 | ) | $ | (0.02 | ) | ||
Anti-dilutive options and warrants have been excluded from the computation of diluted
earnings per share because assumed proceeds upon exercise, as defined by FASB standards on
stock based compensation, were greater than the cost to re-acquire the same number of
shares at the average market price, and therefore the effect would be anti-dilutive. On
September 30, 2009 and September 30, 2008 there were 339,200 and 360,200, respectively,
common stock options outstanding that were anti-dilutive and therefore were excluded from
the calculation of diluted earnings per share. As discussed further in Note 2
Acquisitions, on January 2, 2008 the Company issued 200,000 warrants. Accordingly, the
Company has included the dilutive effects, if any, of the warrants from its earnings per
share calculation since January 2, 2008.
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 SEGMENT INFORMATION
As of September 30, 2009, the Company operates in two reportable segments, Specialty and
Mass.
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 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, 2009, as filed with the SEC on September 28, 2009. The
Company evaluates the performance of its segments and allocates resources to them based on
their income from operations and cash flows.
11
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 | ||||||||
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Net sales |
||||||||
Specialty |
$ | 14,394 | $ | 20,471 | ||||
Mass |
6,654 | 9,694 | ||||||
Total |
$ | 21,048 | $ | 30,165 | ||||
Gross profit |
||||||||
Specialty |
$ | 4,110 | $ | 6,657 | ||||
Mass |
1,707 | 1,813 | ||||||
Total |
$ | 5,817 | $ | 8,470 | ||||
Income (loss) from operations |
||||||||
Specialty |
$ | (566 | ) | $ | 443 | |||
Mass |
244 | (108 | ) | |||||
Total |
$ | (322 | ) | $ | 335 | |||
12
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 STOCK-BASED COMPENSATION
Per FASB standards, the Company uses the modified prospective method which requires
compensation expense to be recorded for all unvested stock options and restricted shares.
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)
(Dollars in thousands)
Three Months Ended | ||||||||
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
Stock-based compensation expense recognized: |
||||||||
Selling, general & administrative |
$ | 27 | $ | 30 |
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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)
(Dollars in thousands)
Expected | ||||
Future | ||||
Compensation | ||||
Fiscal Year Ending |
Cost | |||
June 30, 2010 (remaining 9 months) |
$ | 81 | ||
June 30, 2011 |
55 | |||
June 30, 2012 |
17 | |||
$ | 153 | |||
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes information about outstanding and exercisable options
at September 30, 2009:
Summary of Stock Options
Weighted | Weighted | |||||||||||||||
Average | Exercise | Average | ||||||||||||||
Exercise | Price | Remaining | ||||||||||||||
Shares | Price | Range | Life (Years) | |||||||||||||
Outstanding at June 30, 2009 |
159,200 | 13.53 | ||||||||||||||
Granted |
| | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
(20,000 | ) | 8.01 | |||||||||||||
Outstanding at September 30, 2009 |
139,200 | $ | 14.32 | $ | 6.75-$25.20 | 7.1 | ||||||||||
Exercisable at September 30, 2009 |
65,975 | $ | 14.26 | $ | 6.75-$25.20 | 6.4 | ||||||||||
The fair value of each option grant is calculated on the date of grant using the
Black-Scholes option pricing model.
15
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 | ||||||||
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
Effective tax rate |
32.6 | % | 28.3 | % |
The effective tax rate is calculated by dividing income tax expense by income after
net income attributable to noncontrolling interest and before income taxes. The effective tax rates presented are
weighted averages of our multiple legal entities with effective income tax rates that differ
from the statutory United States federal income tax rate of 34% due to the impact of state
income taxes. The resulting consolidated effective rate can be significantly different than
the statutory United States federal income tax rate of 34% due to the effect of operating
losses in certain legal entities of the Company being offset by gains in other entities. The
resulting consolidated effective tax rate is not necessarily representative of the effective
tax rate in any of the individual tax entities of the Company. The Company expects to
realize the benefit of current tax losses in future periods and therefore has not
provided an allowance towards these losses. 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, 2004. 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 standard of FASB covering accounting for
uncertainty in income taxes. 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 this standard, we recognized no
additional adjustments in the liability for unrecognized income tax benefits. Additionally,
adoption of this standard resulted in the
reclassification of certain accruals for uncertain tax positions in the amount of $190,000
from current to other long-term expenses.
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the three months ended September 30, 2009, there was no change in our unrecognized
income tax benefits:
Reconciliation of Unrecognized Tax Benefits
(Dollars in thousands)
(Dollars in thousands)
Increases/(Decreases) in Unrecognized | ||||||||||||||||||||||||
Tax Benefits As a Result of | ||||||||||||||||||||||||
Tax Positions from | Lapse in | |||||||||||||||||||||||
July 1, | Prior | Current | Statute of | September 30, | ||||||||||||||||||||
2009 | Periods | Period | Settlements | Limitations | 2009 | |||||||||||||||||||
Reserve for state nexus issues |
$ | 190 | $ | | $ | | $ | | $ | | $ | 190 | ||||||||||||
Valuation allowance for Texas franchise tax refunds |
19 | | | | | 19 | ||||||||||||||||||
State net operating loss and credit carryforwards |
56 | | | 56 | ||||||||||||||||||||
Unrecognized tax benefits |
$ | 265 | $ | | $ | | $ | | $ | | $ | 265 |
During the twelve months ended June 30, 2009 the Company decreased its unrecognized tax
benefits as a result of clarifying certain claims related to Texas franchise tax refunds it
received and closed out. These amounts were partially offset by an increase in unrecognized
tax benefits due to state net operating loss and credit carryforwards.
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 this standard, the Company recognized 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
September 30, 2009.
Note 7 RELATED PARTY TRANSACTIONS
The Company purchases a majority of its outdoor patio furniture for the Mass segment 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 September 30, 2009, the
Company purchased approximately $500,000 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.
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CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In addition, the Company formerly leased approximately 20,000 square feet of office space in
Chicago, Illinois from an affiliate of Henry Crown and Company for $31,935 per month. This
lease covered the former Woodard, LLC Chicago offices and expired on February 28, 2009. The
Company subsequently initiated a new agreement with Henry Crown and Company for 1,989 square
feet that commenced on January 15, 2009 and ended at the end of September 2009. The Company
paid $4,475 per month for this space. The Companys management has determined that the terms of
both agreements represent fair market value.
Effective March 16, 2009, Todd Teiber accepted the position of Senior Vice-President of
Specialty Sales with the Company. The Company acquired Teiber Lighting from Mr. Teiber in 2005,
and Mr. Teiber has been party to a consulting agreement with the Company since that time, for
which Mr. Teiber receives $100,000 per year. Under the terms of the Teiber Lighting
acquisition, Mr. Teibers consulting agreement will end February 28, 2010. Mr. Teiber is also
owner of Teiber Lighting Sales, which provides sales representation to the Company for its
lighting and accessory products in the Specialty segment, in certain geographies. Mr. Teiber is
no longer employed by Teiber Lighting Sales, but retains ownership of the company. Craftmade
paid commissions of $69,000 to Teiber Lighting Sales in the quarter ending September 30, 2009.
Based on an evaluation of similar transactions, the Companys management has determined that
the terms of Mr. Teibers employment as well as the use of Teiber Lighting Sales to represent
Craftmade products both represent fair market value transactions.
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
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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, 2009, filed with the SEC on September 28,
2009. 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, 2009,
as filed with the SEC on September 28, 2009.
The Company assesses the carrying values of goodwill annually as of June 30 or when
circumstances dictate that the carrying value might be impaired. Impairment testing for
goodwill is analyzed at the reporting unit level, which for Craftmade has been defined as
Mass and Specialty. An impairment loss generally would be recognized when the carrying
amount of the reporting units net assets exceeds the estimated fair value of the
reporting unit. In the event that an impairment is determined to have occurred, the
Company will reduce the carrying value of the asset in that period.
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Table of Contents
The estimated fair value of reporting units as of June 30, 2009 was determined using a
combination of the income approach (discounted cash flow or DCF analysis) and the
market approach (application of relevant revenue or income multiples, based on comparable
companies).
The discounted cash flow method calculates the present value of future cash flows of each
reporting unit. In order to determine the present value of these future cash flows for
each reporting unit, it was necessary to forecast future revenues, cost of revenues, other
operating expenses and capital expenditures. Management based these forecasts on current
information and expectations about our operations, activities and strategies, as well as
the impact of the economic environment and actions on our suppliers, customers and
competitors. It should be noted that any such forecasts are subjective and inherently
uncertain. Each DCF was prepared on an invested capital basis. Invested capital refers to
the aggregate of all classes of debt and equity invested in the business. In preparing a
DCF analysis on an invested capital basis, forecasted debt-free cash flow is discounted to
present value at the reporting units respective weighted average cost of capital.
Interest expense is excluded from the forecast as debt-free cash flow represents an
economic benefit that is available to all capital holders of an enterprise. The result of
this analysis is to develop a measure of invested capital value.
The market approach involves gathering information about comparable publicly traded
guideline companies. Guideline companies provide a reasonable basis for comparison to the
relative investment characteristics of the entity being valued. For our analysis, we were
able to select representative publicly traded companies that operate in similar industries
as Craftmade. We analyzed the latest financials and operating statistics of each of these
publicly traded companies. We calculated the high, low, mean, and median for the invested
capital to revenue and the invested capital to EBITDA multiples. From this analysis, we
selected the appropriate multiple and applied it to Craftmades reporting units
associated figure. We then weighted the resulting values based on our assessment of the
credibility and appropriateness of the given multiple, resulting in a market based measure
of invested capital.
We believe that both of these approaches have strengths and drawbacks. The DCF analysis
captures managements best estimates of earnings potential for the Companys reporting
units from a detailed level although numerous educated estimates are required throughout
the process, which come with an inherent level of uncertainty. The market approach
incorporates results of operations for several comparable companies in determining the
revenue and EBITDA multiples applicable, but it can be difficult to find appropriate
comparable companies and this approach ignores specific information about future
strategies and actions that can be explicitly factored into the DCF approach. Our final
valuation took into consideration both approaches, although we placed more weight on the
DCF analysis versus the publicly traded guideline approach. We also applied a working
capital adjustment to the concluded present value of invested capital for each reporting
unit to normalize the surpluses or deficits in working capital at the reporting unit
level.
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In order to assess whether or not goodwill was impaired at the reporting unit level, the
values developed in this process were compared with the book value of total equity of each
reporting unit. If the reporting units fair value of total equity is greater than the
book value of total equity, then goodwill is not impaired and no further undertakings are
required.
The Company will engage in interim testing for goodwill impairment if events or
circumstances
exist that create a significant likelihood that the fair value of a reporting unit has
declined below its carrying amount. In doing so, the Company will follow the guidance
given in the FASB standard on goodwill and other intangible assets, to help determine if
such an event is likely. Based on this guidance the Company does not believe that an event
has occurred since June 30, 2009 that creates a significant likelihood that the fair value
of a reporting unit has declined below its carrying amount, therefore no additional
evaluation has been performed.
Subsequent Events In the preparation of its consolidated financial statements for the
current quarter, the Company considered subsequent events through
November 16, 2009, which
was the date the Companys consolidated financial statements were issued.
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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 September 30, 2009 Compared to Three Months Ended September 30, 2008
An unaudited, condensed overview of results for the three months ended September 30, 2009, and the
corresponding prior year period is summarized as follows:
Summary Income Statement by Segment
(Dollars in thousands)
(Dollars in thousands)
Three Months Ended | Three Months Ended | |||||||||||||||||||||||
September 30, 2009 | September 30, 2008 | |||||||||||||||||||||||
Specialty | Mass | Total | Specialty | Mass | Total | |||||||||||||||||||
Net sales |
$ | 14,394 | $ | 6,654 | $ | 21,048 | $ | 20,471 | $ | 9,694 | $ | 30,165 | ||||||||||||
Cost of goods sold |
(10,284 | ) | (4,947 | ) | (15,231 | ) | (13,814 | ) | (7,881 | ) | (21,695 | ) | ||||||||||||
Gross profit |
4,110 | 1,707 | 5,817 | 6,657 | 1,813 | 8,470 | ||||||||||||||||||
As a % of net sales |
28.6 | % | 25.7 | % | 27.6 | % | 32.5 | % | 18.7 | % | 28.1 | % | ||||||||||||
Selling, general and administrative |
(4,459 | ) | (1,417 | ) | (5,876 | ) | (6,042 | ) | (1,855 | ) | (7,897 | ) | ||||||||||||
As a % of net sales |
31.0 | % | 21.3 | % | 27.9 | % | 29.5 | % | 19.1 | % | 26.2 | % | ||||||||||||
Depreciation and amortization |
(217 | ) | (46 | ) | (263 | ) | (172 | ) | (66 | ) | (238 | ) | ||||||||||||
Total operating expenses |
(4,676 | ) | (1,463 | ) | (6,139 | ) | (6,214 | ) | (1,921 | ) | (8,135 | ) | ||||||||||||
Income (loss) from operations |
$ | (566 | ) | $ | 244 | (322 | ) | $ | 443 | $ | (108 | ) | 335 | |||||||||||
Interest expense, net |
(343 | ) | (359 | ) | ||||||||||||||||||||
Other income |
| 5 | ||||||||||||||||||||||
Loss before income taxes |
(665 | ) | (19 | ) | ||||||||||||||||||||
Income taxes benefit |
288 | 51 | ||||||||||||||||||||||
Net income (loss) |
(377 | ) | 32 | |||||||||||||||||||||
Less: Net
income attributable to noncontrolling interest |
218 | 161 | ||||||||||||||||||||||
Net loss attributable to Craftmade International |
$ | (595 | ) | $ | (129 | ) | ||||||||||||||||||
Net Sales. Net sales for the Company decreased $9,117,000 or 30% to $21,048,000 for the
quarter ended September 30, 2009, from $30,165,000 for the quarter ended September 30, 2008. The
decrease is due to the reduced sales in both Specialty and Mass segments, as a result of the
extreme decline in the housing market and dramatic overall economic downturn experience in the last
year.
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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, particularly in the
Specialty segment which is more closely correlated to new home starts. The Company continues to
pursue its strategic growth plans, while also being highly focused on developing and implementing
more immediate plans to mitigate the impact of the current economic downturn. The Company believes
it is well situated to benefit from an economic recovery, but the timing of such recovery remains
highly uncertain.
Net sales from the Specialty segment decreased $6,077,000 or 30% to $14,394,000 for the quarter
ended September 30, 2009, compared to $20,471,000 for the quarter ended September 30, 2008, as
summarized in the following table.
Net Sales of the Specialty Segment
(Dollars in thousands)
(Dollars in thousands)
Fans | Woodard | |||||||||||
Lighting & | Outdoor | Segment | ||||||||||
Three Months Ended | Accessories | Furniture | Total | |||||||||
September 30, 2009 |
$ | 9,050 | $ | 5,344 | $ | 14,394 | ||||||
September 30, 2008 |
12,359 | 8,112 | 20,471 | |||||||||
Dollar increase (decrease) |
$ | (3,309 | ) | $ | (2,768 | ) | $ | (6,077 | ) | |||
Percent increase (decrease) |
(27 | %) | (34 | %) | (30 | %) |
Sales of fans, lighting related products and outdoor furniture continue to be affected by the
extremely weak overall housing market, a difficult credit environment and reduced consumer
spending. 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.
Net sales of the Mass segment decreased $3,040,000 or 31% to $6,654,000 for the quarter ended
September 30, 2009, from $9,694,000 for the quarter ended September 30, 2008, as summarized in the
following table:
Net Sales of Mass Segment
(Dollars in thousands)
(Dollars in thousands)
Fans | Woodard | |||||||||||
Lighting & | Outdoor | Segment | ||||||||||
Three Months Ended | Accessories | Furniture | Total | |||||||||
September 30, 2009 |
$ | 5,444 | $ | 1,210 | $ | 6,654 | ||||||
September 30, 2008 |
7,359 | 2,335 | 9,694 | |||||||||
Dollar increase (decrease) |
$ | (1,915 | ) | $ | (1,125 | ) | $ | (3,040 | ) | |||
Percent increase (decrease) |
(26 | %) | (48 | %) | (31 | %) |
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Sales of lighting products and fan and lamp accessories to the Mass segment are primarily from the
Companys TSI and Design Trends subsidiaries, both of which experienced declines in the quarter
ended September 30, 2009. The decrease in net sales of lighting and accessories was primarily the
result of: (i) a decline in orders from Lowes related to indoor lighting; (ii) lower sales of
non-core drop shipped products; and (iii) lower sales of fan accessories.
The decline in lighting net sales was primarily due to reduced retail sales of the mix and match
portable lamp program through Lowes. Currently, Design Trends supplies mix and match portable
lamps to all 13 Lowes regional distribution centers.
Woodard sales were primarily composed of direct import sales to its various mass merchant
customers. Most of its products are shipped directly from China. Due to the seasonal nature of
outdoor furniture sales, most sales to mass merchants occur from January to April each year.
Management believes that sales to Lowes will increase in the coming fiscal year. Based on various
line reviews, management believes that it will continue to be a primary vendor for Lowes mix and
match portable lamps through Design Trends, and for Lowes lamp accessory/ceiling medallion
programs through PHI, although based on feedback from Lowes the Company expects to see a reduction
in the number of fan accessory SKUs it provides. Based on the number of outdoor furniture SKUs the
Company has placed with Lowes for the upcoming year, the Company expects to see sales growth in
this segment.
The Company believes that it will continue to be invited to participate in each of Lowes scheduled
line reviews for its existing and new product lines. The line reviews occur on approximately 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 either subsidiarys existing SKUs in the product lines currently offered
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 0.5% to 27.6% for
the quarter ended September 30, 2009, from 28.1% for the quarter ended September 30, 2008,
primarily due to a decrease in margins in the Specialty segment, which was partially offset by
increased margins in Mass, driven by margin improvements in lighting.
Gross profit as a percentage of net sales of the Specialty segment decreased 3.9% to 28.6% for the
quarter ended September 30, 2009, from 32.5% in the quarter ended September 30, 2008. The decrease
is summarized in the following table.
Gross Profit as a Percentage of Net Sales of Specialty Segment
Fans | Woodard | |||||||||||
Lighting & | Outdoor | Segment | ||||||||||
Three Months Ended | Accessories | Furniture | Total | |||||||||
September 30, 2009 |
32.4 | % | 22.1 | % | 28.6 | % | ||||||
September 30, 2008 |
34.0 | % | 30.3 | % | 32.5 | % | ||||||
Percent increase (decrease) |
(1.6 | %) | (8.2 | %) | (3.9 | %) | ||||||
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The gross margin for ceiling fans and lighting was down slightly due to sales mix, while
outdoor furniture margins saw a decrease due to inefficiencies created by lower utilization of
production facilities, and higher than average returns and allowances.
Gross profit as a percentage of net sales of the Mass segment increased 7.0% to 25.7% of net sales
for the quarter ended September 30, 2009, from 18.7% 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 | |||||||||
September 30, 2009 |
31.0 | % | 1.7 | % | 25.7 | % | ||||||
September 30, 2008 |
23.2 | % | 4.6 | % | 18.7 | % | ||||||
Percent increase (decrease) |
7.8 | % | (2.9 | %) | 7.0 | % | ||||||
Gross profit as a percentage of net sales for lighting and accessories in the Mass segment
increased partially due to some reduction in costs experienced in our Design Trends subsidiary, as
well as product mix shift driven by reduced sales in some lower margin items. 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. Current quarter margins were exceptionally low due to high freight costs
experience on a low sales base, given that the current quarter represents the off-season for Mass
furniture sales.
Selling, General and Administrative Expenses. Total selling, general and administrative (SG&A)
expenses of the Company decreased $2,021,000 to $5,876,000 or 27.9% of net sales for the quarter
ended September 30, 2009, from $7,897,000 or 26.2% of net sales for the same period last year.
Total Company
Selling, General and Administrative Expenses
(Dollars in thousands)
Selling, General and Administrative Expenses
(Dollars in thousands)
Increase/ | ||||||||||||
Three Months Ended | (Decrease) | |||||||||||
September 30, | September 30, | Over Prior | ||||||||||
2009 | 2008 | Year Period | ||||||||||
Salaries and wages |
$ | 1,959 | $ | 2,482 | (523 | ) | ||||||
Advertising |
532 | 865 | $ | (333 | ) | |||||||
Commissions |
905 | 1,164 | (259 | ) | ||||||||
Accounting, legal and consulting |
381 | 629 | (248 | ) | ||||||||
Health Insurance |
182 | 343 | (161 | ) | ||||||||
Contract labor |
150 | 311 | (161 | ) | ||||||||
Travel |
119 | 274 | (155 | ) | ||||||||
Bank Charges |
216 | 91 | 125 | |||||||||
Other |
1,432 | 1,738 | (306 | ) | ||||||||
$ | 5,876 | $ | 7,897 | $ | (2,021 | ) | ||||||
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The decrease in expenses was due to significant cost cutting efforts across all categories,
including savings in salaries and wages and contract labor related to headcount reductions, lower
advertising spending, and reductions in travel. The Company also experienced lower commissions due
to reduced sales versus prior year. The Company expects to continue to see significant savings in
SG&A expense versus last year, due to the continuing impact of the extensive cost cutting efforts
noted above.
Additionally, on November 9, 2009 the Company announced its intention to delist its common stock
from the NASDAQ Global Market Nasdaq. The Company also intends to subsequently deregister its
common stock with the SEC and suspend its reporting obligations under the Securities Exchange Act
of 1934, as amended (the Exchange Act). The Company intends to move its common stock listing to
OTCQX, the premier tier of the U.S. over-the-counter market, operated by Pink OTC Markets Inc. In
addition to suspending its reporting requirements under the Exchange Act, if it is successful in
these actions the Company will no longer bear the significant financial burden of complying with
the Sarbanes-Oxley Act of 2002. The Company expects the cumulative impact of these actions to
result in additional savings of $500,000 to $700,000 per year, although given the timing of the
change these savings will not be fully realized in the current fiscal year.
Interest Expense. Net interest expense of the Company decreased $16,000 to $343,000 for the
quarter ended September 30, 2009, from $359,000 for the quarter ended September 30, 2008. This
decrease is primarily due to lower average debt balances than during the same period last year.
Noncontrolling
Interest. Net income attributable to noncontrolling interest increased $57,000 to $218,000 for the
quarter ended September 30, 2009, from $161,000 for the same period in the previous year. The
increase in net income attributable to noncontrolling interest resulted from higher profits at Design Trends as a result of
improved margins.
Provision for Income Taxes. The income tax benefit was $288,000 or 32.6% of loss before income
taxes for the quarter ended September 30, 2009, compared to an income tax benefit of $51,000 or
28.3% of income before income taxes for the quarter ended September 30, 2008. The effective tax
rate is calculated by dividing income tax expense by income after net income attributable to noncontrolling interest and
before income taxes. The effective tax rates presented are weighted averages of our multiple legal
entities with effective income tax rates that differ from the statutory United States federal
income tax rate of 34% due to the impact of state income taxes. The resulting consolidated
effective rate can be significantly different than the statutory United States federal income tax
rate of 34% due to the effect of operating losses in certain legal entities of the Company being
offset by gains in other entities. The resulting consolidated effective tax rate is not necessarily
representative of the effective tax rate in any of the individual tax entities of the Company. See
Note 6 Income Taxes in the notes to the Companys consolidated financial statements for
additional detail regarding the Companys policy for determining the provision for income taxes.
Liquidity and Capital Resources
The Companys cash decreased $258,000 from $384,000 at June 30, 2009 to $126,000 at September 30,
2009. Net cash provided by the Companys operating activities was $2,789,000 for the quarter ended
September 30, 2009, compared to cash used by the Companys operating activities of $1,801,000 for
the same period last year. The increase in cash provided by operating activities was primarily due
to reductions in average working capital over the course of the quarter.
The $268,000 of cash used in investing activities for the quarter ended September 30, 2009 was
related to additional contingent consideration for the acquisition of Marketing Impressions, Inc.,
as well as some incremental tooling for the Owosso, Michigan production facility.
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The $2,779,000 of cash used in financing activities for the quarter ended September 30, 2009
primarily resulted from net payments on the Companys lines of credit. See Long-Term Obligations
for further discussion of the Companys debt facilities.
On July 10, 2009, the Company, together with certain of its direct or indirect subsidiaries (the
Borrowers) entered into a Loan and Security Agreement (the Revolving Loan Agreement) with Bank
of America, N.A. (Bank of America). The Revolving Loan Agreement provides for revolving loans in
an aggregate amount up to $40,000,000 and is secured by substantially all of the Borrowers assets,
excluding its current real estate holdings. The Revolving Loan Agreement will terminate on July 10,
2012. On July 10, 2009 WoodardCM, LLC (Woodard), a wholly-owned subsidiary of Craftmade entered
into a Term Loan Agreement (the Term Loan Agreement) with The Frost National Bank, San Antonio,
Texas (Frost), in conjunction with executing a Term Loan Note (the Frost Note), in the
principal amount of $3,500,000, payable to Frost, secured by Woodards primary manufacturing and
distribution facility located in Owosso, Michigan. The Term Loan Agreement will terminate on July
10, 2012. In the aggregate, the proceeds from the Revolving Loan Agreement and the Term Loan
Agreement were used to pay off amounts owed under the Frost Loan Agreement dated as of December 31,
2007. The Companys management believes that its new line of credit, combined with cash flows from
operations, will be adequate to fund the Companys current operating needs and debt service
payments over the next 12 months.
Management anticipates that future cash flows will be used primarily to retire existing debt, fund
potential acquisitions or other investments that will enhance long-term stockholder value and
distribute earnings to its noncontrolling 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.
Management believes that given the current volatility in the housing and debt markets, it is in the
best interest of long-term stockholder value for management to continue to evaluate selective and
opportunistic acquisitions. Management believes this strategy, if successful, could enhance the
Companys product offerings and potentially enable the Company to expand into adjacent product
categories and sales channels that are less reliant on the overall housing environment. There can
be no assurances, however, that any agreement regarding any such acquisition will be consummated.
Recent Accounting Pronouncements
In June 2009, the FASB issued guidance on the accounting standards codification and the
hierarchy of generally accepted accounting principles. The accounting standards codification is
intended to be the source of authoritative US GAAP and reporting standards as issued by the
Financial Accounting Standards Board (FASB). Its primary purpose is to improve clarity and use
of existing standards by grouping authoritative literature under common topics. This Statement is
effective for financial statements issued for interim and annual periods ending after September 15,
2009. Effective July 1, 2009, the Company will describe the authoritative guidance used within the
footnotes but will cease using numerical references. The accounting standards codification does
not change or alter existing US GAAP, and there is no expected impact on the Companys financial
position, results of operations or cash flows.
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In May 2009, FASB issued a statement covering disclosure of subsequent events. This statement
provides general standards for the accounting and reporting of subsequent events that occur between
the balance
sheet date and issuance of financial statements. This statement requires the issuer to recognize
the effects, if material, of subsequent events in the financial statements if the subsequent event
provides additional evidence about conditions that existed as of the balance sheet date. The issuer
must also disclose the date through which subsequent events have been evaluated and the nature of
any nonrecognized subsequent events. Nonrecognized subsequent events include events that provide
evidence about conditions that did not exist as of the balance sheet date, but which are of such a
nature that they must be disclosed to keep the financial statements from being misleading. The
statement is effective for financial reporting periods ending after June 15, 2009. The Company
adopted this statement effective June 30, 2009 and has made the appropriate additional disclosures
in its consolidated financial statements. In the preparation of its consolidated financial
statements for the current quarter, the Company considered subsequent
events through November 16,
2009, which was the date the Companys consolidated financial statements were issued.
In June 2009, FASB issued a statement intended to improve financial reporting by enterprises
involved with variable interest entities. This statement addresses (1) the effects on certain
provisions of a previous FASB statement covering consolidation of variable interest entities, as a
result of the elimination of the qualifying special-purpose entity concept, and (2) concern about
the application of certain key provisions of that same statement, including those in which the
accounting and disclosures under the interpretation do not always provide timely and useful
information about an enterprises involvement in a variable interest entity. This statement is
effective as of the beginning of each reporting entitys first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is
in the process of evaluating the impact this statement will have on its consolidated financial
statements.
In December 2007, FASB issued a statement covering noncontrolling interests in consolidated
financial statements. This statement establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement
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. Noncontrolling interest was previously
referred to as minority interest in the Companys financial statements. This statement was
effective for the Company as of July 1, 2009 and is appropriately reflected in the Companys
consolidated financial statements for the three months ended
September 30, 2009.
In September 2006, FASB issued a statement covering fair value measurements. 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. This
statement was effective for the Company as of July 1, 2009 but currently has no impact on the
Companys consolidated financial statements.
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Long-Term Obligations
The Companys long-term obligations are summarized in the following table:
Summary of Long Term Obligations
(Dollars in thousands)
(Dollars in thousands)
Outstanding | ||||||||||||||||
Balance | Current | |||||||||||||||
Commitment | Sept. 30, 2009 | Interest Rate | Maturity | |||||||||||||
Revolving line of credit |
$ | 40,000 | $ | 13,759 | 4.25 | %(1) | July 10, 2012 | |||||||||
Note payable facility, Coppell, TX |
n/a | 10,196 | 6.5 | % | December 10, 2017 | |||||||||||
Note payable facility, Owasso, MI |
n/a | 3,452 | 5.25 | %(2) | July 10, 2012 | |||||||||||
Capital lease obligation |
n/a | 57 | 7.6 | % | November 5, 2010 | |||||||||||
Sub-total |
27,464 | |||||||||||||||
Less: current amounts due |
(826 | ) | ||||||||||||||
Long-term obligations |
$ | 26,638 | ||||||||||||||
(1) | Based on 30 day LIBOR plus applicable margin of 4% | |
(2) | Based on Prime Rate plus applicable margin of 2% |
As of June 30, 2009, the Companys primary revolving line of credit was held by a banking
group led by The Frost National Bank (Frost) and including Whitney National Bank and Commerce
Bank, N.A., under, a Third Amended and Restated Loan Agreement (the Frost Loan Agreement)
signed December 31, 2007 and maturing on December 31, 2009. The Company satisfied all
obligations under the Frost Loan Agreement by repaying all outstanding amounts on July 10, 2009,
and no other fees or payments are due or expected in relation to this agreement, or the related
notes.
On July 10, 2009, Craftmade together with the Borrowers, entered into the Revolving Loan
Agreement with Bank of America. The Revolving Loan Agreement provides for revolving loans in an
aggregate amount up to $40,000,000 and is secured by substantially all of the Borrowers assets,
excluding its current real estate holdings. On July 10, 2009 Woodard entered into the Term Loan
Agreement with Frost, in conjunction with executing the Frost Note, in the principal amount of
$3,500,000, payable to Frost, secured by the Michigan Facility. In the aggregate the proceeds
from the Revolving Loan Agreement and the Term Loan Agreement (together the Loan Agreements),
were used to pay off amounts owed under the Frost Loan Agreement dated as of December 31, 2007.
Loans under the Revolving Loan Agreement may be deemed to be either Base Rate Loans or LIBOR
Rate Loans. Base Rate Loans will bear interest at a per annum rate equal to the greater of (a)
the Prime Rate (as published by Bank of America); (b) the Federal Funds Rate, plus 0.50%; or (c)
30 day London Interbank Offered Rate (LIBOR), plus 1.0%, plus an applicable margin ranging
from 0.75% to 1.25% based on Craftmades cash flow performance as measured by the Fixed Charge
Coverage Ratio (as defined in the Revolving Loan Agreement) for the most recent month. LIBOR
Rate Loans will bear interest at LIBOR for the applicable interest period (30, 60 or 90 days),
plus an applicable margin ranging from 3.00% to 4.00% based on Craftmades cash flow performance
as measured by the Fixed Charge Coverage Ratio (as defined in the Revolving Loan Agreement) for
the most recent month. The maximum amount of loans under the Revolving Loan Agreement will be
determined by a formula (the Borrowing Base) taking into consideration the receivables and
inventory of the Borrowers, net of any reserves put into place by Bank of America. The Revolving
Loan Agreement will terminate on July 10, 2012.
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Pursuant to the Revolving Loan Agreement, the financial covenants required Craftmade to maintain
a Fixed Charge Coverage Ratio of not less than 0.85 for the initial periods, and building to not
less than 1.0 by August, 2009 and thereafter. All wholly-owned domestic subsidiaries of
Craftmade, and Design Trends have agreed to be guarantors of the Revolving Loan Agreement (the
Guarantors). Should Craftmade achieve and maintain a minimum of $6,000,000 of availability
(calculated as the Borrowing Base minus the principal balance of all loans) for 60 days, the
Fixed Charge Coverage Ratio shall not be tested until such time as availability drops below
$6,000,000. At September 30, 2009 the Company had $4,466,000 of borrowing availability as
determined by the Borrowing Base formula, and is in compliance with its covenants.
The Frost Note bears a floating interest rate based on Prime Rate (as published in the Wall
Street Journal) plus 2.0% per annum. Pursuant to the Frost Note, Woodard has agreed to pay equal
monthly payments of principal and interest based on a 10-year amortization schedule, with the
unpaid principal and interest payable on July 10, 2012. As security for the payment and
performance of the Frost Note, Woodard granted a mortgage lien to Frost in the Michigan Facility
located at 210 S. Delaney Road, Owosso, Michigan, which Woodard acquired as part of the
acquisition of substantially all of the net assets of Woodard, LLC. On the Closing Date,
Craftmade and certain of its direct and indirect subsidiaries entered into guaranty agreements
with Frost pursuant to which such entities agreed to guarantee payment and performance of the
Note by Woodard.
Further information regarding the Revolving Loan Agreement and the Frost Note is detailed in the
Companys Current Report on Form 8-K filed with the SEC on July 16, 2009.
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 Current Report on Form 8-K filed with the SEC on November 20, 2007.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market risks at September 30, 2009 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, 2009, as
filed with the SEC on September 28, 2009.
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 Securities Exchange Act of 1934, as
amended (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.
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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.
PART II
OTHER INFORMATION
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 |
There have been no material changes in the Companys risk factors since those published in
the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2009, as filed
with the SEC on September 28, 2009.
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 |
Not Applicable
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Item 5. | Other Information |
On November 9, 2009, the Board of Directors of the Company, unanimously voted to
voluntarily delist the Companys Common Stock, from Nasdaq and subsequently to voluntarily
terminate the registration of the Common Stock under the Securities Exchange Act of 1934,
as
amended (the Exchange Act). In connection therewith, the Company notified Nasdaq on
November 9, 2009, of the Companys intention to file a Form 25 with the SEC on or about
November 19, 2009. The Company anticipates that the Form 25 will become effective 10 days
following its filing, or approximately November 29, 2009.
Following delisting from Nasdaq, it is anticipated that the Common Stock will be quoted on
OTCQX a centralized electronic quotation service for over-the-counter securities, operated
by Pink OTC Markets, Inc. The Company does not anticipate any difficulties in meeting all
requirements to list its common stock on OTCQX, although there can be no assurances that
it will be able to do so. Upon listing on OTCQX the Company intends to immediately begin
reporting under OTCQX alternate reporting standards, including annual audited financial
statements, unaudited quarterly financial statements and current information. The Company
expects that the Common Stock will continue to trade on OTCQX so long as market makers
demonstrate an interest in trading in the Common Stock.
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Item 6. | Exhibits |
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, 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 the
Companys Form 8-K on September 18, 2006, 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 the Companys Form 8-K on September 18, 2006, 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 the Companys Form 8-K on September 18, 2006, 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 the
Companys Form 8-K on September 18, 2006, 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 the Companys Form 8-K on
September 18, 2006, 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 the Companys Form 8-K on
September 18, 2006, and incorporated by reference herein. |
|||
2.8 | Consulting Agreement by and between Craftmade International, Inc., Trade Source
International, Inc. and Imagine One Resources, LLC, dated September 15, 2006, previously
filed as Exhibit 10.7 to the Companys Form 8-K on September 18, 2006, and incorporated
by reference herein. |
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Exhibit | ||||
Number | Description | |||
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 the
Companys Form 8-K on September 18, 2006, 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 the Companys Form 8-K on September
18, 2006, 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 the Companys Form 8-K on March 7, 2005, 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 the Companys Form 8-K on 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, previously filed as Exhibit 3.1 to the
Companys Form 8-K on June 15, 2009, 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 99.1 to the
Companys Form 8-K on July 9, 1999, and incorporated by reference herein. |
|||
4.3 | Amendment No. 1 to Rights Agreement, dated as of June 9, 2009, between Craftmade
International, Inc. and ComputerShare Trust Company, N.A., as Rights Agent, previously filed
as Exhibit 1(A) to Form 8-A/A on June 15, 2009, and incorporated by reference herein. |
|||
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 the Companys Form 8-K on
November 20, 2007, and incorporated by reference herein. |
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Exhibit | ||||
Number | Description | |||
10.2 | Deed of Trust, Mortgage and Security Agreement by CM Real Estate, LLC, effective November
14, 2007, previously filed as Exhibit 10.2 to the Companys Form 8-K on November 20, 2007,
and incorporated by reference herein. |
|||
10.3 | 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 the
Companys Form 8-K on November 20, 2007, and incorporated by reference herein. |
|||
10.4 | Lease Agreement dated as of November 14, 2007, between CM Real Estate, LLC and Craftmade
International, Inc., previously filed as Exhibit 10.4 to the Companys Form 8-K on November
20, 2007, and incorporated by reference herein. |
|||
10.5 | Loan and Security Agreement dated as of July 8, 2009, among Craftmade International, Inc.
and Bank of America, N.A., previously filed as Exhibit 10.1 to the Companys Form 8-K on July
16, 2009, and incorporated by reference herein. |
|||
10.6 | Term Loan Agreement dated as of July 8, 2009, among Craftmade International, Inc.,
WoodardCM, LLC and The Frost National Bank, previously filed as Exhibit 10.2 to the
Companys Form 8-K on July 16, 2009, and incorporated by reference herein. |
|||
10.7 | Term Loan Note dated July 8, 2009 with the Frost National Bank, previously filed as Exhibit
10.3 to the Companys Form 8-K on July 16, 2009, and incorporated by reference herein. |
|||
10.8 | Mortgage dated as of July 8, 2009 by WoodardCM, LLC for the benefit of the Frost National
Bank, previously filed as Exhibit 10.4 to the Companys Form 8-K on July 16, 2009, and
incorporated by reference herein. |
|||
10.9 | Craftmade International, Inc. 2006 Long-Term Incentive Plan, previously filed as Exhibit
10.1 to the Companys Form 8-K on December 4, 2006, and incorporated by reference herein. |
|||
10.10 | Incentive Stock Option Agreement, previously filed as Exhibit 10.2 to the Companys Form
8-K on December 4, 2006, and incorporated by reference herein. |
|||
10.11 | Non-qualified Stock Option Agreement, previously filed as Exhibit 10.3 to the Companys
Form 8-K on December 4, 2006, and incorporated by reference herein. |
|||
10.12 | Stock Appreciation Rights Agreement, previously filed as Exhibit 10.4 to the Companys
Form 8-K on December 4, 2006, and incorporated by reference herein. |
|||
10.13 | Restricted Stock Award Agreement, previously filed as Exhibit 10.5 to the Companys Form
8-K on December 4, 2006, and incorporated by reference herein. |
|||
31.1 | * | Certification of J. Marcus Scrudder, Chief Executive Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
||
31.2 | * | Certification of C. Brett Burford, Chief Financial Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
||
32.1 | * | Certification of J. Marcus Scrudder, Chief Executive Officer of the Company, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
||
32.2 | * | Certification of C. Brett Burford, Chief Financial Officer of the Company, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Each document marked with an asterisk is filed or furnished herewith. |
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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.
CRAFTMADE INTERNATIONAL, INC. | ||||
(Registrant)
|
||||
Date: November 16, 2009 | /s/ J. Marcus Scrudder | |||
J. MARCUS SCRUDDER | ||||
Chief Executive Officer | ||||
Date: November 16, 2009 | /s/ C. Brett Burford | |||
C. BRETT BURFORD | ||||
Chief Financial Officer |
36